-----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, VIujZ/fzk524JPRplUeTniz9qnZ287Edoann/egjH8Dn1+Pytl5kh7oThC6gNtZh jQ0PyiWl4DNVFaGXz+dk9A== 0000950168-01-500822.txt : 20021127 0000950168-01-500822.hdr.sgml : 20021127 20010731132612 ACCESSION NUMBER: 0000950168-01-500822 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 22 FILED AS OF DATE: 20010731 EFFECTIVENESS DATE: 20010731 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONS FUNDS TRUST CENTRAL INDEX KEY: 0001097519 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-09645 FILM NUMBER: 01693662 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 FUNDS TRUST CENTRAL INDEX KEY: 0001097519 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 333-89661 FILM NUMBER: 01693661 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 485BPOS 1 form485bpos_87612.txt NATIONS FUNDS TRUST As filed with the Securities and Exchange Commission on July 31, 2001 Registration No. 333-89661; 811-09645 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A* REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ] Post-Effective Amendment No. 11 [X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ] Amendment No. 12 [X] (Check appropriate box or boxes) ----------------------- NATIONS FUNDS TRUST (Exact Name of Registrant as specified in Charter) 111 Center Street Little Rock, Arkansas 72201 (Address of Principal Executive Offices, including Zip Code) -------------------------- Registrant's Telephone Number, including Area Code: (800) 321-7854 Richard H. Blank, Jr. c/o Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 (Name and Address of Agent for Service) With copies to: Robert M. Kurucza, Esq. Carl Frischling, Esq. Marco E. Adelfio, Esq. Kramer, Levin, Naftalis Morrison & Foerster LLP & Frankel 2000 Pennsylvania Ave., N.W. 919 3rd Avenue Suite 5500 New York, New York 10022 Washington, D.C. 20006 It is proposed that this filing will become effective (check appropriate box): [X] Immediately upon filing pursuant [ ] on July 19, 2000 pursuant to Rule 485(b), or to Rule 485(b), or [ ] 60 days after filing pursuant [ ] on (date) pursuant to Rule 485(a), or to Rule 485(a). [ ] 75 days after filing pursuant to [ ] on (date) pursuant to paragraph (a)(2)* paragraph(a)(2) of Rule 485 If appropriate, check the following box: [ ] this post-effective amendment designates a new effective date for a previously filed post-effective amendment. *This post-effective amendment is being executed by the Trustees and principal officers of Nations Master Investment Trust. EXPLANATORY NOTE The Registrant is filing this Post-Effective Amendment No. 11 to the Registration Statement of Nations Funds Trust (the "Trust") in order to provide updated financial information for the Trust's Funds and to effect certain non-material changes. NATIONS FUNDS TRUST CROSS REFERENCE SHEET
Part A Item No. Prospectus - -------- ---------- 1. Front and Back Cover Pages ................................. Front and Back Cover Pages 2. Risk/Return Summary: Investments, Risks and Performance............................................. About this Prospectus 3. Risk/Return Summary: Fee Tables............................. About the Funds; Financial Highlights 4. Investment Objectives, Principal Investment Strategies, and Related Risks.................... About the Funds; Other Important Information 5. Management's Discussion of Fund Performance................................................. About the Funds 6. Management, Organization, and Capital Structure........................................... What's Inside; About the Funds; How the Funds Are Managed; About your Investment 7. Shareholder Information..................................... About the Funds; About your Investment 8. Distribution Arrangements................................... Information for Investors 9. Financial Highlights Information............................ Financial Highlights; About the Funds Part B Item No. - -------- 10. Cover Page and Table of Contents............................ Cover Page and Table of Contents 11. Fund History................................................ Introduction
12. Description of the Fund and Its Investments and Risks....................................... Additional Information on Portfolio Investments 13. Management of the Funds..................................... Trustees And Officers; Investment Advisory, Administration, Custody Transfer Agency, Shareholder Servicing and Distribution Agreements 14. Control Persons and Principal Holders of Securities....................................... Not Applicable 15. Investment Advisory and Other Services...................... Investment Advisory, Administration, Custody, Transfer Agency, Shareholder Servicing And Distribution Agreements 16. Brokerage Allocation and Other Practices.................... Portfolio Transactions and Brokerage--General Brokerage Policy 17. Capital Stock and Other Securities.................................................. Description Of Shares; Investment Advisory, Administration, Custody, Transfer Custody, Transfer Agency, Shareholder Servicing And Distribution Agreements 18. Purchase, Redemption and Pricing of Shares................................................... Net Asset Value -- Purchases And Redemptions; Distributor 19. Taxation of the Fund........................................ Additional Information Concerning Taxes 20. Underwriters................................................ Investment Advisory, Administration Custody, Transfer Agency Shareholder Servicing And Distribution Agreements; Distributor 21. Calculation of Performance Data............................. Additional Information on Performance 22. Financial Statements........................................ Independent Accountant and Reports
[GRAPHIC] Prospectus Primary A Shares August 1, 2001 Stock Funds Nations Convertible Securities Fund Nations Asset Allocation Fund Nations Equity Income Fund Nations Classic Value Fund Nations Value Fund Nations Blue Chip Fund Nations Strategic Growth Fund Nations Marsico Growth & Income Fund Nations Capital Growth Fund Nations Aggressive Growth Fund Nations Marsico Focused Equities Fund Nations MidCap Growth Fund Nations Marsico 21st Century Fund Nations Small Company Fund Nations Financial Services Fund International/Global Stock Funds Nations Global Value Fund Nations International Value Fund Nations International Equity Fund Nations Marsico International Opportunities Fund Nations Emerging Markets Fund Index Funds Nations LargeCap Index Fund Nations MidCap Index Fund Nations SmallCap Index Fund Nations Managed Index Fund Government & Corporate Bond Funds Nations Short-Term Income Fund Nations Short-Intermediate Government Fund Nations Government Securities Fund Nations Intermediate Bond Fund Nations Bond Fund Nations Strategic Income Fund Nations High Yield Bond Fund Municipal Bond Funds Nations Short-Term Municipal Income Fund Nations Intermediate Municipal Bond Fund Nations Municipal Income Fund The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. - ----------------- Not FDIC Insured - ----------------- May Lose Value - ----------------- No Bank Guarantee - ----------------- [NATIONS FUNDS LOGO] An overview of the Funds - -------------------------------------------------------------------------------- [GRAPHIC] Terms used in this prospectus In this prospectus, we, us and our refer to the Nations Funds family (Nations Funds or Nations Funds Family). Some other important terms we've used may be new to you. These are printed in italics where they first appear in a section and are described in Terms used in this prospectus. [GRAPHIC] You'll find Terms used in this prospectus on page 180. Your investment in these Funds is not a bank deposit and is not insured or guaranteed by Bank of America, N. A. (Bank of America), the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Your investment may lose money. Affiliates of Bank of America are paid for the services they provide to the Funds. This booklet, which is called a prospectus, tells you about Nations Funds Stock, International/Global Stock, Index, Government & Corporate Bond and Municipal Bond Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. About the Funds Each type of Fund has a different investment focus: o Stock Funds invest primarily in equity securities of U.S. companies. Within the Stock Funds category is Nations Asset Allocation Fund. This Fund invests in a mix of equity and fixed income securities, as well as money market instruments. o International Stock Funds invest primarily in equity securities of companies outside the U.S. o The Global Stock Fund invests primarily in equity securities of U.S. and non-U.S. companies. o Index Funds focus on long-term growth. Except for Nations Managed Index Fund, they all seek to match the industry and risk characteristics of a specific stock market index, like the S&P 500, by investing primarily in the equity securities that are included in the index. While maintaining the characteristics of the index, Nations Managed Index Fund varies the number, type and weighting of its holdings from those of the index to try to provide higher returns. o Government & Corporate Bond Funds focus on the potential to earn income by investing primarily in fixed income securities. o Municipal Bond Funds focus on the potential to earn income that is generally free from federal income tax by investing primarily in municipal securities. The Funds also have different risk/return characteristics because they invest in different kinds of securities. Equity securities have the potential to provide you with higher returns than many other kinds of investments, but they also tend to have the highest risk. Foreign securities also involve special risks not associated with investing in the U.S. stock market, which you need to be aware of before you invest. Fixed income securities and municipal securities have the potential to increase in value because when interest rates fall, the value of these securities tends to rise. When interest rates rise, however, the value of these securities tends to fall. Other things can also affect the value of fixed income securities and municipal securities. In every case, there's a risk that you'll lose money or you may not earn as much as you expect. 2 Choosing the right Funds for you Not every Fund is right for every investor. When you're choosing a Fund to invest in, you should consider things like your investment goals, how much risk you can accept and how long you're planning to hold your investment. The Stock, International/Global Stock and Index Funds all focus on long-term growth. They may be suitable for you if: o you have longer-term investment goals o they're part of a balanced portfolio o you want to try to protect your portfolio against a loss of buying power that inflation can cause over time They may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with equity securities, including foreign securities o you have short-term investment goals o you're looking for a regular stream of income The Government & Corporate Bond and Municipal Bond Funds focus on the potential to earn income. They may be suitable for you if: o you're looking for income o you have longer-term investment goals The Municipal Bond Funds may be suitable if you also want to reduce taxes on your investment income. The Government & Corporate Bond and Municipal Bond Funds may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with fixed income securities You'll find a discussion of each Fund's principal investments, strategies and risks in the Fund descriptions that start on page 7. For more information If you have any questions about the Funds, please call us at 1.800.321.7854 or contact your investment professional. You'll find more information about the Funds in the Statement of Additional Information (SAI). The SAI includes more detailed information about each Fund's investments, policies, performance and management, among other things. Please turn to the back cover to find out how you can get a copy. 3 What's inside - -------------------------------------------------------------------------------- [GRAPHIC] Banc of America Advisors, LLC Banc of America Advisors, LLC (BA Advisors) is the investment adviser to each of the Funds. BA Advisors is responsible for the overall management and supervision of the investment management of each Fund. BA Advisors and Nations Funds have engaged sub-advisers, which are responsible for the day-to-day investment decisions for each of the Funds. [GRAPHIC] You'll find more about BA Advisors and the sub-advisers starting on page 143. [GRAPHIC] About the Funds Nations Convertible Securities Fund 7 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- Nations Asset Allocation Fund 11 Sub-advisers: Banc of America Capital Management, LLC and Chicago Equity Partners, LLC - ----------------------------------------------------------------------- Nations Equity Income Fund 16 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- Nations Classic Value Fund 20 Sub-adviser: Brandes Investment Partners, L.P. - ----------------------------------------------------------------------- Nations Value Fund 23 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- Nations Blue Chip Fund 27 Sub-adviser: Chicago Equity Partners, LLC - ----------------------------------------------------------------------- Nations Strategic Growth Fund 31 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- Nations Marsico Growth & Income Fund 35 Sub-adviser: Marsico Capital Management, LLC - ----------------------------------------------------------------------- Nations Capital Growth Fund 39 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- Nations Aggressive Growth Fund 43 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- Nations Marsico Focused Equities Fund 47 Sub-adviser: Marsico Capital Management, LLC - ----------------------------------------------------------------------- Nations MidCap Growth Fund 51 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- Nations Marsico 21st Century Fund 55 Sub-adviser: Marsico Capital Management, LLC - ----------------------------------------------------------------------- Nations Small Company Fund 58 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- Nations Financial Services Fund 62 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- 4 Nations Global Value Fund 65 Sub-adviser: Brandes Investment Partners, L.P. - ----------------------------------------------------------------------- Nations International Value Fund 68 Sub-adviser: Brandes Investment Partners, L.P. - ----------------------------------------------------------------------- Nations International Equity Fund 72 Sub-advisers: Gartmore Global Partners, INVESCO Global Asset Management (N.A.), Inc. and Putnam Investment Management LLC - ----------------------------------------------------------------------- Nations Marsico International Opportunities Fund 76 Sub-adviser: Marsico Capital Management, LLC - ----------------------------------------------------------------------- Nations Emerging Markets Fund 79 Sub-adviser: Gartmore Global Partners - ----------------------------------------------------------------------- Nations LargeCap Index Fund 83 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- Nations MidCap Index Fund 87 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- Nations SmallCap Index Fund 90 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- Nations Managed Index Fund 94 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- Nations Short-Term Income Fund 98 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- Nations Short-Intermediate Government Fund 102 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- Nations Government Securities Fund 106 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- Nations Intermediate Bond Fund 111 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- Nations Bond Fund 116 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- Nations Strategic Income Fund 121 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- Nations High Yield Bond Fund 126 Sub-adviser: MacKay Shields LLC - ----------------------------------------------------------------------- 5 Nations Short-Term Municipal Income Fund 129 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- Nations Intermediate Municipal Bond Fund 133 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- Nations Municipal Income Fund 137 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------------------- Other important information 141 - ----------------------------------------------------------------------- How the Funds are managed 143 [GRAPHIC] About your investment Information for investors Buying, selling and exchanging shares 156 Distributions and taxes 159 - ----------------------------------------------------------------------- Financial highlights 163 - ----------------------------------------------------------------------- Terms used in this prospectus 180 - ----------------------------------------------------------------------- Where to find more information back cover 6 [GRAPHIC] About the sub-adviser Banc of America Capital Management, LLC (BACAP) is this Fund's sub-adviser. BACAP's Income Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] What are convertible securities? Convertible securities, which include convertible bonds and convertible preferred stocks, can be exchanged for common stock at a specified rate. The common stock it converts to is called the "underlying" common stock. Convertible securities typically: o have higher income potential than the underlying common stock o are affected less by changes in the stock market than the underlying common stock o have the potential to increase in value if the value of the underlying common stock increases Nations Convertible Securities Fund [GRAPHIC] 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. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in convertible securities mostly issued by U.S. issuers. The Fund may invest up to 15% of its assets in Eurodollar convertible securities. Most convertible securities are not investment grade. The team generally chooses convertible securities that are rated at least "B" by a nationally recognized statistical rating organization (NRSRO). The team may choose unrated securities if it believes they are of comparable quality at the time of investment. The Fund may invest directly in equity securities. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team looks for opportunities to participate in the growth potential of the underlying common stocks, while earning income that is generally higher than the income these stocks earn. When identifying individual investments, the team evaluates a number of factors, including: o the issuer's financial strength and revenue outlook o earnings trends, including changes in earnings estimates o the security's conversion feature and other characteristics The team tries to limit conversion costs and generally sells securities when they take on the trading characteristics of the underlying common stock. The team also may convert securities to common shares when it believes it's appropriate to do so. 7 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Convertible Securities Fund has the following risks: o Investment strategy risk - The team chooses convertible securities that it believes have the potential for long-term growth. There is a risk that the value of these investments will not rise as high as the team expects, or will fall. The issuer of a convertible security may have the option to redeem it at a specified price. If a convertible security is redeemed, the Fund may accept the redemption, convert the convertible security to common stock, or sell the convertible security to a third party. Any of these transactions could affect the Fund's ability to meet its objective. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Interest rate risk - The prices of the Fund's fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Fixed income securities with the lowest investment grade rating or that aren't investment grade are more speculative in nature than securities with higher ratings, and they tend to be more sensitive to credit risk, particularly during a downturn in the economy. 8 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WTIH THE FOLLOWING PLOT POINTS] 2000 15.21% *Year-to-date return as of June 30, 2001: -5.26% Best and worst quarterly returns during this period Best: 1st quarter 2000: 13.55% Worst: 2nd quarter 2000: -3.46% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the CSFB Convertible Securities Index, a widely-used unmanaged index that measures the performance of convertible securities. The index is not available for investment. 1 year Since inception* Primary A Shares 15.21% 21.64% CSFB Convertible Securities Index -7.83% 13.64% * The inception date of Primary A Shares is May 21, 1999. The return for the index shown is from that date. 9 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.65% Other expenses 0.35% ---- Total annual Fund operating expenses 1.00% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $102 $318 $552 $1,225 10 [GRAPHIC] About the sub-advisers This Fund is managed by two sub-advisers: BACAP and Chicago Equity Partners, LLC (Chicago Equity). Chicago Equity's Equity Management Team makes the day-to-day investment decisions for the equity Fund. BACAP's Fixed Income Management Team makes the day-to-day portion of the investment decisions for the fixed income and money market portions of the Fund. [GRAPHIC] You'll find more about BACAP and Chicago Equity, starting on page 146. [GRAPHIC] What is an asset allocation fund? This asset allocation fund invests in a mix of equity and fixed income securities, and cash equivalents. Each of these "asset classes" has different risk/return characteristics. The portfolio management team changes the mix based on its assessment of the expected risks and returns of each class. Asset allocation funds like this one can provide a diversified asset mix for you in a single investment. Nations Asset Allocation Fund [GRAPHIC] Investment objective The Fund seeks to obtain long-term growth from capital appreciation, and dividend and interest income. [GRAPHIC] Principal investment strategies The Fund invests in a mix of equity and fixed income securities, as well as cash equivalents, including U.S. government obligations, commercial paper and other short-term, interest-bearing instruments. The equity securities the Fund invests in are primarily common stock of blue chip companies. These companies are well established, nationally known companies that have a long record of profitability and a reputation for quality management, products and services. The fixed income securities the Fund invests in are primarily investment grade bonds and notes; however, the Fund may invest up to 10% of its total assets in high yield debt securities. The Fund normally invests at least 25% of its assets in senior securities. The Fund may also invest up to 35% of its assets in mortgage-backed and asset-backed securities. In the fixed income portion of its portfolio, the Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options, and other derivative instruments to seek to enhance returns, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team uses asset allocation as its principal investment approach. The team actively allocates assets among the three asset classes based on its assessment of the expected risks and returns of each class. For the equity portion of the Fund, the team uses quantitative analysis to analyze fundamental information about securities and identify value. Starting with a universe of approximately 2,000 common stocks, the team uses a multi-factor computer model to rank securities, based on the following criteria, among others: o changes in actual and expected earnings o unexpected changes in earnings o price-to-earnings ratio o dividend discount model o price-to-cash flow The team tries to manage risk by matching the market capitalization, style and industry weighting characteristics of the S&P SuperComposite 1500. The team focuses on selecting individual stocks to try to provide higher returns than the S&P 500 while maintaining a level of risk similar to the index. The team may sell a security when the Fund's asset allocation changes, there is a deterioration in the issuer's financial situation, when the team believes other investments are more attractive, and for other reasons. 11 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Asset Allocation Fund has the following risks: o Investment strategy risk - The team uses an asset allocation strategy to try to achieve the highest total return. There is a risk that the mix of investments will not produce the returns the team expects, or will fall in value. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Interest rate risk - The prices of the Fund's fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. 12 o Mortgage-related risk - The value of the Fund's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Fund may have to reinvest this money in mortgage-backed or other securities that have lower yields. o Asset-backed securities risk - Payment of interest and repayment of principal may be impacted by the cash flows generated by the assets backing these securities. The value of the Fund's asset-backed securities may also be affected by changes in interest rates, the availability of information concerning the interests in and structure of the pools of purchase contracts, financing leases or sales agreements that are represented by these securities, the creditworthiness of the servicing agent for the pool, the originator of the loans or receivables, or the entities that provide any supporting letters of credit, surety bonds, or other credit enhancements. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 13 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. The information about the performance for the period prior to June 8, 2001, reflects performance information for a predecessor fund which was reorganized into the Fund on June 8, 2001. The predecessor fund had an identical investment objective and principal investment strategies. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 2000 -0.50% *Year-to-date return as of June 30, 2001: -3.81% Best and worst quarterly returns during this period Best: 1st quarter 2000: 2.35% Worst: 4th quarter 2000: -4.18% [GRAPHIC] The returns shown for the indices do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500 and the Lehman Aggregate Bond Index. The S&P 500 is an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The Lehman Aggregate Bond Index is an index made up of the Lehman Government/Corporate Bond Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. The indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. The indices are not available for investment. Since 1 year inception* Primary A Shares -0.50% 4.76% S&P 500 -9.10% 2.09% Lehman Aggregate Bond Index 11.63% 7.35% *The inception date of Primary A Shares is May 21, 1999. The returns for the indices shown are from that date. 14 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.65% Other expenses 0.35% ---- Total annual Fund operating expenses 1.00% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $102 $318 $552 $1,225 15 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Income Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] Why invest in an equity income fund? Equity income funds are generally considered to be a more conservative equity investment because they invest in large, well-established companies that pay regular dividends. These companies tend to be less volatile than other kinds of companies. Nations Equity Income Fund [GRAPHIC] Investment objective The Fund seeks current income and growth of capital by investing in companies with above-average dividend yields. [GRAPHIC] Principal investment strategies The Fund normally invests in 60 to 85 companies with an average market capitalization of at least $3 billion. The Fund seeks to provide a higher yield than the S&P 500. The Fund generally invests at least 65% of its assets in common stocks that pay dividends and that are listed on a national exchange or are traded on an established over-the-counter market. The Fund may invest up to 20% of its assets in convertible securities, including registered investment companies that invest in convertible securities. The Fund may also invest up to 5% of its assets in real estate investment trusts. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team evaluates the overall economy, industry conditions and the financial conditions and management of each company, using a process called fundamental analysis, to identify stocks of attractive companies. When selecting investments, the team looks at, among other things: o value characteristics like earnings yield and cash flow o growth potential for a company's stock price and earnings o current income yield and the potential for growth in income The team may use various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: o may limit the number of buy and sell transactions it makes o will try to sell shares that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when its price reaches the target set by the team, when there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, and for other reasons. 16 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Equity Income Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have the potential for dividend growth and capital appreciation. There is a risk that dividend payments and the value of these investments will not rise as high as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Real estate investment trust risk - Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry. o Convertible securities risk - The issuer of a convertible security may have the option to redeem it at a specified price. If a convertible security is redeemed, the Fund may accept the redemption, convert the convertible security to common stock, or sell the convertible security to a third party. Any of these transactions could affect the Fund's ability to meet its objective. o Investment in other Nations Funds - The Fund may pursue its convertible securities strategy by investing in Nations Convertible Securities Fund, rather than directly in convertible securities. BA Advisors and its affiliates are entitled to receive fees from Nations Convertible Securities Fund for providing advisory and other services, in addition to the fees which they are entitled to receive from Nations Equity Income Fund for services provided directly. BA Advisors and its affiliates may waive fees which they are entitled to receive from either Fund. 17 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1992 1993 1994 1995 1996 1997 1998 1999 2000 10.20% 12.66% -0.99% 27.60% 19.93% 26.13% 3.73% 2.90% -10.77% *Year-to-date return as of June 30, 2001: -6.04% Best and worst quarterly returns during this period Best: 4th quarter 1998: 14.21% Worst: 3rd quarter 1998: -14.44% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment. Since 1 year 5 years inception* Primary A Shares -10.77% 7.57% 10.28% S&P 500 -9.10% 18.33% 16.30% *The inception date of Primary A Shares is April 11, 1991. The return for the index shown is from that date. 18 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.65% Other expenses 0.31% ---- Total annual Fund operating expenses 0.96% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $98 $306 $531 $1,178 19 [GRAPHIC] About the sub-adviser Brandes Investment Partners, L.P. (Brandes) is this Fund's sub-adviser. Brandes' Large Cap Investment Committee makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about Brandes on page 149. [GRAPHIC] What is the Graham and Dodd approach to investing? Benjamin Graham is widely regarded as the founder of this classic value approach to investing and a pioneer in modern security analysis. In his 1934 book, Security Analysis, co-written by David Dodd, Graham introduced the idea that stocks should be chosen by identifying the "true" long-term -- or intrinsic -- value of a company based on measurable data. Benjamin Graham and David Dodd have never had any affiliation with the Fund. The management team follows this approach, looking at each stock as though it's a business that's for sale. By buying stocks at what it believes are favorable prices, the team looks for the potential for appreciation over the business cycle, and for a margin of safety against price declines. Nations Classic Value Fund [GRAPHIC] Investment objective The Fund seeks growth of capital by investing in companies believed to be undervalued. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in equity securities of U.S. companies that are believed to be undervalued. The Fund focuses its investments in large and medium-sized companies. The Fund generally holds 40 to 75 equity securities. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The management team uses the "Graham and Dodd" value approach to selecting securities and managing the Fund. The team invests in a company when its current price appears to be below its "true" long-term -- or intrinsic -- value. The team uses fundamental analysis to determine intrinsic value, and will look at a company's earnings, book value, cash flow, capital structure, and management record, as well as its industry and its position in the industry. This analysis includes a review of company reports, filings with the SEC, computer databases, industry publications, general and business publications, brokerage firm research reports and other information sources, as well as interviews with company management. The team may sell a security when its price reaches the target set by the team, when there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, and for other reasons. 20 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Limits on investments To help manage risk, the Fund has certain limits on its investments. These limits apply at the time an investment is made: o The Fund will normally invest no more than 5% of its assets in a single security. o It may not invest more than the greater of: o 20% of its assets in a single industry, or o 150% of the weighting of a single industry in the S&P 500 (limited to less than 25% of its assets in a single industry, other than U.S. government securities). [GRAPHIC] Risks and other things to consider Nations Classic Value Fund has the following risks: o Investment strategy risk - The team chooses stocks it believes are undervalued or out of favor with the expectation that these stocks will eventually rise in value. There is a risk that the value of these investments will not rise as high or as quickly as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. [GRAPHIC] For information about the performance of other stock accounts managed by Brandes, see How the Funds are managed. [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. 21 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses (Expenses that are deducted from the Fund's assets) Management fees 0.65% Other expenses(1) 0.48% ---- Total annual Fund operating expenses(2) 1.13% ==== (1)Other expenses are based on estimates for the current fiscal year. (2)The Fund's investment adviser and/or some of its other service providers have agreed to limit total annual operating expenses to the level shown above until July 31, 2002. There is no guarantee that this limitation will continue after this date. The investment adviser is entitled to reimbursement from the Fund of any fees waived or expenses reimbursed under this agreement if such reimbursements do not cause the Fund's total expenses to exceed existing expense limitations. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years Primary A Shares $115 $359 22 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Value Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] What is value investing? Value investing means looking for "undervalued" companies -- quality companies that may be currently out of favor and selling at a reduced price, but that have good potential to increase in value. The team uses fundamental and quantitative analysis to help decide whether the current stock price of a company may be lower than the company's true value, and then looks for things that could trigger a rise in price, like a new product line, new pricing or a change in management. This trigger is often called a "catalyst." Nations Value Fund [GRAPHIC] Investment objective The Fund seeks growth of capital by investing in companies that are believed to be undervalued. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in common stocks of U.S. companies. It generally invests in companies in a broad range of industries with market capitalizations of at least $1 billion and daily trading volumes of at least $3 million. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The management team uses fundamental and quantitative analysis to identify stocks of companies that it believes are undervalued and have the potential for price appreciation, looking at, among other things: o mature, fundamentally sound businesses that are believed to be attractively priced due to investor indifference or unpopularity o various measures of relative valuation, including expected cash flow return (based upon the company's expected earnings and dividends), price-to-earnings ratio, price-to-current book value ratio, dividend yield, and enterprise value-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio. The team believes that companies with lower relative valuations are generally more likely to provide better opportunities for capital appreciation o the stock's estimated intrinsic valuation per share, relative to its current stock price o a potential "catalyst" for improved stock valuation and stock price appreciation. This could take the form of anticipated earnings growth, company restructuring, changes in management, new product opportunities, business model changes, or other anticipated improvements in micro and macroeconomic factors The team may use various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: o may limit the number of buy and sell transactions it makes o will try to sell shares that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when its price reaches the target set by the team, there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, and for other reasons. 23 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Value Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes are undervalued, with the expectation that they will rise in value. There is a risk that the value of these investments will not rise as high as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. 24 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 25.86% 7.30% 16.36% -2.99% 36.09% 21.12% 26.66% 17.34% 1.25% 3.94% *Year-to-date return as of June 30, 2001: -5.14% Best and worst quarterly returns during this period Best: 4th quarter 1998: 19.69% Worst: 3rd quarter 1998: -12.48% [GRAPHIC] The returns shown for the indices do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500 and the S&P/BARRA Value Index. The S&P 500 is an unmanaged index of 500 widely held common stocks. The S&P/BARRA Value Index is an unmanaged index of a subset of stocks from the S&P 500 that have low price-to-book ratios relative to the S&P 500 as a whole. The indices are weighted by market capitalization and are not available for investment. Since 1 year 5 years 10 years inception* Primary A Shares 3.94% 13.63% 14.67% 13.32% S&P 500 -9.10% 18.33% 17.44% 15.25% S&P/BARRA Value Index 6.08% 16.81% 16.88% 14.14% * The inception date of Primary A Shares is September 19, 1989. The returns for the indices shown are from that date. 25 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.65% Other expenses 0.29% ---- Total annual Fund operating expenses 0.94% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $96 $300 $520 $1,155 26 [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Chicago Equity is its sub-adviser. Chicago Equity's Equity Management Team makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about Chicago Equity on page 149. [GRAPHIC] Why invest in Nations Blue Chip Fund? Nations Blue Chip Fund may be suitable for investors who are looking for a "core" equity holding for their portfolio. It's considered to be a more conservative equity investment because it invests in a broad range of large, well-established companies. These companies tend to be less volatile than other kinds of companies. Nations Blue Chip Fund [GRAPHIC] Investment objective The Fund seeks to achieve long-term capital appreciation through investments in blue chip stocks. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations Blue Chip Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in blue chip stocks. These are stocks of well-established, nationally known companies that have a long record of profitability and a reputation for quality management, products and services. The Master Portfolio primarily invests in blue chip stocks that are included in the S&P 500, but may invest up to 15% of its assets in stocks that are not included in the index. It usually holds between 160 and 185 stocks. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team uses quantitative analysis to analyze fundamental information about securities and identify value. Starting with a universe of approximately 600 common stocks, the team uses a multi-factor computer model to rank securities, based on the following criteria, among others: o changes in actual and expected earnings o unexpected changes in earnings o price-to-earnings ratio o dividend discount model o price-to-cash flow The team tries to manage risk by matching the market capitalization, style and industry weighting characteristics of the S&P 500. The team focuses on selecting individual stocks to try to provide higher returns than the S&P 500 while maintaining a level of risk similar to the index. The team may sell a security when there is a development in the company or its industry that causes earnings estimates to fall, when the team believes other investments are more attractive, and for other reasons. 27 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Blue Chip Fund has the following risks: o Investment strategy risk - The Master Portfolio uses quantitative analysis to select blue chip stocks that are believed to have the potential for long-term growth. There is a risk that the value of these investments will not rise as high as expected, or will fall. o Stock market risk - The value of the stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 28 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 2000 -9.04 *Year-to-date return as of June 30, 2001: -9.16% Best and worst quarterly returns during this period Best: 1st quarter 2000: 1.99% Worst: 4th quarter 2000: -9.49% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment. Since 1 year inception* Primary A Shares -9.04% 2.96% S&P 500 -9.10% 2.09% *The inception date of Primary A Shares is May 21, 1999. The return for the index shown is from that date. 29 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets)(2) Management fees 0.65% Other expenses 0.31% ---- Total annual Fund operating expenses 0.96% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $98 $306 $531 $1,178 30 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Growth Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] Minimizing taxes The Fund's proactive tax management strategy may help reduce capital gains distributions. The tax management strategy seeks to limit portfolio turnover, offset capital gains with capital losses and sell securities that have the lowest tax burden on shareholders. Nations Strategic Growth Fund [GRAPHIC] Investment objective The Fund seeks long-term, after-tax returns by investing in a diversified portfolio of common stocks. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in common stocks of companies that it selects from most major industry sectors. The Fund normally holds 60 to 80 securities, which include common stocks, preferred stocks and convertible securities like warrants and rights. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team identifies stocks using a disciplined analytical process. Starting with a universe of companies with market capitalizations of at least $1 billion, the team assesses the investment potential of these companies and their industries by evaluating: o the growth prospects of the company's industry o the company's relative competitive position in the industry The team believes that this analysis identifies companies with favorable long-term growth potential, competitive advantages and sensible business strategies. The team then uses quantitative analysis to decide when to invest, evaluating each company's earnings trends and stock valuations, among other things, to try to determine when it is reasonably valued. In actively managing the portfolio, the team considers the characteristics of the S&P 500 as a general baseline. The index characteristics evaluated by the team include risk and sector diversification, as well as individual securities holdings. The team may use various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains and income distributed to shareholders. For example, the team: o will focus on long-term investments to try to limit the number of buy and sell transactions o will try to sell securities that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss o invests primarily in securities with lower dividend yields o may use options, instead of selling securities While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when it believes that the profitability of the company's industry is beginning to decline, there is a meaningful deterioration in the company's competitive position, the company's management fails to execute its business strategy, when the manager considers the security's price to be overvalued, and for other reasons. 31 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Strategic Growth Fund has the following risks: o Investment strategy risk - The team chooses stocks that are believed to have the potential for long-term growth. There is a risk that the value of these investments will not rise as expected, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Convertible securities risk - The issuer of a convertible security may have the option to redeem it at a specified price. If a convertible security is redeemed, the Fund may accept the redemption, convert the convertible security to common stock, or sell the convertible security to a third party. Any of these transactions could affect the Fund's ability to meet its objective. o Technology and technology-related risk - The Fund may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. 32 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1999 2000 28.08% -12.52% *Year-to-date return as of June 30, 2001: -7.14% Best and worst quarterly returns during this period Best: 4th quarter 1999: 20.52% Worst: 4th quarter 2000: -11.53% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment. Since 1 year inception* Primary A Shares -12.52% 17.74% S&P 500 -9.10% 13.67% *The inception date of Primary A Shares is October 2, 1998. The return for the index shown is from that date. 33 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.65% Other expenses 0.29% ---- Total annual Fund operating expenses 0.94% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $96 $300 $520 $1,155 34 [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Marsico Capital Management, LLC (Marsico Capital) is its sub-adviser. Thomas F. Marsico is its portfolio manager and makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about Marsico Capital and Mr. Marsico on page 147. [GRAPHIC] Why invest in a growth and income fund? Growth and income funds can invest in a mix of equity and fixed income securities. This can help reduce volatility and provide the Fund with the flexibility to shift among securities that offer the potential for higher returns. While this Fund invests in a wide range of companies and industries, it holds fewer investments than other kinds of funds. This means it can have greater price swings than more diversified funds. It also means it may have relatively higher returns when one of its investments performs well, or relatively lower returns when an investment performs poorly. Nations Marsico Growth & Income Fund [GRAPHIC] Investment objective The Fund seeks long-term growth of capital with a limited emphasis on income. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations Marsico Growth & Income Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio invests primarily in equity securities of large capitalization companies that are selected for their growth potential. It invests at least 25% of its assets in securities that are believed to have income potential, and generally holds 35 to 50 securities. It may hold up to 25% of its assets in foreign securities. Marsico Capital may shift assets between growth and income securities based on its assessment of market, financial and economic conditions. The Master Portfolio, however, is not designed to produce a consistent level of income. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Marsico Capital uses an approach that combines "top-down" economic analysis with "bottom-up" stock selection. The "top-down" approach takes into consideration such macroeconomic factors as interest rates, inflation, the regulatory environment and the global competitive landscape. In addition, Marsico Capital also examines such factors as the most attractive global investment opportunities, industry consolidation and the sustainability of economic trends. As a result of the "top-down" analysis, Marsico Capital identifies sectors, industries and companies which it believes should benefit from the overall trends observed. Marsico Capital then looks for individual companies with earnings growth potential that may not be recognized by the market at large. In determining whether a particular company is suitable for investment, Marsico Capital focuses on a number of different attributes including the company's specific market expertise or dominance, its franchise durability and pricing power, solid fundamentals (strong balance sheet, improving returns on equity, ability to generate free cash flow), strong management and reasonable valuations in the context of projected growth rates. As part of this fundamental, "bottom-up" research, Marsico Capital may visit with various levels of a company's management as well as with its customers, suppliers and competitors. Marsico Capital also prepares detailed earnings and cash flow models of companies. These models permit it to project earnings growth and other important characteristics under different scenarios. Each model is customized to follow a particular company and is intended to replicate and describe a company's past, present and future performance. The models are comprised of quantitative information and detailed narratives that reflect updated interpretations of corporate data. Marsico Capital may sell a security when it believes there is a deterioration in the company's financial situation, the security is overvalued, when there is a negative development in the company's competitive, regulatory or economic environment, and for other reasons. 35 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Marsico Growth & Income Fund has the following risks: o Investment strategy risk - Marsico Capital uses an investment strategy that tries to identify equities with growth or income potential. There is a risk that the value of these investments will not rise as high as Marsico Capital expects, or will fall. o Stock market risk - The value of the stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Master Portfolio may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. o Interest rate risk - The prices of the Master Portfolio's fixed income securities will tend to fall when interest rates rise and to rise when interest rates fall. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Master Portfolio could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. o Foreign investment risk - Because the Master Portfolio may invest up to 25% of its assets in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 36 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. For information about the performance of other stock funds managed by Thomas Marsico, see How the Funds are managed. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1998 1999 2000 38.22% 52.48% -15.23% *Year-to-date return as of June 30, 2001: -12.41% Best and worst quarterly returns during this period Best: 4th quarter 1999: 35.30% Worst: 3rd quarter 1998: -12.34% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment. Since 1 year inception* Primary A Shares -15.23% 21.34% S&P 500 -9.10% 12.26% *The inception date of Primary A Shares is December 31, 1997. The return for the index shown is from that date. 37 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets)(2) Management fees 0.75% Other expenses 0.35% ---- Total annual Fund operating expenses 1.10% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $112 $350 $606 $1,340 38 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Growth Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] What is a growth fund? Growth funds invest in companies that have the potential for significant increases in revenue or earnings. These are typically companies that are developing or applying new technologies, products or services in growing industry sectors. Nations Capital Growth Fund [GRAPHIC] Investment objective The Fund seeks growth of capital by investing in companies that are believed to have superior earnings growth potential. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in common stocks of companies that have one or more of the following characteristics: o above-average earnings growth compared with the S&P 500 o established operating histories, strong balance sheets and favorable financial performance o above-average return on equity compared with the S&P 500 The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team identifies stocks using a disciplined analytical process. Starting with a universe of companies with market capitalization of at least $1 billion, the team assesses the investment potential of these companies and their industries by evaluating: o the growth prospects of the company's industry o the company's relative competitive position in the industry The team believes that this analysis identifies companies with favorable long-term growth potential, competitive advantages and sensible business strategies. The team then uses quantitative analysis to decide when to invest, evaluating each company's earnings trends and stock valuations, among other things, to try to determine when it is reasonably valued. In actively managing the portfolio, the team considers the characteristics of the S&P 500 Index as a general baseline. The index characteristics evaluated by the team include risk and sector diversification, as well as individual securities holdings. The team may use various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: o may limit the number of buy and sell transactions it makes o will try to sell shares that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when its price reaches the target set by the team, the company's growth prospects are deteriorating, when the team believes other investments are more attractive, and for other reasons. 39 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Capital Growth Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have superior growth potential and are selling at reasonable prices, with the expectation that they will rise in value. There is a risk that the value of these investments will not rise as high as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Fund may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. 40 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1993 1994 1995 1996 1997 1998 1999 2000 7.85% -1.24% 28.72% 18.61% 30.52% 30.14% 23.93% -11.97% *Year-to-date return as of June 30, 2001: -10.15% Best and worst quarterly returns during this period Best: 4th quarter 1998: 28.39% Worst: 3rd quarter 1998: -14.94% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment. Since 1 year 5 years inception* Primary A Shares -11.97% 17.06% 15.35% S&P 500 -9.10% 18.33% 17.32% *The inception date of Primary A Shares is September 30, 1992. The return for the index shown is from that date. 41 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.65% Other expenses 0.29% ---- Total annual Fund operating expenses 0.94% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $96 $300 $520 $1,155 42 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Growth Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] What is a growth fund? Growth funds invest in companies that have the potential for significant increases in revenue or earnings. These are typically companies that are developing or applying new technologies, products or services in growing industry sectors. Nations Aggressive Growth Fund [GRAPHIC] Investment objective The Fund seeks capital appreciation. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in common stocks of large and medium-sized U.S. companies. These companies typically have a market capitalization of $1 billion or more. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team identifies stocks using a disciplined analytical process. Starting with a universe of companies with market capitalization of at least $1 billion, the team assesses the investment potential of these companies and their industries by evaluating: o the growth prospects of the company's industry o the company's relative competitive position in the industry The team believes that this analysis identifies companies with favorable long-term growth potential, competitive advantages and sensible business strategies. The team then uses quantitative analysis to decide when to invest, evaluating each company's earnings trends and stock valuations, among other things, to try to determine when it is reasonably valued. In actively managing the portfolio, the team considers the characteristics of the Russell 3000 Growth Index as a general baseline. The index characteristics evaluated by the team include risk and sector diversification, as well as individual securities holdings. The resulting portfolio typically consists of between 50 to 75 securities. The team may use various strategies, to the extent consistent with the Fund's investment objective, to try to reduce the amount of capital gains it distributes to shareholders. For example, the team: o will focus on long-term investments to try and limit the number of buy and sell transactions o will try to sell securities that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss o will invest primarily in securities with lower dividend yields o may use options instead of selling securities While the Fund tries to manage capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when it forecasts a decline in industry profitability, it believes a company's competitive position erodes significantly, management strategies prove ineffective or a company's price exceeds the team's price target for the security, and for other reasons. 43 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Aggressive Growth Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have superior growth potential and are selling at reasonable prices, with the expectation that they will rise in value. There is a risk that the value of these investments will not rise as high as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in the U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Fund may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. 44 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Prior to April 17, 2000, the Fund had a different investment objective and principal investment strategies. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1993 1994 1995 1996 1997 1998 1999 2000 29.81% -6.35% 27.53% 22.08% 29.92% 25.83 9.11% -26.25% *Year-to-date return as of June 30, 2001: -21.10% Best and worst quarterly returns during this period Best: 4th quarter 1998: 24.61% Worst: 4th quarter 2000: -24.00% [GRAPHIC] The returns shown for the indices do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Russell 3000 Growth Index, an index comprised of securities in the Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies based on total market capitalization. Prior to August 1, 2001, the Fund compared its performance to the Russell 1000 Growth Index. The Fund changed the index to which it compares its performance because the Russell 3000 Growth Index is considered to be a more appropriate comparison. The indices are unmanaged and are not available for investment. Since 1 year 5 years inception* Primary A Shares -26.25% 9.94% 15.63% Russell 3000 Growth Index -22.42% 17.06% 16.09% Russell 1000 Growth Index -22.42% 18.15% 16.67% *The inception date of Primary A Shares is October 1, 1992. The returns for the indices shown are from that date. 45 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.65% Other expenses 0.35% ---- Total annual Fund operating expenses 1.00% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $102 $318 $552 $1,225 46 [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Marsico Capital is its sub-adviser. Thomas F. Marsico is its portfolio manager and makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about Marsico Capital and Mr. Marsico on page 147. [GRAPHIC] What is a focused fund? A focused fund invests in a small number of companies with earnings that are believed to have the potential to grow significantly. This Fund focuses on large, established and well-known U.S. companies. Because a focused fund holds fewer investments than other kinds of funds, it can have greater price swings than more diversified funds. It may earn relatively higher returns when one of its investments performs well, or relatively lower returns when an investment performs poorly. Nations Marsico Focused Equities Fund [GRAPHIC] Investment objective The Fund seeks long-term growth of capital. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations Marsico Focused Equities Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in common stocks of large companies. The Master Portfolio, which is non-diversified, generally holds a core position of 20 to 30 common stocks. It may invest up to 25% of its assets in foreign securities. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Marsico Capital uses an approach that combines "top-down" economic analysis with "bottom-up" stock selection. The "top-down" approach takes into consideration such macroeconomic factors as interest rates, inflation, the regulatory environment and the global competitive landscape. In addition, Marsico Capital also examines such factors as the most attractive global investment opportunities, industry consolidation and the sustainability of economic trends. As a result of the "top-down" analysis, Marsico Capital identifies sectors, industries and companies which it believes should benefit from the overall trends observed. Marsico Capital then looks for individual companies with earnings growth potential that may not be recognized by the market at large. In determining whether a particular company is suitable for investment, Marsico Capital focuses on a number of different attributes including the company's specific market expertise or dominance, its franchise durability and pricing power, solid fundamentals (strong balance sheet, improving returns on equity, ability to generate free cash flow), strong management and reasonable valuations in the context of projected growth rates. As part of this fundamental, "bottom-up" research, Marsico Capital may visit with various levels of a company's management as well as with its customers, suppliers and competitors. Marsico Capital also prepares detailed earnings and cash flow models of companies. These models permit it to project earnings growth and other important characteristics under different scenarios. Each model is customized to follow a particular company and is intended to replicate and describe a company's past, present and future performance. The models are comprised of quantitative information and detailed narratives that reflect updated interpretations of corporate data. Marsico Capital may sell a security when it believes there is a deterioration in the company's financial situation, the security is overvalued, when there is a negative development in the company's competitive, regulatory or economic environment, and for other reasons. 47 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Marsico Focused Equities Fund has the following risks: o Investment strategy risk - There is a risk that the value of the Master Portfolio's investments will not rise as high as Marsico Capital expects, or will fall. o Holding fewer investments - The Master Portfolio is considered to be non-diversified because it may hold fewer investments than other kinds of equity funds. This increases the risk that its value could go down significantly if even only one of its investments performs poorly. The value of the Master Portfolio will tend to have greater price swings than the value of more diversified equity funds. The Master Portfolio may become a diversified fund by limiting the investments in which more than 5% of its total assets are invested. o Stock market risk - The value of the stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Master Portfolio may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. o Foreign investment risk - Because the Master Portfolio may invest up to 25% of its assets in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 48 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. For information about the performance of other stock funds managed by Thomas Marsico, see How the Funds are managed. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1998 1999 2000 49.64% 53.43% -17.09% *Year-to-date return as of June 30, 2001: -14.02% Best and worst quarterly returns during this period Best: 4th quarter 1999: 33.16% Worst: 4th quarter 2000: -12.77% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment. Since 1 year inception* Primary A Shares -17.09% 23.94% S&P 500 -9.10% 12.26% *The inception date of Primary A Shares is December 31, 1997. The return for the index shown is from that date. 49 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets)(2) Management fees 0.75% Other expenses 0.34% ---- Total annual Fund operating expenses 1.09% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $111 $347 $601 $1,329 50 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Growth Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] What is a midcap growth fund? A midcap growth fund invests in medium-sized companies whose earnings are expected to grow or to continue growing. These companies may be expanding in existing markets, entering into new markets, developing new products or increasing their profit margins by gaining market share or streamlining their operations. These companies can have better potential for rapid earnings than larger companies. They may, however, have a harder time securing financing and may be more sensitive to a setback in sales than larger, more established companies. Nations MidCap Growth Fund [GRAPHIC] Investment objective The Fund seeks capital appreciation by investing in emerging growth companies that are believed to have superior long-term earnings growth prospects. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in companies chosen from a universe of medium capitalization companies. The Fund generally holds securities of between 60 and 100 issuers, which include common stocks, preferred stocks and convertible securities like warrants, rights and convertible debt. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team identifies stocks using a disciplined analytical process. Starting with a universe of companies with market capitalization of at least $1 billion, the team assesses the investment potential of these companies and their industries by evaluating: o the growth prospects of the company's industry o the company's relative competitive position in the industry The team believes that this analysis identifies companies with favorable long-term growth potential, competitive advantages and sensible business strategies. The team then uses quantitative analysis to decide when to invest, evaluating each company's earnings trends and stock valuations, among other things, to try to determine when it is reasonably valued. In actively managing the portfolio, the team considers the characteristics of the S&P MidCap 400 as a general baseline. The index characteristics evaluated by the team include risk and sector diversification, as well as individual securities holdings. The team may use various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: o may limit the number of buy and sell transactions it makes o will try to sell shares that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when its price reaches the target set by the team, the company's growth prospects are deteriorating, when the team believes other investments are more attractive, and for other reasons. 51 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations MidCap Growth Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have the potential for superior long-term growth. There is a risk that the value of these investments will not rise as high as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Fund may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. 52 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1993 1994 1995 1996 1997 1998 1999 2000 12.00% 0.65% 30.00% 18.63% 20.66% 3.47% 43.89% 14.76% *Year-to-date return as of June 30, 2001: -8.47% Best and worst quarterly returns during this period Best: 4th quarter 1999: 32.77% Worst: 3rd quarter 1998: -26.07% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P MidCap 400, an unmanaged index of 400 domestic stocks chosen for market size, liquidity and industry representation. The index is weighted by market value, and is not available for investment. Since 1 year 5 years inception* Primary A Shares 14.76% 19.58% 17.62% S&P MidCap 400 17.51% 20.41% 17.82% *The inception date of Primary A Shares is December 4, 1992. The return for the index shown is from that date. 53 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.65% Other expenses 0.33% ---- Total annual Fund operating expenses 0.98% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $100 $312 $542 $1,201 54 [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Marsico Capital is its sub-adviser. James A. Hillary is its portfolio manager and makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about Marsico Capital and Mr. Hillary on page 147. [GRAPHIC] What is a multi-cap fund? A multi-cap fund invests in companies across the capitalization spectrum -- small, medium-sized and large companies. As a multi-cap fund, this Fund may invest in large, established and well-known U.S. and foreign companies, as well as small, new and relatively unknown companies that are believed to have the potential to grow significantly. Nations Marsico 21st Century Fund [GRAPHIC] Investment objective The Fund seeks long-term growth of capital. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations Marsico 21st Century Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio is an aggressive growth fund that primarily invests in equity securities of companies of any capitalization size. The Master Portfolio will focus on paradigm shifting technologies and companies seeking to take advantage of technological innovations in the way business is conducted. The Master Portfolio may invest without limit in foreign securities. The Master Portfolio also may invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Marsico Capital uses an approach that combines "top-down" economic analysis with "bottom-up" stock selection. The "top-down" approach takes into consideration such macroeconomic factors as interest rates, inflation, the regulatory environment and the global competitive landscape. In addition, Marsico Capital also examines such factors as the most attractive global investment opportunities, industry consolidation and the sustainability of economic trends. As a result of the "top-down" analysis, Marsico Capital identifies sectors, industries and companies which it believes should benefit from the overall trends observed. Marsico Capital then looks for individual companies with earnings growth potential that may not be recognized by the market at large. In determining whether a particular company is suitable for investment, Marsico Capital focuses on a number of different attributes including the company's specific market expertise or dominance, its franchise durability and pricing power, solid fundamentals (strong balance sheet, improving returns on equity, ability to generate free cash flow), strong management and reasonable valuations in the context of projected growth rates. As part of this fundamental, "bottom-up" research, Marsico Capital may visit with various levels of a company's management as well as with its customers, suppliers and competitors. Marsico Capital also prepares detailed earnings and cash flow models of companies. These models permit it to project earnings growth and other important characteristics under different scenarios. Each model is customized to follow a particular company and is intended to replicate and describe a company's past, present and future performance. The models are comprised of quantitative information and detailed narratives that reflect updated interpretations of corporate data. Marsico Capital may sell a security when it believes there is a deterioration in the company's financial situation, the security is overvalued, when there is a negative development in the company's competitive, regulatory or economic environment, and for other reasons. 55 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Marsico 21st Century Fund has the following risks: o Investment strategy risk - There is a risk that the value of the Master Portfolio's investments will not rise as high as Marsico Capital expects, or will fall. o Stock market risk - The value of any stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Small company risk - Stocks of smaller companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains but also carry more risk. o Technology and technology-related risk - The Master Portfolio may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. o Foreign investment risk - Because the Master Portfolio may invest without limitation in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 56 [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in this prospectus. [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets)(2) Management fees 0.75% Other expenses 0.60% ---- Total annual Fund operating expenses 1.35% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $137 $428 $739 $1,624 57 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's SmallCap Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] Why invest in a small company fund? A small company fund invests in smaller companies with promising products or that are operating in a dynamic field. These companies can have stronger potential for rapid earnings growth than larger companies. They may, however, have a harder time securing financing and may be more sensitive to a setback than larger, more established companies. The team looks for companies whose earnings are growing quickly, and whose share prices are reasonably valued. Nations Small Company Fund [GRAPHIC] Investment objective The Fund seeks long-term capital growth by investing primarily in equity securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in companies with a market capitalization of $2 billion or less. The Fund usually holds 75 to 130 equity securities. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team identifies stocks using a disciplined process based on the fundamental analysis of the overall economy, industry conditions, and the financial situation and management of each company. It generates ideas from: o company meetings/conferences o independent industry analysis o quantitative analysis o Wall Street (brokerage) research The team then conducts a rigorous qualitative analysis of each company being considered for investment. This involves, among other things: o gaining an in-depth understanding of the company's business o evaluating the company's growth potential, risks and competitive strengths o discussing its growth strategy with company management o validating the growth strategy with external research The team will only invest in a company when its stock price is attractive relative to its forecasted growth. The team may use various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: o may limit the number of buy and sell transactions it makes o will try to sell shares that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when its price reaches the target set by the team, the company's growth prospects are deteriorating, when the team believes other investments are more attractive, and for other reasons. 58 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Small Company Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have the potential for long-term growth. There is a risk that the value of these investments will not rise as high as the team expects, or will fall. o Small company risk - Stocks of smaller companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains but also carry more risk. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Fund may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. 59 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1996 1997 1998 1999 2000 20.59% 19.84% 1.53% 54.88% -1.60% *Year-to-date return as of June 30, 2001: -8.28% Best and worst quarterly returns during this period Best: 4th quarter 1999: 43.13% Worst: 3rd quarter 1998: -25.76% [GRAPHIC] The returns shown for the indices do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Russell 2000 Growth Index, an index comprised of securities in the Russell 2000 Index, which is a measure of small company performance, with a greater than average growth orientation. Prior to August 1, 2001, the Fund compared its performance to the Russell 2000 Index. The Fund changed the index to which it compares its performance because the Russell 2000 Growth Index is considered to be a more appropriate comparison. The indices are unmanaged, weighted by market capitalization and are not available for investment. Since 1 year 5 years inception* Primary A Shares -1.60% 17.47% 16.98% Russell 2000 Growth Index -22.43% 7.14% 7.48% Russell 2000 Index -3.02% 10.31% 10.70% *The inception date of Primary A Shares is December 12, 1995. The returns for the indices shown are from that date. 60 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.90% Other expenses 0.30% ------ Total annual Fund operating expenses 1.20% Fee waivers and/or reimbursements (0.05)% ------ Total net expenses(2) 1.15% ====== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $117 $376 $655 $1,450 61 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Growth Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] What does a financial services fund invest in? The financial services industry includes banks, brokerage firms, asset management firms, insurance companies and transaction processing companies, among others. Nations Financial Services Fund [GRAPHIC] Investment objective The Fund seeks growth of capital. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in equity securities of companies that are principally engaged in the financial services industry. The Fund, which is non-diversified, generally holds 40 to 60 securities. It may invest without limitation in foreign securities. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team identifies stocks using a disciplined analytical process. Starting with a universe of companies across the entire financial sector, the team assesses the investment potential of these companies by evaluating each company's relative competitive position in the industry. The team believes that this analysis identifies companies with favorable long-term growth potential, competitive advantages and sensible business strategies. The team then uses quantitative analysis to decide when to invest, evaluating each company's earnings trends and stock valuations, among other things, to try to determine when it's reasonably valued. In managing the portfolio, the team places an emphasis on companies believed to exhibit certain characteristics, such as companies that: o are increasing their revenues along with their earnings o can grow their revenues and earnings in a variety of interest rate environments o have both marketing expertise and superior technology The team may sell a security when it believes there is a deterioration in the company's financial situation, the security is overvalued, when there is a negative development in the company's competitive, regulatory or economic environment, and for other reasons. 62 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Financial Services Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have the potential for long-term growth. There is a risk that the value of the Fund's investments will not rise as high as the team expects, or will fall. o Holding fewer investments - The Fund is considered to be non-diversified because it may hold fewer investments than other kinds of equity funds. This increases the risk that its value could go down significantly if even only one of its investments performs poorly. The value of the Fund will tend to have greater price swings than the value of more diversified equity funds. The Fund may become a diversified fund by limiting the investments in which more than 5% of its total assets are invested. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Concentration risk - The Fund concentrates its investments in financial services companies and will be subject to the risks affecting the financial services industry generally. Legislative and regulatory developments may significantly affect this industry and consequently may subject the Fund's investments to greater market fluctuations. In addition, the Federal Reserve may adjust interest rates which can have a significant impact upon the profitability of financial services companies, and a corresponding impact upon the value of the Fund's investments. o Foreign investment risk - Because the Fund may invest without limitation in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 63 [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses (Expenses that are deducted from the Fund's assets) Management fees 0.75% Other expenses(1) 0.55% ---- Total annual Fund operating expenses(2) 1.30% ==== (1)Other expenses are based on estimates for the current fiscal year. (2)The Fund's investment adviser and/or some of its other service providers have agreed to limit total annual operating expenses to the level shown above until July 31, 2002. There is no guarantee that this limitation will continue after this date. The investment adviser is entitled to reimbursement from the Fund of any fees waived or expenses reimbursed under this agreement if such reimbursements do not cause the Fund's total expenses to exceed the existing expense limitation. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years Primary A Shares $132 $412 64 Nations Global Value Fund [GRAPHIC] About the sub-adviser Brandes is this Fund's sub-adviser. Brandes' Large Cap Investment Committee makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about Brandes on page 149. [GRAPHIC] What is the Graham and Dodd approach to investing? Benjamin Graham is widely regarded as the founder of this classic value approach to investing and a pioneer in modern security analysis. In his 1934 book, Security Analysis, co-written by David Dodd, Graham introduced the idea that stocks should be chosen by identifying the "true" long-term -- or intrinsic -- value of a company based on measurable data. Benjamin Graham and David Dodd have never had any affiliation with the Fund. The management team follows this approach, looking at each stock as though it's a businessthat's for sale. By buying stocks at what it believes are favorable prices, the team looks for the potential for appreciation over the business cycle, and for a margin of safety against price declines. [GRAPHIC] Investment objective The Fund seeks long-term capital appreciation by investing primarily in equity securities of domestic and foreign issuers, including issuers in emerging markets countries. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in equity securities of domestic and foreign companies that have a market capitalization of more than $1 billion at the time of investment and that are believed to be undervalued. The Fund typically invests in at least three countries, including the United States, at any one time. The Fund primarily invests in equity securities and may, with respect to its foreign investments, invest in the foregoing and/or depositary receipts. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The management team uses the "Graham and Dodd" value approach to selecting securities and managing the Fund. The team invests in a company when its current price appears to be below its "true" long-term -- or intrinsic -- value. The team uses fundamental analysis to determine intrinsic value, and will look at a company's earnings, book value, cash flow, capital structure, and management record, as well as its industry and its position in the industry. This analysis includes a review of company reports, filings with the SEC, computer databases, industry publications, general and business publications, brokerage firm research reports and other information sources, as well as interviews with company management. The team may sell a security when its price reaches the target set by the team, when there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, and for other reasons. 65 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Limits on investments To help manage risk, the Fund has certain limits on its investments. These limits apply at the time an investment is made: o The Fund will normally invest no more than 5% of its assets in a single security. o It may not invest more than the greater of: o 20% of its assets in a single country or industry, or o 150% of the weighting of a single country or industry in the MSCI World Index (limited to less than 25% of its assets in a single industry, other than U.S. government securities). o It generally may not invest more than 20% of its assets in emerging markets or developing countries. [GRAPHIC] Risks and other things to consider Nations Global Value Fund has the following risks: o Investment strategy risk - The team chooses stocks it believes are undervalued or out of favor with the expectation that these stocks will eventually rise in value. There is a risk that the value of these investments will not rise as high or as quickly as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Foreign investment risk - Because the Fund invests in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Emerging markets risk - Securities issued by companies in developing or emerging market countries, like those in Eastern Europe, the Middle East, Asia or Africa, may be more sensitive to the risks of foreign investing. In particular, these countries may experience instability resulting from rapid social, political and economic development. Many of these countries are dependent on international trade, which makes them sensitive to world commodity prices and economic downturns in other countries. Some emerging countries have a higher risk of currency devaluations, and some countries may experience long periods of high inflation or rapid changes in inflation rates. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 66 [GRAPHIC] For information about the performance of other global stock accounts managed by Brandes, see How the Funds are managed. [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge none Annual Fund operating expenses (Expenses that are deducted from the Fund's assets) Management fees 0.90% Other expenses(1) 0.50% ---- Total annual Fund operating expenses(2) 1.40% ==== (1)Other expenses are based on estimates for the current fiscal year. (2)The Fund's investment adviser and/or some of its other service providers have agreed to limit total annual operating expenses to the level shown above until July 31, 2002. There is no guarantee that this limitation will continue after this date. The investment adviser is entitled to reimbursement from the Fund of any fees waived or expenses reimbursed under this agreement if such reimbursements do not cause the Fund's total expenses to exceed existing expense limitations. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years Primary A Shares $143 $443 67 [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Brandes is its sub-adviser. Brandes' Large Cap Investment Committee makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about Brandes on page 149. [GRAPHIC] What is the Graham and Dodd approach to investing? Benjamin Graham is widely regarded as the founder of this classic value approach to investing and a pioneer in modern security analysis. In his 1934 book, Security Analysis, co-written by David Dodd, Graham introduced the idea that stocks should be chosen by identifying the "true" long-term -- or intrinsic -- value of a company based on measurable data. Benjamin Graham and David Dodd have never had any affiliation with the Fund. The management team follows this approach, looking at each stock as though it's a business that's for sale. By buying stocks at what it believes are favorable prices, the team looks for the potential for appreciation over the business cycle, and for a margin of safety against price declines. Nations International Value Fund [GRAPHIC] Investment objective The Fund seeks long-term capital appreciation by investing primarily in equity securities of foreign issuers, including emerging markets countries. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations International Value Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in foreign companies anywhere in the world that have a market capitalization of more than $1 billion at the time of investment. The Master Portfolio typically invests in at least three countries other than the United States at any one time. The Master Portfolio primarily invests in equity securities, either directly or indirectly through closed-end investment companies and depositary receipts. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The management team uses the "Graham and Dodd" value approach to selecting securities and managing the Master Portfolio. The team invests in a company when its current price appears to be below its true long-term -- or intrinsic -- value. The team uses fundamental analysis to determine intrinsic value, and will look at a company's book value, cash flow, capital structure, and management record, as well as its industry and its position in the industry. This analysis includes a review of company reports, filings with the SEC, computer databases, industry publications, general and business publications, brokerage firm research reports and other information sources, as well as interviews with company management. The team may sell a security when its price reaches the target set by the team, there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, and for other reasons. 68 [GRAPHIC] Limits on investments To help manage risk, the Fund has certain limits on its investments. These limits apply at the time an investment is made: o The Fund will normally invest no more than 5% of its assets in a single security. o It may not invest more than the greater of: o 20% of its assets in a single country or industry, or o 150% of the weighting of a single country or industry in the MSCI EAFE Index (limited to less than 25% of its assets in a single industry, other than U.S. government securities). o It generally may not invest more than 20% of its assets in emerging markets or developing countries. [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations International Value Fund has the following risks: o Investment strategy risk - The team chooses stocks it believes are undervalued or out of favor with the expectation that these stocks will eventually rise in value. There is a risk that the value of these investments will not rise as high or as quickly as the team expects, or will fall. o Foreign investment risk - Because the Master Portfolio invests primarily in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Emerging markets risk - Securities issued by companies in developing or emerging market countries, like those in Eastern Europe, the Middle East, Asia or Africa, may be more sensitive to the risks of foreign investing. In particular, these countries may experience instability resulting from rapid social, political and economic development. Many of these countries are dependent on international trade, which makes them sensitive to world commodity prices and economic downturns in other countries. Some emerging countries have a higher risk of currency devaluations, and some countries may experience long periods of high inflation or rapid changes in inflation rates. o Stock market risk - The value of the stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 69 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. For information about the performance of other international accounts managed by Brandes, see How the Funds are managed. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1996 1997 1998 1999 2000 15.35% 21.01% 11.60% 52.65% 3.20% *Year-to-date return as of June 30, 2001: -6.84% Best and worst quarterly returns during this period Best: 4th quarter 1999: 24.31% Worst: 3rd quarter 1998: -16.57% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's annual total return for each period, compared with the MSCI EAFE Index (Morgan Stanley Capital International Europe, Australasia and Far East Index), an unmanaged, capitalization-weighted index consisting of securities listed on exchanges in European, Australasian and Far Eastern Markets. The index is not available for investment. Since 1 year 5 years inception* Primary A Shares 3.20% 19.67% 19.50% MSCI EAFE Index -14.17% 7.13% 7.13% *The inception date of Primary A Shares is December 27, 1995. The return for the index shown is from that date. 70 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets)(2) Management fees 0.90% Other expenses 0.33% ---- Total annual Fund operating expenses 1.23% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $125 $390 $676 $1,489 71 [GRAPHIC] About the sub-advisers The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser. The Master Portfolio is a "multi-manager" fund, which means that it's managed by more than one sub-adviser. Gartmore Global Partners (Gartmore), INVESCO Global Asset Management (N.A.), Inc. (INVESCO) and Putnam Investment Management LLC (Putnam) each manage approximately one-third of the assets of the Master Portfolio. Gartmore's Global Equities Portfolio Construction Team, INVESCO's International Equity Portfolio Management Team and Putnam's Core International Equity Group make the day-to-day investment decisions for their portions of the Master Portfolio. [GRAPHIC] You'll find more about Gartmore and INVESCO on page 153, and Putnam on page 154. [GRAPHIC] Why invest in an international stock fund? International stock funds invest in a diversified portfolio of companies located in markets throughout the world. These companies can offer investment opportunities that are not available in the United States. Investing internationally also involves special risks not associated with investing in the U.S. stock market. Nations International Equity Fund [GRAPHIC] Investment objective The Fund seeks long-term capital growth by investing primarily in equity securities of non-United States companies in Europe, Australia, the Far East and other regions, including developing countries. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations International Equity Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in established companies located in at least three countries other than the United States. The investment managers select countries, including emerging market or developing countries, and companies they believe have the potential for growth. The Master Portfolio primarily invests in equity securities which may include equity interests in foreign investment funds or trusts, convertible securities, real estate investment trust securities and depositary receipts. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The Master Portfolio may invest in foreign currency exchange contracts to convert foreign currencies to and from the U.S. dollar, and to hedge against changes in foreign currency exchange rates. The Master Portfolio is a "multi-manager" fund. It has three different investment managers. Each is responsible for managing approximately one-third of the Master Portfolio's assets. The managers all have different, but complementary, investment styles: o Gartmore combines "top-down" allocation among regions around the world with a stock selection process that focuses on investing in securities when growth is likely to be higher, or sustained longer, than other investors expect. o INVESCO uses a "bottom-up" approach, and favors well-established companies with above average financial strength and sustainable growth. o Putnam is a "core manager," focusing on stable, long-term investments, rather than growth or value stocks. It combines "bottom-up" stock selection with "top-down" country allocation. The multi-manager strategy is based on the belief that having more than one manager may result in better performance and more stable returns over time. A manager may sell a security when its price reaches the target set by the manager, when the company's growth prospects are deteriorating, when the manager believes other investments are more attractive, and for other reasons. 72 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations International Equity Fund has the following risks: o Investment strategy risk - The managers choose stocks they believe have the potential for long-term growth. There is a risk that the value of these investments will not rise as high as expected, or will fall. There is also a risk that the Fund's multi-manager strategy may not result in better performance or more stable returns. o Foreign investment risk - Because the Master Portfolio invests primarily in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. If the Master Portfolio invests in emerging markets there may be other risks involved, such as those of immature economies and less developed and more thinly traded securities markets. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Stock market risk - The value of the stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Futures risk - This Master Portfolio may use futures contracts to convert currencies and to hedge against changes in foreign currency exchange rates. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 73 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1992 1993 1994 1995 1996 1997 1998 1999 2000 -8.57% 27.21% 2.60% 8.45% 8.47% 1.27% 16.46% 39.49% -15.13% *Year-to-date return as of June 30, 2001: -13.75% Best and worst quarterly returns during this period Best: 4th quarter 1999: 28.59% Worst: 3rd quarter 1998: -13.94% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the MSCI EAFE Index (Morgan Stanley Capital International Europe, Australasia and Far East Index), an unmanaged, capitalization-weighted index consisting of securities listed on exchanges in European, Australasian and Far Eastern Markets. The index is not available for investment. Since 1 year 5 years inception* Primary A Shares -15.13% 8.66% 8.18% MSCI EAFE Index -14.17% 7.13% 8.35% *The inception date of Primary A Shares is December 2, 1991. The return for the index shown is from that date. 74 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets)(2) Management fees 0.80% Other expenses 0.35% ---- Total annual Fund operating expenses 1.15% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $117 $365 $633 $1,398 75 [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Marsico Capital is its sub-adviser. James Gendelman is the portfolio manager and makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about Marsico Capital and James Gendelman on page 147. [GRAPHIC] What is an international fund? International stock funds invest in a diversified portfolio of companies located in markets throughout the world. These companies can offer investment opportunities that are not available in the United States. Nations Marsico International Opportunities Fund [GRAPHIC] Investment objective The Fund seeks long-term growth of capital. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations Marsico International Opportunities Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in common stocks of foreign companies. While the Master Portfolio may invest in companies of any size, it focuses on large companies. These companies are selected for their long-term growth potential. The Master Portfolio normally invests in issuers from at least three different countries not including the United States and generally holds a core position of 35 to 50 common stocks. The Master Portfolio may invest in common stocks of companies operating in emerging markets. The Master Portfolio also may invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Marsico Capital uses an approach that combines "top-down" economic analysis with "bottom-up" stock selection. The "top-down" approach takes into consideration such macroeconomic factors as interest rates, inflation, the regulatory environment and the global competitive landscape. In addition, Marsico Capital also examines such factors as the most attractive global investment opportunities, industry consolidation and the sustainability of economic trends. As a result of the "top-down" analysis, Marsico Capital identifies sectors, industries and companies which it believes should benefit from the overall trends observed. Marsico Capital then looks for individual companies with earnings growth potential that may not be recognized by the market at large. In determining whether a particular company is suitable for investment, Marsico Capital focuses on a number of different attributes including the company's specific market expertise or dominance, its franchise durability and pricing power, solid fundamentals (strong balance sheet, improving returns on equity, ability to generate free cash flow), strong management and reasonable valuations in the context of projected growth rates. As part of this fundamental, "bottom-up" research, Marsico Capital may visit with various levels of a company's management as well as with its customers, suppliers and competitors. Marsico Capital also prepares detailed earnings and cash flow models of companies. These models permit it to project earnings growth and other important characteristics under different scenarios. Each model is customized to follow a particular company and is intended to replicate and describe a company's past, present and future performance. The models are comprised of quantitative information and detailed narratives that reflect updated interpretations of corporate data. Marsico Capital may sell a security when it believes there is a deterioration in the company's financial situation, the security is overvalued, when there is a negative development in the company's competitive, regulatory or economic environment, and for other reasons. 76 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Marsico International Opportunities Fund has the following risks: o Investment strategy risk - There is a risk that the value of the Master Portfolio's investments will not rise as high as Marsico Capital expects, or will fall. o Stock market risk - The value of any stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Master Portfolio may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. o Foreign investment risk - Because the Master Portfolio invests primarily in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. If the Master Portfolio invests in emerging markets there may be other risks involved, such as those of immature economies and less developed and more thinly traded securities markets. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 77 [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets)(2) Management fees 0.80% Other expenses 5.46% ------ Total annual Fund operating expenses 6.26% Fee waivers and/or reimbursements (4.76)% Total net expenses(3) 1.50% ====== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. (3)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $153 $1,432 $2,680 $5,663 78 [GRAPHIC] About the sub-adviser Gartmore is this Fund's sub-adviser. Christopher Palmer, CFA, a senior investment manager on the Gartmore Emerging Markets Team, makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about Gartmore on page 153. [GRAPHIC] What's an emerging market? This Fund considers a country to be an emerging market if: o the International Finance Corporation has defined it as an emerging market, o it has a low-to-middle income economy according to the World Bank, or o it's listed as developing in World Bank publications. There are over 25 countries that currently qualify as emerging markets, including Argentina, Brazil, Chile, China, the Czech Republic, Colombia, Ecuador, Greece, Hong Kong, Indonesia, India, Malaysia, Mexico, the Philippines, Poland, Portugal, Peru, Russia, Singapore, South Africa, Thailand, Taiwan and Turkey. Nations Emerging Markets Fund [GRAPHIC] Investment objective The Fund seeks long-term capital growth by investing primarily in equity securities of companies in emerging market countries, such as those in Latin America, Eastern Europe, the Pacific Basin, the Far East and India. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in companies in emerging markets or developing countries. The Fund intends to invest in securities of companies in at least three of these countries at any one time. The Fund normally invests in common stocks, preferred stocks, convertible securities, equity interests in foreign investment funds or trusts, and depositary receipts. The Fund may invest in foreign currency exchange contracts to convert foreign currencies to and from the U.S. dollar, and to hedge against changes in foreign currency exchange rates. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The portfolio manager looks for emerging markets that are believed to have the potential for strong economic growth, and tries to avoid emerging markets that might be politically or economically risky. The portfolio manager starts with approximately 800 companies in the most promising markets, and: o uses fundamental research to select stocks, looking at earnings growth, financial resources, marketability, and other factors o visits companies to confirm the corporate and industry factors that led to a stock's selection as a potential investment o regularly reviews the Fund's investments to determine whether companies are meeting expected return targets and whether their fundamental financial health has changed The portfolio manager may sell a security when its price reaches the target set by the portfolio manager, when there is a deterioration in the growth prospects of the company or its industry, when the portfolio manager believes other investments are more attractive, and for other reasons. 79 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Emerging Markets Fund has the following risks: o Investment strategy risk - The portfolio manager invests in securities of companies in emerging markets, which have high growth potential, but can be more volatile than securities in more developed markets. There is a risk that the value of these investments will not rise as high as the portfolio manager expects, or will fall. o Foreign investment risk - Because the Fund invests primarily in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Emerging markets risk - Securities issued by companies in developing or emerging market countries, like those in Eastern Europe, the Middle East, Asia or Africa, may be more sensitive to the risks of foreign investing. In particular, these countries may experience instability resulting from rapid social, political and economic development. Many of these countries are dependent on international trade, which makes them sensitive to world commodity prices and economic downturns in other countries. Some emerging countries have a higher risk of currency devaluations, and some countries may experience long periods of high inflation or rapid changes in inflation rates. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Futures risk - This Fund may use futures contracts to convert currencies and to hedge against changes in foreign currency exchange rates. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 80 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1996 1997 1998 1999 2000 8.73% -2.99% -25.58% 96.74% -35.11% *Year-to-date return as of June 30, 2001: 0.05% Best and worst quarterly returns during this period Best: 4th quarter 1999: 48.13% Worst: 3rd quarter 1998: -24.17% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P/IFC Investables Index, an unmanaged index that tracks more than 1,400 stocks in 25 emerging markets in Asia, Latin America, Eastern Europe, Africa and the Middle East. The index is weighted by market capitalization and is not available for investment. Since 1 year 5 years inception* Primary A Shares -35.11% 0.04% -0.36% S&P/IFC Investables Index -30.28% -3.25% -3.19% *The inception date of Primary A Shares is June 30, 1995. The return for the index shown is from that date. 81 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 1.00% Other expenses 0.82% ---- Total annual Fund operating expenses 1.82% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $185 $573 $985 $2,137 82 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Quantitative Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] What is an index fund? Index funds use a "passive" or "indexing" investment approach, which attempts to duplicate the performance of a specific market index. Correlation measures how closely a fund's returns match those of an index. A perfect correlation of 1.0 means that the net asset value of the fund increases or decreases in exact proportion to changes in the index. Nations LargeCap Index Fund [GRAPHIC] Investment objective The Fund seeks investment results that (before fees and expenses) correspond to the total return of the Standard & Poor's 500 Composite Stock Price Index (S&P 500). [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in common stocks that are included in the S&P 500. The S&P 500 is an unmanaged index of 500 widely held common stocks, and is not available for investment. The Fund may buy stock index futures and financial futures as substitutes for the underlying securities in the S&P 500. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Different common stocks have different weightings in the S&P 500, depending on the amount of stock outstanding and the stock's current price. In trying to match the performance of the S&P 500, the team will try to allocate the Fund's portfolio among common stocks in approximately the same weightings as the S&P 500, beginning with the most heavily weighted stocks that make up a larger portion of the value of the S&P 500. The Fund may buy shares of Bank of America Corporation, which is currently included in the S&P 500, subject to certain restrictions. The Fund tries to achieve a correlation of 0.95 with the S&P 500 on an annual basis (before fees and expenses). The Fund's ability to track the S&P 500 is affected by transaction costs and other expenses, changes in the composition of the S&P 500, changes in the number of shares issued by the companies represented in the S&P 500, and by the timing and amount of shareholder purchases and redemptions, among other things. Equity mutual funds, like other investors in equity securities, incur transaction costs, such as brokerage costs, when they buy and sell securities. The team tries to minimize these costs for the Fund by using program trades and crossing networks. The team may sell a stock when its percentage weighting in the index is reduced, when the stock is removed from the index, and for other reasons. 83 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations LargeCap Index Fund has the following risks: o Investment strategy risk - This Fund tries to match (before fees and expenses) the returns of the S&P 500, and is not actively managed. There is no assurance that the returns of the Fund will match the returns of the S&P 500. The value of the Fund will rise and fall with the performance of the S&P 500. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Futures risk - This Fund may use futures contracts as a substitute for the securities included in the index. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. 84 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1994 1995 1996 1997 1998 1999 2000 0.99% 37.02% 22.63% 32.70% 28.39% 20.66% -9.37% *Year-to-date return as of June 30, 2001: -6.86% Best and worst quarterly returns during this period Best: 4th quarter 1998: 21.13% Worst: 3rd quarter 1998: -9.84% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment. Since 1 year 5 years inception* Primary A Shares -9.37% 17.97% 17.87% S&P 500 -9.10% 18.33% 18.21% *The inception date of Primary A Shares is December 15, 1993. The return for the index shown is from that date. 85 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Other expenses 0.28% ------ Total annual Fund operating expenses 0.68% Fee waivers and/or reimbursements (0.33)% ------ Total net expenses(2) 0.35% ====== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $36 $184 $346 $815 86 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Quantitative Strategies Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] What is an index fund? Index funds use a "passive" or "indexing" investment approach, which attempts to duplicate the performance of a specific market index. Correlation measures how closely a fund's returns match those of an index. A perfect correlation of 1.0 means that the net asset value of the fund increases or decreases in exact proportion to changes in the index. Nations MidCap Index Fund [GRAPHIC] Investment objective The Fund seeks investment results that (before fees and expenses) correspond to the total return of the Standard & Poor's MidCap 400 Stock Price Index (S&P MidCap 400). [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in common stocks that are included in the S&P MidCap 400. The S&P MidCap 400 is an unmanaged index of 400 domestic stocks chosen for their market size, liquidity and industry representation. The index is not available for investment. The Fund may buy stock index futures and other financial futures as substitutes for the underlying securities in the S&P MidCap 400. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Different common stocks have different weightings in the S&P MidCap 400, depending on the amount of stock outstanding and the stock's current price. In trying to match the performance of the S&P MidCap 400, the team will try to allocate the Fund's portfolio among common stocks in approximately the same weightings as the S&P MidCap 400, beginning with the most heavily weighted stocks that make up a larger portion of the value of the S&P MidCap 400. The Fund tries to achieve a correlation of at least 0.95 with the return of the S&P MidCap 400 on an annual basis (before fees and expenses). The Fund's ability to track the S&P MidCap 400 may be adversely affected by transaction costs and other expenses, changes in the composition of the S&P MidCap 400, changes in the number of shares issued by the companies represented in the S&P MidCap 400, and by the timing and amount of shareholder purchases and redemptions, among other things. Equity mutual funds, like other investors in equity securities, incur transaction costs, such as brokerage costs, when they buy and sell securities. The team tries to minimize these costs for the Fund by using electronic trading systems such as crossing networks and other trading strategies. The team may sell a stock when its percentage weighting in the index is reduced, when the stock is removed from the index, when the team believes the stock is not liquid enough, and for other reasons. 87 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations MidCap Index Fund has the following risks: o Investment strategy risk - This Fund tries to match (before fees and expenses) the returns of the S&P MidCap 400, and is not actively managed. There is no assurance that the returns of the Fund will match the returns of the S&P MidCap 400. The value of the Fund will rise and fall with the performance of the S&P MidCap 400. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Futures risk - This Fund may use futures contracts as a substitute for the securities included in the index. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. 88 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees (Fees paid directly from your investment) Primary A Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Other expenses 0.35% ------ Total annual Fund operating expenses 0.75% Fee waivers and/or reimbursements (0.40)% ------ Total net expenses(2) 0.35% ====== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $36 $200 $377 $893 89 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Quantitative Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] What is an index fund? Index funds use a "passive" or "indexing" investment approach, which attempts to duplicate the performance of a specific market index. Correlation measures how closely a fund's returns match those of an index. A perfect correlation of 1.0 means that the net asset value of the fund increases or decreases in exact proportion to changes in the index. Nations SmallCap Index Fund [GRAPHIC] Investment objective The Fund seeks investment results that (before fees and expenses) correspond to the total return of the Standard & Poor's SmallCap 600 Index (S&P SmallCap 600). [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in common stocks that are included in the S&P SmallCap 600. The S&P SmallCap 600 is an unmanaged market capitalization index consisting of 600 common stocks that capture the economic and industry characteristics of small company stock performance. It is not available for investment. The Fund may buy stock index futures and other financial futures as substitutes for the underlying securities in the S&P SmallCap 600. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Different common stocks have different weightings in the S&P SmallCap 600, depending on the amount of stock outstanding and the stock's current price. In trying to match the performance of the S&P SmallCap 600, the team will try to allocate the Fund's portfolio among common stocks in approximately the same weightings as the S&P SmallCap 600, beginning with the most heavily weighted stocks that make up a larger portion of the value of the S&P SmallCap 600. The Fund tries to achieve a correlation of at least 0.95 with the S&P SmallCap 600 on an annual basis (before fees and expenses). The Fund's ability to track the S&P SmallCap 600 is affected by transaction costs and other expenses, changes in the composition of the S&P SmallCap 600, changes in the number of shares issued by the companies represented in the S&P SmallCap 600, and by the timing and amount of shareholder purchases and redemptions, among other things. Equity mutual funds, like other investors in equity securities, incur transaction costs, such as brokerage costs, when they buy and sell securities. The team tries to minimize these costs for the Fund by using program trades and crossing networks. The team may sell a stock when its percentage weighting in the index is reduced, when the stock is removed from the index, and for other reasons. 90 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations SmallCap Index Fund has the following risks: o Investment strategy risk - This Fund tries to match (before fees and expenses) the returns of the S&P SmallCap 600, and is not actively managed. There is no assurance that the returns of the Fund will match the returns of the S&P SmallCap 600. The value of the Fund will rise and fall with the performance of the S&P SmallCap 600. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Small company risk - Stocks of smaller companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains but also carry more risk. o Futures risk - This Fund may use futures contracts as a substitute for the securities included in the index. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. 91 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Prior to May 12, 2000, the Fund had a different investment objective and principal investment strategies. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1997 1998 1999 2000 27.97% -1.65% 5.47% 9.47% *Year-to-date return as of June 30, 2001: 5.96% Best and worst quarterly returns during this period Best: 2nd quarter 1997: 17.64% Worst: 3rd quarter 1998: -20.83% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P SmallCap 600, an unmanaged index of 600 common stocks, weighted by market capitalization. The S&P SmallCap 600 is not available for investment. Since 1 year inception* Primary A Shares 9.47% 10.09% S&P SmallCap 600 11.80% 12.44% *The inception date of Primary A Shares is October 15, 1996. The return for the index shown is from that date. 92 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Other expenses 0.39% ------ Total annual Fund operating expenses 0.79% Fee waivers and/or reimbursements (0.39)% ------ Total net expenses(2) 0.40% ====== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $41 $213 $400 $942 93 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Quantitative Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] What is a managed index fund? A managed index fund is designed to deliver the industry and risk characteristics of its benchmark with the benefits of relatively low costs and active investment management. With a managed index fund, the team may take advantage of individual asset selection from a variety of instruments that are expected to generate returns in excess of the S&P 500. There is no assurance that active management will result in a higher return than the index. Nations Managed Index Fund [GRAPHIC] Investment objective The Fund seeks, over the long term, to provide a total return that (before fees and expenses) exceeds the total return of the Standard & Poor's 500 Composite Stock Price Index (S&P 500). [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in a portfolio consisting of common stocks that are included in the S&P 500, convertible securities that are convertible into stocks included in that index, and other derivatives whose economic returns are, by design, closely equivalent to the returns of the S&P 500 or its components. The S&P 500 is an unmanaged index of 500 widely held common stocks, and is not available for investment. The team tries to maintain a portfolio that matches the industry and risk characteristics of the S&P 500. The team will, from time to time, vary the number and percentages of the Fund's holdings to try to provide higher returns than the S&P 500 and to reduce the risk of underperforming the index over time. The Fund generally holds fewer stocks than the index, and may hold securities that are not in the index. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. In selecting investments for the Fund, the team uses quantitative analysis to evaluate the attractiveness of each potential investment. The team may examine a wide variety of factors classified as value measures (forward price-to-earnings, trailing price-to-earnings, book value-to-price, price-to-cash flow, etc.), growth measures (earnings growth, revenue growth, etc.), price momentum and earnings momentum (earnings change, estimate revision, earnings surprise, etc.), among others. The Fund seeks to hold a higher percentage of attractive investments than the index and a lesser percentage, or none, of less attractive investments. In all cases, investments are selected with the intention of increasing return relative to the S&P 500 and/or reducing portfolio volatility relative to the S&P 500. In addition, the team believes capital market inefficiencies may exist and may sometimes be exploited by using a variety of derivative instruments. The team tries to control costs when it buys and sells securities for the Fund by using computerized systems called crossing networks that allow it to try to make trades at better prices and reduced commission rates. 94 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. The team uses various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: o may try to sell shares of a security with the highest cost for tax purposes first, before selling other shares of the same security. The team will only use this strategy when it is in the best interest of the Fund to do so and may sell other shares when appropriate o may offset capital gains by selling securities to realize a capital loss. This may reduce capital gains distributions While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies may also be affected by changes in tax laws and regulations, or by court decisions. The team may sell a stock when it believes other stocks in the index are more attractive investments, when the stock is removed from the index, and for other reasons. [GRAPHIC] Risks and other things to consider Nations Managed Index Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have the potential for higher total returns than the S&P 500. There is a risk that the returns of these investments will not exceed those of the S&P 500, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Futures risk - This Fund may use futures contracts periodically to manage liquidity. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. 95 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1997 1998 1999 2000 33.46% 26.64% 17.70% -10.86% *Year-to-date return as of June 30, 2001: -5.33% Best and worst quarterly returns during this period Best: 4th quarter 1998: 20.98% Worst: 3rd quarter 1998: -10.62% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment. Since 1 year inception* Primary A Shares -10.86% 17.96% S&P 500 -9.10% 19.60% *The inception date of Primary A Shares is July 31, 1996. The return for the index shown is from that date. 96 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Other expenses 0.29% ------ Total annual Fund operating expenses 0.69% Fee waivers and/or reimbursements (0.19)% ------ Total net expenses(2) 0.50% ====== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $51 $202 $365 $841 97 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] Corporate fixed-income securities This Fund focuses on fixed income securities issued by corporations. Corporate fixed income securities have the potential to pay higher income than U.S. Treasury securities with similar maturities. [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations Short-Term Income Fund [GRAPHIC] Investment objective The Fund seeks high current income consistent with minimal fluctuations of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its total assets in investment grade fixed income securities. The team may choose unrated securities if it believes they are of comparable quality to investment grade securities at the time of investment. The Fund may invest in: o corporate debt securities, including bonds, notes and debentures o mortgage-related securities issued by governments, their agencies or instrumentalities, or corporations o asset-backed securities o U.S. government obligations The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may invest in private placements to seek to enhance its yield. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be three years or less, and its duration will be three years or less. When selecting individual investments, the team: o looks at a fixed income security's potential to generate both income and price appreciation o allocates assets among U.S. government obligations, including securities issued by government agencies, mortgage-backed securities and U.S Treasury securities; asset-backed securities and corporate securities, based on how they are expected to perform under current market conditions, and on how they have performed in the past. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk o tries to manage risk by diversifying the Fund's investments in securities of many different issuers The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 98 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Short-Term Income Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Mortgage-related risk - The value of the Fund's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Fund may have to reinvest this money in mortgage-backed or other securities that have lower yields. 99 o Asset-backed securities risk - Payment of interest and repayment of principal may be impacted by the cash flows generated by the assets backing these securities. The value of the Fund's asset-backed securities may also be affected by changes in interest rates, the availability of information concerning the interests in and structure of the pools of purchase contracts, financing leases or sales agreements that are represented by these securities, the creditworthiness of the servicing agent for the pool, the originator of the loans or receivables, or the entities that provide any supporting letters of credit, surety bonds, or other credit enhancements. [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1993 1994 1995 1996 1997 1998 1999 2000 7.55% -0.27% 11.27% 4.89% 6.03% 6.30% 3.22% 7.17% *Year-to-date return as of June 30, 2001: 4.33% Best and worst quarterly returns during this period Best: 2nd quarter 1995: 3.49% Worst: 1st quarter 1994: -0.94% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Merrill Lynch 1-3 Year Treasury Index, an index of U.S. Treasury bonds with maturities of one to three years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Primary A Shares 7.17% 5.51% 5.47% Merrill Lynch 1-3 Year Treasury Index 7.99% 5.92% 5.64%
*The inception date of Primary A Shares is September 30, 1992. The return for the index shown is from that date. 100 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.30% Other expenses 0.31% ------ Total annual Fund operating expenses 0.61% Fee waivers and/or reimbursements (0.10)% ------ Total net expenses(2) 0.51% ====== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $52 $185 $330 $753 101 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] U.S. government securities This Fund invests most of its assets in securities that are U.S. government issued or guaranteed. This means the Fund is generally not subject to credit risk, but it could earn less income than funds that invest in other kinds of fixed income securities. [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations Short-Intermediate Government Fund [GRAPHIC] Investment objective The Fund seeks high current income consistent with modest fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund invests most of its assets in U.S. government obligations and repurchase agreements relating to these obligations. It may invest in mortgage-related securities issued or backed by the U.S. government, its agencies or instrumentalities, or corporations. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be five years or less, and its duration will be four years or less. When selecting individual investments, the team: o looks at a fixed income security's potential to generate both income and price appreciation o allocates assets primarily among U.S. government obligations, including securities issued by government agencies, mortgage-backed securities and U.S Treasury securities, based on how they are expected to perform under current market conditions, and on how they have performed in the past. The team may change the allocations when market conditions change o selects securities using structure analysis, which evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 102 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Short-Intermediate Government Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests may not be investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Mortgage-related risk - The value of the Fund's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Fund may have to reinvest this money in mortgage-backed or other securities that have lower yields. 103 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1992 1993 1994 1995 1996 1997 1998 1999 2000 5.78% 8.02% -2.41% 12.44% 3.19% 7.25% 6.60% 0.43% 9.56% *Year-to-date return as of June 30, 2001: 3.26% Best and worst quarterly returns during this period Best: 2nd quarter 1992: 4.46% Worst: 1st quarter 1994: -1.74% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Intermediate Government Bond Index, an index of U.S. government agency and U.S. Treasury securities. All dividends are reinvested. The index is not available for investment. Since 1 year 5 years inception* Primary A Shares 9.56% 5.35% 6.30% Lehman Intermediate Government Bond Index 10.47% 6.19% 7.09% *The inception date of Primary A Shares is August 1, 1991. The return for the index shown is from that date. 104 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.30% Other expenses 0.29% ---- Total annual Fund operating expenses 0.59% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $60 $189 $329 $738 105 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] Mortgage-backed securities This Fund invests in mortgage-backed securities. Mortgage-backed securities tend to pay higher income than U.S. Treasury bonds and other government-backed bonds with similar maturities, but also have specific risks associated with them. They pay a monthly amount that includes a portion of the principal on the underlying mortgages, as well as interest. Nations Government Securities Fund [GRAPHIC] Investment objective The Fund seeks high current income consistent with moderate fluctuation of principal. [GRAPHIC] Principal investment strategies This Fund normally invests at least 65% of its assets in U.S. government obligations and repurchase agreements secured by these securities. It may also invest in the following securities rated investment grade at the time of investment: o mortgage-related securities issued by governments, their agencies or instrumentalities, or corporations o asset-backed securities or municipal securities o corporate debt securities, including bonds, notes and debentures The Fund may also engage in reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between five and 30 years. When selecting individual investments, the team: o looks at a fixed income security's potential to generate both income and price appreciation o allocates assets primarily among U.S. government obligations, including securities issued by government agencies, mortgage-backed securities and U.S. Treasury securities, based on how they are expected to perform under current market conditions, and on how they have performed in the past. The team may change the allocations when market conditions change o selects securities using structure analysis, which evaluates the characteristics of a security, including its call features, coupons and expected timing of cash flows The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 106 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Government Securities Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests may not be investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Mortgage-related risk - The value of the Fund's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Fund may have to reinvest this money in mortgage-backed or other securities that have lower yields. 107 o Asset-backed securities risk - Payment of interest and repayment of principal may be impacted by the cash flows generated by the assets backing these securities. The value of the Fund's asset-backed securities may also be affected by changes in interest rates, the availability of information concerning the interests in and structure of the pools of purchase contracts, financing leases or sales agreements that are represented by these securities, the creditworthiness of the servicing agent for the pool, the originator of the loans or receivables, or the entities that provide any supporting letters of credit, surety bonds, or other credit enhancements. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 108 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. The information about the performance for the period prior to June 8, 2001, reflects performance information for a predecessor fund which was reorganized into the Fund on June 8, 2001. The predecessor fund had an identical investment objective and principal investment strategies. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1992 1993 1994 1995 1996 1997 1998 1999 2000 5.41% 7.67% -5.11% 15.28% 2.53% 8.55% 8.43% -2.95% 12.13% *Year-to-date return as of June 30, 2001: 2.32% Best and worst quarterly returns during this period Best: 1st quarter 1995: 4.97% Worst: 1st quarter 1994: -3.01% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Government Bond Index, an unmanaged index of government bonds with an average maturity of approximately nine years. All dividends are reinvested. The index is not available for investment. Since 1 year 5 years inception* Primary A Shares 12.13% 5.60% 6.37% Lehman Government Bond Index 13.24% 6.49% 7.89% *The inception date of Primary A Shares is April 11, 1991. The return for the index shown is from that date. 109 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.50% Other expenses 0.37% ------ Total annual Fund operating expenses 0.87% Fee waivers and/or reimbursements (0.15)% ------ Total net expenses(2) 0.72% ====== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $74 $263 $468 $1,059 110 [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and BACAP is its sub-adviser. BACAP's Fixed Income Management Team makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] Intermediate-term securities The team focuses on fixed income securities with intermediate terms. While these securities generally won't earn as much income as securities with longer terms, they tend to be less sensitive to changes in interest rates. [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations Intermediate Bond Fund [GRAPHIC] Investment objective The Fund seeks to obtain interest income and capital appreciation. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations Intermediate Bond Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in intermediate and longer-term fixed income securities that are rated investment grade. The Master Portfolio can invest up to 35% of its assets in mortgage-backed securities, including collateralized mortgage obligations (CMOs), that are backed by the U.S government, its agencies or instrumentalities, or corporations. The Master Portfolio can invest up to 10% of its assets in high yield debt securities. The Master Portfolio may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Master Portfolio may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Master Portfolio may invest in private placements to seek to enhance its yield. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Master Portfolio's average dollar-weighted maturity will be between three and six years. Its duration generally will be the same as the Lehman Intermediate Government/Corporate Bond Index. When selecting individual investments, the team: o looks at a fixed income security's potential to generate both income and price appreciation o allocates assets among U.S. corporate securities and mortgage-backed securities, based on how they are expected to perform under current market conditions, and on how they have performed in the past. The team may change the allocations when market conditions change o selects securities using structure analysis, which evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Master Portfolio's benchmark. This can help manage interest rate risk o tries to manage risk by diversifying the Master Portfolio's investments in securities of many different issuers The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 111 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Intermediate Bond Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses for the Master Portfolio will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Master Portfolio could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Master Portfolio invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Mortgage-related risk - The value of the Master Portfolio's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Master Portfolio may have to reinvest this money in mortgage-backed or other securities that have lower yields. 112 o Investment in other Nations Funds - The Master Portfolio may pursue its high yield and foreign securities strategies by investing in High Yield Portfolio and International Bond Portfolio, respectively, rather than directly in high yield and foreign securities. High Yield Portfolio and International Bond Portfolio are registered investment companies in the Nations Funds Family whose interests are offered by private placements only. BA Advisors and its affiliates are entitled to receive fees from High Yield Portfolio and International Bond Portfolio for providing services in addition to the fees which they are entitled to receive from the Master Portfolio or Fund for services provided directly. BA Advisors and its affiliates may waive fees which they are entitled to receive from either Portfolio. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 113 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 2000 8.18% *Year-to-date return as of June 30, 2001: 3.65% Best and worst quarterly returns during this period Best: 3rd quarter 2000: 2.80% Worst: 1st quarter 2000: 0.88% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Intermediate Government/Corporate Bond Index, an unmanaged index of all publicly issued investment grade corporate, U.S. Treasury, and U.S. government and agency securities with maturities of 1 to 10 years. All dividends are reinvested. The index is not available for investment. Since 1 year inception* Primary A Shares 8.18% 5.26% Lehman Intermediate Government/Corporate Bond Index 10.12% 6.98% *The inception date of Primary A Shares is May 21, 1999. The return for the index shown is from that date. 114 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets)(2) Management fees 0.40% Other expenses 0.41% ---- Total annual Fund operating expenses(3) 0.81% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. (3)The Fund's Investment adviser and/or some of its other service providers have agreed to limit total annual operating expenses to the level shown above until July 31, 2002. There is no guarantee that this limitation will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $83 $259 $450 $1,002 115 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] More investment opportunities This Fund can invest in a wide range of fixed income securities. This allows the team to focus on securities that offer the potential for higher returns. Nations Bond Fund [GRAPHIC] Investment objective The Fund seeks total return by investing in investment grade fixed income securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in investment grade fixed income securities. The team may choose unrated securities if it believes they are of comparable quality to investment grade securities at the time of investment. The Fund may invest in: o corporate debt securities, including bonds, notes and debentures o U.S. government obligations o foreign debt securities denominated in U.S. dollars o mortgage-related securities issued by governments, their agencies or instrumentalities, or corporations o asset-backed securities o municipal securities The Fund may invest up to 10% of its total assets in high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may invest in private placements to seek to enhance its yield. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be 10 years or less and will never be more than 15 years. When selecting individual investments, the team: o looks at a fixed income security's potential to generate both income and price appreciation o allocates assets primarily among U.S. government obligations, including securities issued by government agencies, mortgage-backed securities and U.S. Treasury securities; and corporate securities, based on how they are expected to perform under current market conditions, and on how they have performed in the past. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to manage risk by diversifying the Fund's investments in securities of many different issuers The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 116 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Bond Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Mortgage-related risk - The value of the Fund's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Fund may have to reinvest this money in mortgage-backed or other securities that have lower yields. 117 o Investment in other Nations Funds - The Fund may pursue its high yield and foreign securities strategies by investing in High Yield Portfolio and International Bond Portfolio, respectively, rather than directly in high yield and foreign securities. High Yield Portfolio and International Bond Portfolio are registered investment companies in the Nations Funds Family whose interests are offered by private placements only. BA Advisors and its affiliates are entitled to receive fees from High Yield Portfolio and International Bond Portfolio for providing services in addition to the fees which they are entitled to receive from Nations Bond Fund for services provided directly. BA Advisors and its affiliates may waive fees which they are entitled to receive from either Portfolio. 118 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1993 1994 1995 1996 1997 1998 1999 2000 10.78% -3.32% 17.28% 2.12% 8.48% 7.16% -1.24% 10.10% *Year-to-date return as of June 30, 2001: 3.32% Best and worst quarterly returns during this period Best: 2nd quarter 1995: 5.95% Worst: 1st quarter 1994: -2.81% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Aggregate Bond Index, an index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. The indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. The indices are not available for investment. Since 1 year 5 years inception* Primary A Shares 10.10% 5.24% 6.29% Lehman Aggregate Bond Index 11.63% 6.46% 7.12% *The inception date of Primary A Shares is October 30, 1992. The return for the index shown is from that date. 119 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Other expenses 0.27% ---- Total annual Fund operating expenses 0.67% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $68 $214 $373 $835 120 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] Multi-sector approach The Fund follows a multi-sector approach in order to pursue high income while seeking to control volatility. To try to accomplish this, the Fund is diversified broadly in three sectors of the market - U.S. government, foreign and lower-rated corporate bonds. This diversification is thought to be critical in managing the exchange-rate uncertainties of foreign bonds and the special credit risks of lower-rated bonds. Nations Strategic Income Fund [GRAPHIC] Investment objective The Fund seeks total return with an emphasis on current income by investing in a diversified portfolio of fixed income securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in investment grade debt securities. The Fund may invest in: o corporate debt securities o U.S. government obligations o foreign debt securities denominated in U.S. dollars or foreign currencies o mortgage-related securities issued by governments and non-government issuers o asset-backed securities The Fund may invest up to 35% of its assets in lower-quality fixed income securities ("junk bonds" or "high yield bonds") rated "Ba" or "B" or better by Moody's Investors Services, Inc. (Moody's) or "BB" or "B" by Standard & Poor's Corporation (S&P). The team may choose unrated securities if it believes they are of comparable quality at the time of investment. The Fund may also invest in other registered investment companies. The Fund will limit its investments in foreign securities to one-third of its total assets. The Fund may engage in forward foreign currency contracts, reverse repurchase agreements and forward purchase agreements to seek to protect against movements in the value of foreign currencies in which its foreign securities may be denominated. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements primarily used to seek to enhance returns and manage liquidity. These investments will generally be short-term in nature. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in private placements to seek to enhance its yield. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than five years. When selecting individual investments, the team: o looks at a fixed income security's potential to generate both income and price appreciation o allocates assets primarily among U.S. government obligations and U.S. corporate securities, including high yield corporate bonds. The allocation is structured to provide the potential for the best return, based on how they are expected to perform under current market conditions, and on how they have performed in the past. The team may change the allocations when market conditions change 121 o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk o tries to manage risk by diversifying the Fund's investments in securities of many different issuers The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Strategic Income Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests may not be investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Foreign investment risk - Because the Fund may invest up to one-third of its assets in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. The Fund's use of forward foreign currency contracts to seek to protect against movements in the value of foreign currencies may not eliminate the risk that the Fund will be adversely affected by changes in foreign currencies. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. 122 o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Asset-backed securities risk - Payment of interest and repayment of principal may be impacted by the cash flows generated by the assets backing these securities. The value of the Fund's asset-backed securities may also be affected by changes in interest rates, the availability of information concerning the interests in and structure of the pools of purchase contracts, financing leases or sales agreements that are represented by these securities, the creditworthiness of the servicing agent for the pool, the originator of the loans or receivables, or the entities that provide any supporting letters of credit, surety bonds, or other credit enhancements. o Mortgage-related risk - The value of the Fund's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Fund may have to reinvest this money in mortgage-backed or other securities that have lower yields. o Investment in other Nations Funds - The Fund may pursue its high yield and foreign securities strategies by investing in High Yield Portfolio and International Bond Portfolio, respectively, rather than directly in high yield and foreign securities. High Yield Portfolio and International Bond Portfolio are registered investment companies in the Nations Funds Family whose interests are offered by private placements only. BA Advisors and its affiliates are entitled to receive fees from High Yield Portfolio and International Bond Portfolio for providing services in addition to the fees which they are entitled to receive from Nations Strategic Income Fund for services provided directly. BA Advisors and its affiliates may waive fees which they are entitled to receive from either Portfolio. 123 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1993 1994 1995 1996 1997 1998 1999 2000 15.68% -2.52% 20.91% 2.46% 8.59% 7.53% -2.59% 8.03% *Year-to-date return as of June 30, 2001: 3.33% Best and worst quarterly returns during this period Best: 2nd quarter 1995: 7.48% Worst: 1st quarter 1996: -3.18% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Aggregate Bond Index, an index made up of the Lehman Government/Corporate Bond Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. The indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. The indices are not available for investment. Since 1 year 5 years inception* Primary A Shares 8.03% 4.72% 7.13% Lehman Aggregate Bond Index 11.63% 6.46% 7.12% *The inception date of Primary A Shares is October 30, 1992. The return for the index shown is from that date. 124 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.50% Other expenses 0.33% ------ Total annual Fund operating expenses 0.83% Fee waivers and/or reimbursements (0.10)% ------ Total net expenses(2) 0.73% ====== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $75 $255 $451 $1,016 125 [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and MacKay Shields LLC (MacKay Shields) is its sub-adviser. MacKay Shields' High Yield Portfolio Management Team makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about MacKay Shields and its High Yield Portfolio Management Team on page 154. [GRAPHIC] High yield debt securities This Fund invests primarily in high yield debt securities, which are often referred to as "junk bonds." High yield debt securities offer the potential for higher income than other kinds of debt securities with similar maturities, but they also have higher credit risk. Nations High Yield Bond Fund [GRAPHIC] Investment objective The Fund seeks maximum income by investing in a diversified portfolio of high yield debt securities. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations High Yield Bond Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in domestic and foreign corporate high yield debt securities. These securities are not rated investment grade, but generally will be rated "Ba" or "B" by Moody's Investor Services, Inc. or "BB" or "B" by Standard & Poor's Corporation. The team may choose unrated securities if it believes they are of comparable quality at the time of investment. The portfolio is not managed to a specific duration. Its duration will generally track the CSFB Global High Yield Index. The Master Portfolio invests primarily in: o Domestic corporate high yield debt securities, including private placements o U.S. dollar-denominated foreign corporate high yield debt securities, including private placements o Zero-coupon bonds o U.S. government obligations o Equity securities (up to 25% of its assets), which may include convertible securities The Master Portfolio also may invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. When selecting investments for the portfolio, the team: o focuses on individual security selection ("bottom-up" analysis) o uses fundamental credit analysis o emphasizes current income while attempting to minimize risk to principal o seeks to identify a catalyst for capital appreciation such as an operational or financial restructuring o tries to manage risk by diversifying the Master Portfolio's investments across securities of many different issuers The team may sell a security when its market price rises above the target price the team has set, when it believes there has been a deterioration in an issuer's fundamentals, such as earnings, sales or management, or an issuer's credit quality, or to maintain portfolio diversification, and for other reasons. 126 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations High Yield Bond Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Credit risk - The types of securities in which the Master Portfolio typically invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Liquidity risk - There is a risk that a security held by the Master Portfolio cannot be sold at the time desired, or cannot be sold without adversely affecting the price. o Foreign investment risk - Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, may also apply to some foreign investments. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund can withdraw its entire investment from the Master Portfolio if it believes it's in the best interest of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. [GRAPHIC] For information about the performance of other high yield accounts managed by MacKay Shields, see How the Funds are Managed. [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in this prospectus. 127 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets)(2) Management fees 0.55% Other expenses 0.89% ------ Total annual Fund operating expenses 1.44% Fee waivers and/or reimbursements (0.51)% ------ Total net expenses(3) 0.93% ====== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. (3)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $95 $405 $738 $1,680 128 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] Lowest risk, lowest income potential This Fund has the lowest risk of the Nations Funds Municipal Bond Funds because it has a duration of less than three years. Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. This means the Fund's value tends to change less when interest rates change, but it could also earn less income than funds with longer durations. Nations Short-Term Municipal Income Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal income tax consistent with minimal fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade municipal securities, which pay interest that is generally free from federal income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be less than three years, and its duration will be between 1.25 and 2.75 years. When selecting individual investments, the team looks at a security's potential to generate both income and price appreciation. The team: o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk o tries to manage risk by diversifying the Fund's investments in securities of many different issuers The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 129 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Short-Term Municipal Income Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 130 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax, but may be subject to the federal alternative minimum tax, and state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1994 1995 1996 1997 1998 1999 2000 0.46% 8.26% 4.18% 4.73% 4.74% 2.43% 5.74% *Year-to-date return as of June 30, 2001: 3.09% Best and worst quarterly returns during this period Best: 1st quarter 1995: 2.90% Worst: 1st quarter 1994: -0.91% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman 3-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturities of two to four years. All dividends are reinvested. The index is not available for investment. Since 1 year 5 years inception* Primary A Shares 5.74% 4.36% 4.35% Lehman 3-Year Municipal Bond Index 6.23% 4.65% 4.66% *The inception date of Primary A Shares is October 7, 1993. The return for the index shown is from that date. 131 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.30% Other expenses 0.36% ------ Total annual Fund operating expenses 0.66% Fee waivers and/or reimbursements (0.26)% ------ Total net expenses(2) 0.40% ====== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $41 $185 $342 $798 132 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] Moderate risk, moderate income potential This Fund has relatively moderate risk compared with the other Nations Funds Municipal Bond Funds because it has a duration of between three and six years. Duration is a measure used to estimate how much a Fund's share price will fluctuate in response to a change in interest rates. The Fund's value will tend to change more when interest rates change than the value of Nations Short-Term Municipal Income Fund, but it could also earn more income. Its value will change less when interest rates change than the value of Nations Municipal Income Fund, but it could also earn less income. Nations Intermediate Municipal Bond Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal income tax consistent with moderate fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade municipal securities, which pay interest that is generally free from federal income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between three and 10 years, and its duration will be between three and six years. When selecting individual investments, the team looks at a security's potential to generate both income and price appreciation. The team: o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk o tries to manage risk by diversifying the Fund's investments in securities of many different issuers The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 133 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Intermediate Municipal Bond Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 134 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax, but may be subject to the federal alternative minimum tax, and state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1994 1995 1996 1997 1998 1999 2000 -4.54% 14.76% 4.04% 7.36% 5.45% -1.25% 8.16% *Year-to-date return as of June 30, 2001: 3.04% Best and worst quarterly returns during this period Best: 1st quarter 1995: 6.00% Worst: 1st quarter 1994: -4.02% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman 7-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturity of seven to eight years. All dividends are reinvested. The index is not available for investment. Since 1 year 5 years inception* Primary A Shares 8.16% 4.70% 5.02% Lehman 7-Year Municipal Bond Index 9.09% 5.41% 5.69% *The inception date of Primary A Shares is July 30, 1993. The return for the index shown is from that date. 135 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Other expenses 0.28% ------ Total annual Fund operating expenses 0.68% Fee waivers and/or reimbursements (0.18)% ------ Total net expenses(2) 0.50% ====== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $51 $199 $361 $830 136 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 146. [GRAPHIC] Highest risk, highest income potential This Fund has the relatively highest risk of the Nations Funds Municipal Bond Funds because it has a duration of more than six years. Duration is a measure used to estimate how much a fund's portfolio will fluctuate in response to a change in interest rates. This means the Fund's value tends to change more when interest rates change, but it could also earn more income than the two Funds with shorter durations. Nations Municipal Income Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal income tax with the potential for principal fluctuation associated with investments in long-term municipal securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade municipal securities, which pay interest that is generally free from federal income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than seven years, and its duration will be more than six years. When selecting individual investments, the team looks at a security's potential to generate both income and price appreciation. The team: o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk o tries to manage risk by diversifying the Fund's investments in securities of many different issuers The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 137 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Municipal Income Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 138 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax, but may be subject to the federal alternative minimum tax, and state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1992 1993 1994 1995 1996 1997 1998 1999 2000 8.32% 13.51% -7.44% 19.51% 4.71% 9.56% 6.00% -4.09% 10.03% *Year-to-date return as of June 30, 2001: 2.82% Best and worst quarterly returns during this period Best: 1st quarter 1995: 8.01% Worst: 1st quarter 1994: -6.61% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Municipal Bond Index, a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. The index is not available for investment. Since 1 year 5 years inception* Primary A Shares 10.03% 5.11% 6.88% Lehman Municipal Bond Index 11.68% 5.84% 7.24% *The inception date of Primary A Shares is February 1, 1991. The return for the index shown is from that date. 139 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.50% Other expenses 0.29% ------ Total annual Fund operating expenses 0.79% Fee waivers and/or reimbursements (0.19)% ------ Total net expenses(2) 0.60% ====== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $61 $233 $420 $960 140 [GRAPHIC] Other important information You'll find specific information about each Fund's principal investments, strategies and risks in the descriptions starting on page 7. The following are some other risks and information you should consider before you invest: o Changing investment objectives and policies - The investment objective and certain investment policies of any Fund can be changed without shareholder approval. Other investment policies may be changed only with shareholder approval. o Holding other kinds of investments - The Funds may hold investments that aren't part of their principal investment strategies. Please refer to the SAI for more information. The portfolio managers or management team can also choose not to invest in specific securities described in this prospectus and in the SAI. o Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest up to 25% of their assets in Nations Money Market Funds. BA Advisors and its affiliates are entitled to receive fees from the Nations Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Funds for services provided directly. BA Advisors may waive fees which it is entitled to receive from either the Nations Money Market Funds or the Funds. o Foreign investment risk - Funds that invest in foreign securities may be affected by changes in currency exchange rates and the costs of converting currencies; foreign government controls on foreign investment, repatriation of capital, and currency and exchange; foreign taxes; inadequate supervision and regulation of some foreign markets; difficulty selling some investments which may increase volatility; different settlement practices or delayed settlements in some markets; difficulty getting complete or accurate information about foreign companies; less strict accounting, auditing and financial reporting standards than those in the U.S.; political, economic or social instability; and difficulty enforcing legal rights outside the U.S. If a Fund invests in emerging markets there may be other risks involved, such as those of immature economies and less developed and more thinly traded securities markets. o Investing defensively - A Fund may temporarily hold investments that are not part of its investment objective or its principal investment strategies to try to protect it during a market or economic downturn or because of political or other conditions. A Fund may not achieve its investment objective while it is investing defensively. o Securities lending program - A Fund may lend portfolio securities to approved broker-dealers or other financial institutions on a fully collateralized basis in order to earn additional income. There may be delays in receiving additional collateral after the loan is made or in recovering the securities loaned. 141 o Bank of America and its affiliates - Bank of America and its affiliates currently provide services to some or all of the Funds, including investment advisory, investment sub-advisory, co-administration, sub-transfer agency and brokerage services, and are paid for providing these services. Bank of America and its affiliates also may, at times, provide other services and be compensated for them, including transfer agency, interfund lending and securities lending services, or make loans to the Funds. Finally, Bank of America or its affiliates may serve as counterparties in transactions with Nations Funds where permitted by law or regulation, and may receive compensation in that capacity. o Portfolio turnover - A Fund that replaces -- or turns over -- more than 100% of its investments in a year is considered to trade frequently. Frequent trading can result in larger distributions of short-term capital gains to shareholders. These gains are taxable at higher rates than long-term capital gains. Frequent trading can also mean higher brokerage and other transaction costs, which could reduce the Fund's returns. The Funds generally buy securities for capital appreciation, investment income, or both, and don't engage in short-term trading. The annual portfolio turnover rates for Nations Classic Value Fund, Nations Financial Services Fund and Nations Global Value Fund are expected to be no more than 50%, 100% and 100%, respectively. You'll find the portfolio turnover rate for each other Fund in Financial highlights. 142 [GRAPHIC] How the Funds are managed [GRAPHIC] Banc of America Advisors, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Investment adviser BA Advisors is the investment adviser to over 75 mutual fund portfolios in the Nations Funds Family, including the Funds described in this prospectus. BA Advisors is a registered investment adviser. It's a wholly-owned subsidiary of Bank of America, which is owned by Bank of America Corporation. Nations Funds pay BA Advisors an annual fee for its investment advisory services. The fee is calculated as a percentage of the average daily net assets of each Fund and is paid monthly. BA Advisors uses part of this money to pay investment sub-advisers for the services they provide to each Fund. BA Advisors has agreed to waive fees and/or reimburse expenses for certain Funds until July 31, 2002. You'll find a discussion of any waiver and/or reimbursement in the Fund descriptions. There is no assurance that BA Advisors will continue to waive and/or reimburse any fees and/or expenses after this date. 143 The following chart shows the maximum advisory fees BA Advisors can receive, along with the actual advisory fees it received during the Funds' last fiscal year, after waivers and/or reimbursements: Annual investment advisory fee, as a % of average daily net assets Maximum Actual fee advisory paid last fee fiscal year Nations Convertible Securities Fund 0.65% 0.65% Nations Asset Allocation Fund 0.65% 0.63% Nations Equity Income Fund 0.65% 0.54% Nations Classic Value Fund 0.65% , N/A Nations Value Fund 0.65% 0.65% Nations Blue Chip Fund(1) 0.65% 0.65% Nations Strategic Growth Fund 0.65% 0.65% Nations Marsico Growth & Income Fund(1) 0.75% 0.75% Nations Capital Growth Fund 0.65% 0.65% Nations Aggressive Growth Fund 0.65% 0.65% Nations Marsico Focused Equities Fund(1) 0.75% 0.75% Nations MidCap Growth Fund 0.65% 0.65% Nations Marsico 21st Century Fund(1) 0.75% N/A Nations Small Company Fund 0.90% 0.84% Nations Financial Services Fund 0.75% N/A Nations Global Value Fund 0.90% N/A Nations International Value Fund(1) 0.90% 0.80% Nations International Equity Fund(1) 0.80% 0.80% Nations Marsico International Opportunities Fund(1) 0.80% N/A Nations Emerging Markets Fund 1.00% 0.98% Nations LargeCap Index Fund 0.40% 0.07% Nations MidCap Index Fund 0.40% 0.10% Nations SmallCap Index Fund 0.40% 0.02% Nations Managed Index Fund 0.40% 0.21% Nations Short-Term Income Fund 0.30% 0.20% Nations Short-Intermediate Government Fund 0.30% 0.30% Nations Government Securities Fund 0.50% 0.40% Nations Intermediate Bond Fund(1) 0.40% 0.40% Nations Bond Fund 0.40% 0.40% Nations Strategic Income Fund 0.50% 0.39% Nations High Yield Bond Fund(1) 0.55% 0.55% Nations Short-Term Municipal Income Fund 0.30% 0.06% Nations Intermediate Municipal Bond Fund 0.40% 0.24% Nations Municipal Income Fund 0.50% 0.33% (1)These funds don't have their own investment adviser because they invest in Nations Blue Chip Master Portfolio, Nations Marsico Growth & Income Master Portfolio, Nations Marsico Focused Equities Master Portfolio, Nations Marsico 21st Century Master Portfolio, Nations International Value Master Portfolio, Nations International Equity Master Portfolio, Nations Marsico International Opportunities Master Portfolio, Nations Intermediate Bond Master Portfolio and Nations High Yield Bond Master Portfolio, respectively. BA Advisors is the investment adviser to each Master Portfolio. 144 Investment sub-advisers Nations Funds and BA Advisors engage one or more investment sub-advisers for each Fund to make day-to-day investment decisions for the Fund. BA Advisors retains ultimate responsibility (subject to Board oversight) for overseeing the sub-advisers and evaluates the Funds' needs and available sub-advisers' skills and abilities on an ongoing basis. Based on its evaluations, BA Advisors may at times recommend to a Fund's Board that the Fund: o change, add or terminate one or more sub-advisers; o continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or o materially change a sub-advisory agreement with a sub-adviser. Applicable law requires a Fund to obtain shareholder approval in order to act on most of these types of recommendations, even if the Fund's Board has approved the proposed action and believes that the action is in shareholders' best interests. BA Advisors and the Funds have applied for relief from the SEC to permit the Funds to act on many BA Advisors' recommendations with approval only by the Funds' Board and not by Fund shareholders. BA Advisors or a Fund would inform the Fund's shareholders of any actions taken in reliance on this relief. Until BA Advisors and the Funds obtain the relief, each Fund will continue to submit these matters to shareholders for their approval to the extent required by applicable law. 145 [GRAPHIC] Banc of America Capital Management, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Banc of America Capital Management, LLC BACAP is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Its management expertise covers all major domestic asset classes, including equity and fixed income securities, and money market instruments. Currently managing more than $125 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 60 funds in the Nations Funds Family. BACAP takes a team approach to investment management. Each team has access to the latest technology and analytical resources. BACAP is the investment sub-adviser to the Funds shown in the table below. The table also tells you which internal BACAP asset management team is responsible for making the day-to-day investment decisions for each Fund.
Fund BACAP Team Nations Convertible Securities Fund Income Strategies Team Nations Asset Allocation Fund Fixed Income Management Team for the fixed income and money market portions of the Fund Nations Equity Income Fund Income Strategies Team Nations Value Fund Value Strategies Team Nations Strategic Growth Fund Growth Strategies Team Nations Capital Growth Fund Growth Strategies Team Nations Aggressive Growth Fund Growth Strategies Team Nations MidCap Growth Fund Growth Strategies Team Nations Small Company Fund SmallCap Strategies Team Nations Financial Services Fund Growth Strategies Team Nations LargeCap Index Fund Quantitative Strategies Team Nations MidCap Index Fund Quantitative Strategies Team Nations SmallCap Index Fund Quantitative Strategies Team Nations Managed Index Fund Quantitative Strategies Team Nations Short-Term Income Fund Fixed Income Management Team Nations Short-Intermediate Government Fund Fixed Income Management Team Nations Government Securities Fund Fixed Income Management Team Nations Intermediate Bond Fund(1) Fixed Income Management Team Nations Bond Fund Fixed Income Management Team Nations Strategic Income Fund Fixed Income Management Team Nations Short-Term Municipal Income Fund Municipal Fixed Income Management Team Nations Intermediate Municipal Bond Fund Municipal Fixed Income Management Team Nations Municipal Income Fund Municipal Fixed Income Management Team
(1)Nations Intermediate Bond Fund doesn't have its own investment sub-adviser because it invests in Nations Intermediate Bond Master Portfolio. BACAP is the investment sub-adviser to the Master Portfolio. 146 [GRAPHIC] Marsico Capital Management, LLC 1200 17th Street Suite 1300 Denver, Colorado 80202 Marsico Capital Management, LLC Marsico Capital is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Marsico Capital is a full service investment advisory firm founded by Thomas F. Marsico in September 1997. Marsico Capital currently has over $13 billion in assets under management. Marsico Capital is the investment sub-adviser to: o Nations Marsico Growth & Income Master Portfolio o Nations Marsico Focused Equities Master Portfolio o Nations Marsico 21st Century Master Portfolio o Nations Marsico International Opportunities Master Portfolio Thomas F. Marsico, Chairman and Chief Executive Officer of Marsico Capital, is the portfolio manager responsible for making the day-to-day investment decisions for Nations Marsico Growth & Income Master Portfolio and Nations Marsico Focused Equities Master Portfolio. Mr. Marsico was an executive vice president and portfolio manager at Janus Capital Corporation from 1988 until he formed Marsico Capital in September 1997. He has more than 20 years of experience as a securities analyst and portfolio manager. James A. Hillary is the portfolio manager of Nations Marsico 21st Century Master Portfolio. Mr. Hillary has eleven years of experience as a securities analyst and portfolio manager and is a founding member of Marsico Capital Management. Prior to joining Marsico Capital in 1997, Mr. Hillary was a portfolio manager at W.H. Reaves, a New Jersey-based money management firm where he managed equity mutual funds and separate accounts. He holds a Bachelor's degree from Rutgers University and a law degree from Fordham University. Mr. Hillary is also a certified public accountant. James G. Gendelman is the portfolio manager of Nations Marsico International Opportunities Master Portfolio. Prior to joining Marsico Capital in May, 2000, Mr. Gendelman spent thirteen years as a Vice President of International Sales for Goldman, Sachs & Co. He holds a Bachelor's degree in Accounting from Michigan State University and an MBA in Finance from the University of Chicago. Mr. Gendelman was an accountant for Ernst & Young from 1983 to 1985. Performance of other stock funds managed by Thomas Marsico Nations Marsico Focused Equities Fund and Nations Marsico Growth & Income Fund have been in operation since December 31, 1997, so they have a relatively short performance history. The tables below are designed to show you how similar stock funds managed by Thomas Marsico performed in the past. The Janus Twenty Fund has an investment objective, policies and strategies that are substantially similar to Nations Marsico Focused Equities Fund. Mr. Marsico managed the Janus Twenty Fund from January 31, 1988 through August 11, 1997. He had full discretionary authority for selecting investments for that fund, which had approximately $6 billion in net assets on August 11, 1997. 147 The table below shows the returns for the Janus Twenty Fund compared with the S&P 500 for the periods ending August 7, 1997. The returns reflect deductions of fees and expenses, and assume all dividends and distributions have been reinvested. Average annual total returns as of August 7, 1997 Janus Twenty Fund (%) S&P 500 (%) one year 48.21 46.41 three years 32.07 30.63 five years 20.02 20.98 during the period of Mr. Marsico's management (January 31, 1988 to August 7, 1997) 23.38 18.20 This information is designed to show the historical track record of Mr. Marsico. It does not indicate how the Fund has performed or will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's expenses. The Janus Growth and Income Fund has an investment objective, policies and strategies that are substantially similar to Nations Marsico Growth & Income Fund. Mr. Marsico managed the Janus Growth and Income Fund from its inception on May 31, 1991 through August 11, 1997. He had full discretionary authority for selecting investments for that fund, which had approximately $1.7 billion in net assets on August 11, 1997. The table below shows the returns for the Janus Growth and Income Fund compared with the S&P 500 for the period ending August 7, 1997. The returns reflect deductions of fees and expenses, and assume all dividends and distributions have been reinvested. Average annual total returns as of August 7, 1997 Janus Growth and Income Fund (%) S&P 500 (%) one year 47.77 46.41 three years 31.13 30.63 five years 21.16 20.98 during the period of Mr. Marsico's management (May 31, 1991 to August 7, 1997) 21.19 18.59 This information is designed to show the historical track record of Mr. Marsico. It does not indicate how the Fund has performed or will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's expenses. 148 [GRAPHIC] Chicago Equity Partners, LLC 180 North LaSalle Suite 3800 Chicago, Illinois 60601 Chicago Equity Partners, LLC Chicago Equity is a registered investment adviser and is owned by the firm's senior management. Chicago Equity is the investment sub-adviser to Nations Blue Chip Master Portfolio, and is one of two sub-advisers to Nations Asset Allocation Fund. Chicago Equity's Equity Management Team is responsible for making the day-to-day investment decisions for Nations Blue Chip Master Portfolio and for the equity portion of Nations Asset Allocation Fund. [GRAPHIC] Brandes Investment Partners, L.P. 11988 El Camino Real Suite 500 San Diego, California 92130 Brandes Investment Partners, L.P. Founded in 1974, Brandes is an investment advisory firm with 56 investment professionals who manage more than $50 billion in assets. Brandes uses a value-oriented approach to managing international investments, seeking to build wealth by buying high quality, undervalued stocks. Brandes is the investment sub-adviser to Nations Classic Value Fund, Nations Global Value Fund and Nations International Value Master Portfolio. Brandes' Large Cap Investment Committee is responsible for making the day-to-day investment decisions for the Funds and the Master Portfolio. Performance of other international/global stock funds and accounts managed by Brandes Nations Classic Value Fund and Nations Global Value Fund commenced their operations on April 16, 2001. Nations International Value Master Portfolio (including its predecessors) has been in operation since December 27, 1995. The tables below are designed to show you how composites of similar equity accounts managed by Brandes performed over various periods in the past. The accounts comprising the Brandes U.S. Value Equity composite have investment objectives, policies and strategies that are substantially similar to Nations Classic Value Fund. The Brandes U.S. Value Equity composite includes all accounts managed by Brandes that are substantially similar to Nations Classic Value Fund. 149 The table below shows the returns for the Brandes U.S. Value Equity composite compared with the Russell 1000 Value Index for the periods ending March 31, 2001 and December 31 of prior years. The returns of the Brandes U.S. Value Equity composite reflect deductions of account fees and expenses, and assume all dividends and distributions have been reinvested. The returns of the Russell 1000 Value Index assume all dividends and distributions have been reinvested. Average annual total returns as of March 31, 2001 Brandes U.S. Value Equity Russell 1000 Composite (%) Value Index (%) one year 47.98% 0.27% three years 4.09% 3.85% five years 14.52% 14.24% since inception (6/30/91) 15.27% 15.65% Annual total returns as of December 31 Brandes U.S. Value Equity Russell 1000 Composite (%) Value Index (%) 2000 34.46% 7.02% 1999 (12.45)% 7.35% 1998 1.69% 15.63% 1997 32.99% 35.18% 1996 29.47% 21.64% 1995 20.98% 38.36% 1994 (3.54)% (1.98)% 1993 24.00% 18.07% 1992 23.40% 13.58% This information is designed to demonstrate the historical track record of Brandes. It does not indicate how the Fund has performed or will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's expenses. The performance reflected in the composite has been calculated in compliance with the AIMR Performance Presentation Standards which differ from the method used by the SEC. The Brandes composite includes U.S. equity accounts managed by Brandes. The accounts don't pay the same expenses that mutual funds pay and aren't subject to the diversification rules, tax restrictions and investment limits under the 1940 Act or Subchapter M of the Internal Revenue Code. Returns could have been lower if the composite had been subject to these expenses and regulations. The aggregate returns of the accounts in the composite may not reflect the returns of any particular account of Brandes. The accounts comprising the Brandes Global Equity composite have investment objectives, policies and strategies that are substantially similar to Nations Global Value Fund. The Brandes Global Equity composite includes all accounts managed by Brandes that are substantially similar to Nations Global Value Fund. 150 The table below shows the returns for the Brandes Global Equity composite compared with the MSCI World Index for the periods ending March 31, 2001 and December 31 of prior years. The returns of the Brandes Global Equity composite reflect deductions of account fees and expenses, and assume all dividends and distributions have been reinvested. The returns of the MSCI World Index assume all dividends and distributions have been reinvested. Average annual total returns as of March 31, 2001 Brandes Global Equity MSCI World Composite (%) Index (%) one year 23.32% (25.10)% three years 12.05% 0.93% five years 19.48% 8.21% ten years 18.58% 9.37% Annual total returns as of December 31 Brandes Global Equity MSCI World Composite (%) Index (%) 2000 23.16% (13.18)% 1999 20.92% 24.93% 1998 13.08% 24.34% 1997 28.14% 15.76% 1996 22.38% 13.48% 1995 20.81% 20.72% 1994 (2.34)% (5.08)% 1993 39.71% 22.50% 1992 12.23% (5.23)% 1991 37.07% 18.29% 1990 (11.79)% (17.02)% 1989 13.04% 16.61% 1988 26.02% 23.29% 1987 (2.57)% 16.16% 1986 20.77% 41.89% 1985 35.55% 40.57% 1984 7.09% 4.72% 1983 39.91% 21.93% 1982 29.86% 9.71% 1981 13.56% (4.78)% 1980 34.28% 25.67% This information is designed to demonstrate the historical track record of Brandes. It does not indicate how the Fund has performed or will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's expenses. The performance reflected in the composite has been calculated in compliance with the AIMR Performance Presentation Standards which differ from the method used by the SEC. The Brandes composite includes global equity accounts managed by Brandes. The accounts don't pay the same expenses that mutual funds pay and aren't subject to the diversification rules, tax restrictions and investment limits under the 1940 Act or Subchapter M of the Internal Revenue Code. Returns could have been lower if the composite had been subject to these expenses and regulations. The aggregate returns of the accounts in the composite may not reflect the returns of any particular account of Brandes. 151 The fund and the accounts comprising the Brandes composite's investment objective, policies and strategies are substantially similar to Nations International Value Master Portfolio. The table below shows the returns for the Brandes composite compared with the MSCI EAFE Index for the periods ending December 31, 2000. The returns of the Brandes composite reflect deductions of account fees and expenses, and assume all dividends and distributions have been reinvested. Average annual total returns as of December 31, 2000 Brandes MSCI EAFE Composite (%) Index (%) one year 2.80% (14.17)% three years 22.03% 9.35% five years 20.47% 7.13% ten years 19.38% 6.42% Annual total returns as of December 31 Brandes MSCI EAFE Composite (%) Index (%) 2000 2.80% (14.17)% 1999 53.67% 26.96% 1998 15.03% 20.33% 1997 20.05% 1.78% 1996 16.34% 6.05% 1995 13.75% 11.21% 1994 (2.98)% 7.78% 1993 40.86% 32.56% 1992 6.28% (12.17)% 1991 40.17% 12.13% This information is designed to demonstrate the historical track record of Brandes. It does not indicate how the Fund has performed or will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's expenses. The Brandes composite includes Brandes International Equity Fund (since 1995) and international equity accounts managed by Brandes. The accounts don't pay the same expenses that mutual funds pay and aren't subject to the diversification rules, tax restrictions and investment limits under the 1940 Act or Subchapter M of the Internal Revenue Code. Returns could have been lower if the composite had been subject to these expenses and regulations. The aggregate returns of the accounts in the composite may not reflect the returns of any particular account of Brandes. 152 [GRAPHIC] Gartmore Global Partners Gartmore House 8 Fenchurch Place London EC3M 4PH, England Gartmore Global Partners Gartmore is a global asset manager dedicated to serving the needs of U.S. based investors. Gartmore was formed in 1995 as a registered investment adviser and manages more than $991 million in assets. Gartmore is a general partnership which is an indirect wholly-owned subsidiary of Nationwide Mutual Insurance Company. Gartmore generally follows a growth philosophy, which is reflected in its active management of market allocation and stock selection. Gartmore is co-investment sub-adviser to: o Nations International Equity Master Portfolio Gartmore is the investment sub-adviser to: o Nations Emerging Markets Fund Gartmore's Global Equities Portfolio Construction Team is responsible for the day-to-day investment decisions for its portion of the Master Portfolio. Christopher Palmer has been responsible since August 1999 for investments in developing countries, and has been the principal portfolio manager of Nations Emerging Markets Fund since that time. He joined Gartmore in 1995 and is a senior investment manager on the Gartmore Emerging Markets Team. Before he joined Gartmore, Mr. Palmer worked for Unifund, S.A., a private investment bank, in its Mexico City and Hong Kong offices, and managed global derivatives, credit and counterparty credit risk as vice president in the Institutional Credit Department of Bear Stearns & Co. He graduated from Colgate University in 1986 with a BA Honors degree in History and completed an MBA in Finance at New York University in 1988. Mr. Palmer was awarded the CFA designation by the Association of Investment Management and Research in 1993. [GRAPHIC] INVESCO Global Asset Management (N.A.), Inc. 1360 Peachtree Street, N.E. Atlanta, Georgia 30309 INVESCO Global Asset Management (N.A.), Inc. INVESCO Global is a division of AMVESCAP PLC, a publicly traded UK financial holding company located in London. INVESCO Global is one of the three investment sub-advisers to Nations International Equity Master Portfolio. INVESCO's International Equity Portfolio Management Team is responsible for making the day-to-day investment decisions for its portion of the Master Portfolio. 153 [GRAPHIC] Putnam Investment Management LLC One Post Office Square Boston, Massachusetts 02109 Putnam Investment Management LLC Putnam is a wholly-owned subsidiary of Putnam Investments, Inc., which, except for shares held by employees, is owned by Marsh & McLennan Companies. Putnam is one of three investment sub-advisers to Nations International Equity Master Portfolio. Putnam's Core International Equity Group is responsible for making the day-to-day investment decisions for its portion of the Master Portfolio. [GRAPHIC] MacKay Shields LLC 9 West 57th Street New York, New York 10019 MacKay Shields LLC Founded in 1938, MacKay Shields is an independently-managed, wholly-owned subsidiary of New York Life Insurance Company. The firm's 63 investment professionals manage more than $30 billion in assets, including over $6 billion in high yield assets. MacKay Shields' High Yield Portfolio Management Team is responsible for making the day-to-day decisions for Nations High Yield Bond Master Portfolio. Prior Performance of other high yield accounts managed by MacKay Shields Nations High Yield Bond Fund commenced its operations on February 14, 2000. The table below is designed to show you how a composite of similar high yield accounts managed by MacKay Shields performed over various time periods in the past. The accounts comprising the MacKay Shields composite have investment objectives, policies and strategies that are substantially similar to those of Nations High Yield Bond Master Portfolio. The table below shows the returns for the MacKay Shields composite compared with the CSFB Global High Yield Index for the periods ending December 31, 2000. The returns of the MacKay Shields composite reflect deductions of account fees and expenses, and assume all dividends and distributions have been reinvested. Average annual total returns as of December 31, 2000 CSFB MacKay Shields Global High Yield Composite (%) Index (%) one year (3.40)% (5.22)% three years 4.26% (0.52)% five years 9.67% 4.50% ten years 15.24% 11.20% 154 Annual total returns as of December 31 CSFB MacKay Shields Global High Yield Composite (%) Index (%) 2000 (3.4)% (5.2)% 1999 10.7% 3.3% 1998 5.0% 0.6% 1997 15.9% 12.6% 1996 19.6% 12.4% 1995 21.2% 17.4% 1994 2.6% (1.0)% 1993 23.1% 18.9% 1992 23.4% 16.7% 1991 (since 7/1/91) 12.8% 12.9% This information is designed to demonstrate the historical track record of MacKay Shields. It does not indicate how the Fund will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's fees and expenses. The MacKay Shields composite includes all high yield accounts managed by MacKay Shields. The accounts don't pay the same expenses that mutual funds pay and aren't subject to the diversification rules, tax restrictions and investment limits under the 1940 Act or Subchapter M of the Internal Revenue Code. Returns could have been lower if the composite had been subject to these expenses and regulations and reflected a deduction for investment advisory fees. Performance is expressed in U.S. dollars. The aggregate returns of the accounts in the composite may not reflect the returns of any particular account of MacKay Shields. For further information regarding the composite performance, please see the SAI. [GRAPHIC] Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 The financial institution or intermediary that buys shares for you is also referred to as a selling or servicing agent. Selling and servicing agents include banks, brokerage firms, mutual fund dealers and other financial institutions, including affiliates of Bank of America. Other service providers The Funds are distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. BA Advisors is also co-administrator of the Funds, and assists in overseeing the administrative operations of the Funds. The Funds pay BA Advisors and Stephens a combined fee for their services, plus certain out-of-pocket expenses. The fee is calculated as an annual percentage of the average daily net assets of the Funds and is paid monthly, as follows: Stock Funds (also Nations High Yield Bond Fund) 0.23% International/Global Stock Funds 0.22% Index Funds 0.23% Government and Corporate Bond Funds (except Nations High Yield Bond Fund) 0.22% Municipal Bond Funds 0.22% BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. [GRAPHIC] PFPC Inc. 400 Bellevue Parkway Wilmington, Delaware 19809 PFPC Inc. (PFPC) is the transfer agent for the Funds' shares. Its responsibilities include processing purchases, sales and exchanges, calculating and paying distributions, keeping shareholder records, preparing account statements and providing customer service. 155 About your investment - -------------------------------------------------------------------------------- [GRAPHIC] When you sell shares of a mutual fund, the fund is effectively "buying" them back from you. This is called a redemption. [GRAPHIC] Buying, selling and exchanging shares This prospectus offers Primary A Shares of the Funds. Here are some general rules about this class of shares: o Primary A Shares are available to certain financial institutions and intermediaries for their own accounts, and for certain client accounts for which they act as a fiduciary, agent or custodian. These include: o Bank of America and certain of its affiliates o certain other financial institutions and intermediaries, including financial planners and investment advisers o institutional investors o charitable foundations o endowments o other Funds in Nations Funds Family o The minimum initial investment is $250,000. Financial institutions or intermediaries can total the investments they make on behalf of their clients to meet the minimum initial investment amount. Client accounts for which the financial institution or intermediary no longer acts as fiduciary, agent or custodian may no longer be eligible to purchase or hold Primary A Shares. o There is no minimum amount for additional investments. o There are no sales charges for buying, selling or exchanging these shares. You'll find more information about buying, selling and exchanging Primary A Shares on the pages that follow. You should also ask your financial institution or intermediary about its limits, fees and policies for buying, selling and exchanging shares, which may be different from those described here, and about its related programs or services. The Funds also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. Please contact your investment professional, or call us at 1.800.321.7854 if you have any questions, or you need help placing an order. 156 [GRAPHIC] A business day is any day that the New York Stock Exchange (NYSE) is open. A business day ends at the close of regular trading on the NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes early, the business day ends as of the time the NYSE closes. The NYSE is closed on weekends and on the following national holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. [GRAPHIC] The net asset value per share is the price of a share calculated by a Fund every business day. How shares are priced All transactions are based on the price of a Fund's shares -- or its net asset value per share. We calculate net asset value per share for each class of each Fund at the end of each business day. First, we calculate the net asset value for each class of a Fund by determining the value of the Fund's assets in the class and then subtracting its liabilities. Next, we divide this amount by the number of shares that investors are holding in the class. Valuing securities in a Fund The value of a Fund's assets is based on the total market value of all of the securities it holds. The prices reported on stock exchanges and securities markets around the world are usually used to value securities in a Fund. If prices aren't readily available, or the value of a security has been materially affected by events occurring after a foreign exchange closes, we'll base the price of a security on its fair value. When a Fund uses fair value to price securities it may value those securities higher or lower than another fund that uses market quotations to price the same securities. We use the amortized cost method, which approximates market value, to value short-term investments maturing in 60 days or less. International markets may be open on days when U.S. markets are closed. The value of foreign securities owned by a Fund could change on days when Fund shares may not be bought or sold. How orders are processed Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents before the end of a business day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive that day's net asset value per share. Orders received after the end of a business day will receive the next business day's net asset value per share. The business day that applies to your order is also called the trade date. We may refuse any order to buy or exchange shares. If this happens, we'll return any money we've received. [GRAPHIC] Buying shares Here are some general rules for buying shares: o You buy Primary A Shares at net asset value per share. o If we don't receive payment within three business days of receiving an order, we'll refuse the order. We'll return any payment received for orders that we refuse. o Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. o Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. o Financial institutions and intermediaries are responsible for recording the beneficial ownership of the shares of their clients, and for reporting this ownership on account statements they send to their clients. 157 [GRAPHIC] Selling shares Here are some general rules for selling shares: o We normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. o If you paid for your shares with a check that wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared, whichever is later. o Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. o Under certain circumstances allowed under the Investment Company Act of 1940 (1940 Act), we can pay you in securities or other property when you sell your shares. o We can delay payment of the sale proceeds for up to seven days. o Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. We may sell your shares: o if the value of your account falls below $500. We'll give you 60 days notice in writing if we're going to do this o if a financial institution or intermediary tells us to sell your shares under arrangements made with you o under certain other circumstances allowed under the 1940 Act [GRAPHIC] You should make sure you understand the investment objective and principal investment strategies of the Fund you're exchanging into. Please read its prospectus carefully. [GRAPHIC] Exchanging shares You can sell shares of a Fund to buy shares of another Nations Fund. This is called an exchange. You might want to do this if your investment goals or tolerance for risk changes. Here's how exchanges work: o You can exchange Primary A Shares of a Fund for Primary A Shares of any other Nations Fund. In some cases, the only Money Market Fund option is Trust Class Shares of Nations Reserves Money Market Funds. o The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. o You may only make exchanges into a Fund that is legally sold in your state of residence. o You generally may only make an exchange into a Fund that is accepting investments. o We may limit the number of exchanges you can make within a specified period of time. o We may change or cancel your right to make an exchange by giving the amount of notice required by regulatory authorities (generally 60 days for a material change or cancellation). 158 [GRAPHIC] Distributions and taxes [GRAPHIC] The power of compounding Reinvesting your distributions buys you more shares of a Fund -- which lets you take advantage of the potential for compound growth. Putting the money you earn back into your investment means it, in turn, may earn even more money. Over time, the power of compounding has the potential to significantly increase the value of your investment. There is no assurance, however, that you'll earn more money if you reinvest your distributions. About distributions A mutual fund can make money two ways: o It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. o A fund can also have capital gain if the value of its investments increases. If a fund sells an investment at a gain, the gain is realized. If a fund continues to hold the investment, any gain is unrealized. A mutual fund is not subject to federal income tax as long as it distributes its net investment income and realized capital gain to its shareholders. The Funds intend to pay out a sufficient amount of their income and capital gain to their shareholders so the Funds won't have to pay any federal income tax. When a Fund makes this kind of a payment, it's split among all shares, and is called a distribution. All of the Funds distribute any net realized capital gain at least once a year. The frequency of distributions of net investment income varies by Fund: Frequency of Fund income distributions Nations Convertible Securities Fund quarterly Nations Asset Allocation Fund quarterly Nations Equity Income Fund monthly Nations Classic Value Fund annually Nations Value Fund monthly Nations Blue Chip Fund quarterly Nations Strategic Growth Fund monthly Nations Marsico Growth & Income Fund quarterly Nations Capital Growth Fund monthly Nations Aggressive Growth Fund monthly Nations Marsico Focused Equities Fund quarterly Nations MidCap Growth Fund quarterly Nations Marsico 21st Century Fund quarterly Nations Small Company Fund monthly Nations Financial Services Fund annually Nations Global Value Fund annually Nations International Value Fund annually Nations International Equity Fund quarterly Nations Marsico International Opportunities Fund quarterly Nations Emerging Markets Fund quarterly Nations LargeCap Index Fund quarterly Nations MidCap Index Fund quarterly Nations SmallCap Index Fund quarterly Nations Managed Index Fund monthly Nations Short-Term Income Fund monthly Nations Short-Intermediate Government Fund monthly Nations Government Securities Fund monthly Nations Intermediate Bond Fund monthly Nations Bond Fund monthly Nations Strategic Income Fund monthly Nations High Yield Bond Fund monthly Nations Short-Term Municipal Income Fund monthly Nations Intermediate Municipal Bond Fund monthly Nations Municipal Income Fund monthly 159 Any distribution you receive is based on the number of shares you hold on the record date, which is usually the day the distribution is declared (daily dividend Funds) or the day before the distribution is declared (all other Funds). Shares are eligible to receive net investment income distributions from the settlement date (daily dividend Funds), trade date (all other Funds) or realized capital gain from the trade date of the purchase up to and including the day before the shares are sold. Different share classes of a Fund usually pay different net investment income distribution amounts, because each class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. We'll automatically reinvest distributions in additional shares of the same Fund unless you tell us you want to receive your distributions in cash. You can do this by writing to us at the address on the back cover, or by calling us at 1.800.321.7854. We generally pay cash distributions within five business days after the end of the month, quarter or year in which the distribution was made. If you sell all of your shares, we'll normally pay any distribution that applies to those shares in cash within five business days after the sale was made. If you buy shares of a Fund shortly before it makes a distribution, you will, in effect, receive part of your purchase back in the distribution, which is subject to tax. Similarly, if you buy shares of a Fund that holds securities with unrealized capital gain, you will, in effect, receive part of your purchase back if and when the Fund sells those securities and realizes and distributes the gain. This distribution is also subject to tax. The Funds have built up, or have the potential to build up, high levels of unrealized capital gain. 160 [GRAPHIC] This information is a summary of how federal income taxes may affect your investment in the Funds. It is not intended as a substitute for careful tax planning. You should consult with your own tax adviser about your situation, including any foreign, state and local taxes that may apply. [GRAPHIC] For more information about taxes, please see the SAI. How taxes affect your investment Distributions that come from net investment income, net short-term capital gain and certain other items generally are taxable to you as ordinary income. A portion of such distributions to corporate shareholders may qualify for the dividends-received deduction. Distributions that come from net long-term capital gain generally are taxable to you as long-term capital gain. In general, all distributions are taxable to you when paid, whether they are paid in cash or automatically reinvested in additional shares of the Fund. However, any distributions declared to shareholders of record in October, November or December of one year and distributed in January of the following year will be taxable as if they had been paid to you on December 31 of the first year. We'll send you a notice every year that tells you how much you've received in distributions during the year and their federal tax status. Foreign, state and local taxes may also apply to these distributions. Municipal Bond Funds Distributions that come from a Municipal Bond Fund's tax-exempt interest income are generally free from federal income tax, but may be subject to state and local tax. All or a portion of these distributions may also be subject to the federal alternative minimum tax. Any distributions that come from taxable income or realized capital gain are generally subject to tax. Distributions that come from taxable income and any net short-term capital gain generally are taxable to you as ordinary income. Distributions of net long-term capital gain generally are taxable to you as long-term capital gain. Corporate shareholders will not be able to deduct any distributions from these Funds when determining their taxable income. Foreign taxes Mutual funds that maintain most of their portfolio in foreign securities -- like the International/Global Stock Funds -- have special tax considerations. You'll generally be required to: o include in your gross income your proportional amount of foreign taxes paid by the fund o treat this amount as foreign taxes you paid directly o either deduct this amount when calculating your income, or subject to certain conditions and limitations, claim this amount as a foreign tax credit against your federal income tax liability In general, if you are an individual, each year you can claim up to $300 ($600 if you're filing jointly) of foreign taxes paid (or deemed paid) by you as a foreign tax credit against your federal income tax liability. U.S. government obligations If you invest in U.S. government obligations directly, interest on those obligations is free from state and local and individual income taxes. Distributions you receive that come from interest each Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. 161 Withholding tax We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts to be paid for in securities or other property and exchanges) if: o you haven't given us a correct Taxpayer Identification Number (TIN) and haven't certified that the TIN is correct and withholding doesn't apply o the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records o the IRS informs us that you are otherwise subject to backup withholding The IRS may also impose penalties against you if you don't give us a correct TIN. Amounts we withhold are applied to your federal income tax liability. You may receive a refund from the IRS if the withholding tax results in an overpayment of taxes. We're also normally required by federal law to withhold tax on distributions (other than capital gain distributions) paid to foreign shareholders. Taxation of redemptions and exchanges Your redemptions (including redemptions paid in securities) and exchanges of Fund shares will usually result in a taxable capital gain or loss to you, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. 162 [GRAPHIC] Financial highlights The financial highlights table is designed to help you understand how the Funds have performed for the past five years or, if shorter, the period of the Fund's operations. Certain information reflects financial results for a single Fund share. The total investment return line indicates how much an investment in the Fund would have earned, assuming all dividends and distributions had been reinvested. Financial highlights for Primary A Shares of Nations Classic Value Fund, Nations Financial Services Fund and Nations Global Value Fund are not provided because this class of shares had not yet commenced operations during the period indicated. This information, except as noted below, has been audited by PricewaterhouseCoopers LLP. The financial highlights of Nations International Value Fund for the period ended May 15, 1998 and the year ended November 30, 1997 and the financial highlights of Nations Small Company Fund for the periods ended May 16, 1997 were audited by other independent accountants. The independent accountants' report and Nations Funds financial statements are incorporated by reference into the SAI. Please see the back cover to find out how you can get a copy. 163
Nations Convertible Securities Fund For a Share outstanding throughout each period Year ended Period ended Primary A Shares 03/31/01 03/31/00*# Operating performance: Net asset value, beginning of period $22.18 $18.15 Net investment income 0.51 0.42 Net realized and unrealized gain/(loss) on investments (2.00) 5.52 Net increase/(decrease) in net asset value from operations (1.49) 5.94 Distributions: Dividends from net investment income (0.60) (0.50) Distributions from net realized capital gains (3.97) (1.41) Distributions in excess of net realized capital gains (0.07) -- Total dividends and distributions (4.64) (1.91) Net asset value, end of period $16.05 $22.18 Total return++ (7.59)% 35.21% ============================================================================================ Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $75,627 $13,688 Ratio of operating expenses to average net assets 0.99%(a)(b) 0.97%+(b) Ratio of net investment income to average net assets 3.08% 2.21%+ Portfolio turnover rate 73% 65% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.00%(a) 0.98%+
*Convertible Securities Fund Primary A Shares commenced operations on May 21, 1999. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%.
Nations Asset Allocation Fund For a Share outstanding throughout each period Year ended Period ended Primary A Shares 03/31/01# 03/31/00*# Operating performance: Net asset value, beginning of period $24.35 $23.06 Net investment income 0.57 0.49 Net realized and unrealized gain/(loss) on investments (2.84) 1.93 Net increase/(decrease) in net asset value from operations (2.27) 2.42 Distributions: Dividends from net investment income (0.55) (0.41) Distributions from net realized capital gains (1.21) (0.72) Total dividends and distributions (1.76) (1.13) Net asset value, end of period $20.32 $24.35 Total return++ (9.83)% 10.88% ========================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $12,847 $15,532 Ratio of operating expenses to average net assets 0.98%(a)(b) 0.95%+(a)(b) Ratio of net investment income to average net assets 2.45% 1.85%+ Portfolio turnover rate 88% 84% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.00%(a) 1.02%+(a)
*Asset Allocation Fund Primary A Shares commenced operations on May 21, 1999. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 164
Nations Equity Income Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01 03/31/00 03/31/99# 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $11.57 $11.36 $13.94 $12.30 $13.14 Net investment income 0.11 0.15 0.23 0.29 0.43 Net realized and unrealized gain/(loss) on investments (2.30) 0.36 (1.45) 3.79 1.55 Net increase/(decrease) in net asset value from operations (2.19) 0.51 (1.22) 4.08 1.98 Distributions: Dividends from net investment income (0.11) (0.15) (0.23) (0.28) (0.41) Distributions from net realized capital gains (0.53) (0.15) (1.13) (2.16) (2.41) Total dividends and distributions (0.64) (0.30) (1.36) (2.44) (2.82) Net asset value, end of year $8.74 $11.57 $11.36 $13.94 $12.30 Total return++ (19.73)% 4.51% (9.40)% 37.21% 15.62% ================================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $321,026 $397,479 $575,076 $915,630 $200,772 Ratio of operating expenses to average net assets 0.87%(a)(b) 0.85%(a)(b) 0.80%(a)(b) 0.86%(a) 0.91%(a) Ratio of net investment income to average net assets 1.06% 1.25% 1.92% 2.22% 3.09% Portfolio turnover rate 139% 54% 69% 74% 102% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.87%(a) 0.85%(a) 0.80%(a) 0.86%(a) 0.91%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%.
Nations Value Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01 03/31/00# 03/31/99# 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $16.24 $18.16 $19.92 $ 17.87 $ 16.60 Net investment income 0.17 0.11 0.13 0.20 0.26 Net realized and unrealized gain/(loss) on investments (0.42) (0.06) 0.64 5.98 2.69 Net increase/(decrease) in net asset value from operations (0.25) 0.05 0.77 6.18 2.95 Distributions: Dividends from net investment income (0.18) (0.11) (0.14) (0.19) (0.26) Distributions from net realized capital gains (3.42) (1.86) (2.39) (3.94) (1.42) Total dividends and distributions (3.60) (1.97) (2.53) (4.13) (1.68) Net asset value, end of year $12.39 $16.24 $18.16 $ 19.92 $ 17.87 Total return++ (1.97)% (0.16)% 4.15% 38.53% 18.07% ================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $844,432 $1,290,572 $1,939,704 $2,248,460 $1,200,853 Ratio of operating expenses to average net assets 0.94%(a)(b) 0.93%(a)(b) 0.94%(a)(b) 0.95%(a) 0.97%(a) Ratio of net investment income to average net assets 1.28% 0.65% 0.76% 1.04% 1.51% Portfolio turnover rate 181% 95% 38% 79% 47% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.94%(a) 0.93%(a) 0.94%(a) 0.95%(a) 0.97%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 165
Nations Blue Chip Fund For a Share outstanding throughout each period Year ended Period ended Primary A Shares 03/31/01# 03/31/00*# Operating performance: Net asset value, beginning of period $37.33 $35.00 Net investment income 0.08 0.06 Net realized and unrealized gain/(loss) on investments (8.17) 5.65 Net increase/(decrease) in net asset value from operations (8.09) 5.71 Distributions: Dividends from net investment income (0.01) (0.03) Distributions from net realized capital gains (2.18) (3.35) Distributions in excess of net realized capital gains (0.44) -- Total dividends and distributions (2.63) (3.38) Net asset value, end of period $26.61 $37.33 Total return++ (23.09)% 17.54% ================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $49,458 $36,393 Ratio of operating expenses to average net assets 0.96% 0.95%+ Ratio of net investment income to average net assets 0.23% 0.17%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.96% 0.98%+
* Blue Chip Fund Primary A Shares commenced operations on May 21, 1999. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method.
Nations Strategic Growth Fund For a Share outstanding throughout each period Year ended Year ended Period ended Primary A Shares 03/31/01 03/31/00# 03/31/99*# Operating performance: Net asset value, beginning of period $17.03 $ 13.86 $10.00 Net investment income/(loss) (0.01) (0.02) 0.00 ## Net realized and unrealized gain/(loss) on investments (4.51) 3.39 3.87 Net increase/(decrease) in net asset value from operations (4.52) 3.37 3.87 Distributions: Dividends from net investment income (0.01) -- -- Distributions from net realized capital gains (0.03) (0.20) (0.01) Total dividends and distributions (0.04) (0.20) (0.01) Net asset value, end of period $12.47 $ 17.03 $13.86 Total return++ (26.62)% 24.63% 38.65% ================================================================================================ Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $1,182,028 $860,124 $266,823 Ratio of operating expenses to average net assets 0.94%(a)(b) 0.97% 1.07%+(a) Ratio of net investment loss to average net assets (0.09)% (0.10)% (0.03)%+ Portfolio turnover rate 56% 23% 34% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.94%(a) 0.97% 1.07%+(a)
* Strategic Growth Fund Primary A Shares commenced operations on October 2, 1998. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset 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%. 166
Nations Marsico Growth & Income Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Primary A Shares 03/31/01 03/31/00 03/31/99# 03/31/98*# Operating performance: Net asset value, beginning of period $21.61 $14.91 $12.03 $10.00 Net investment income/(loss) (0.01) (0.07) 0.00 ## 0.01 Net realized and unrealized gain/(loss) on investments (6.53) 6.81 2.89 2.02 Net increase/(decrease) in net asset value from operations (6.54) 6.74 2.89 2.03 Distributions: Distributions from net realized capital gains (0.16) (0.04) (0.01) -- Net asset value, end of period $14.91 $21.61 $14.91 $12.03 Total return++ (30.42)% 45.33% 24.05% 20.30% ================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $80,526 $113,028 $52,229 $2,517 Ratio of operating expenses to average net assets 1.10% 1.23%(a) 1.25%(a) 1.09%+(a) Ratio of net investment income/(loss) to average net assets (0.03)% (0.37)% 0.05% 0.38%+ Portfolio turnover rate -- 55%(b) 150% 22% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.10% 1.23%(a) 1.25%(a) 1.97%+(a)
* Nations Marsico Growth & Income Fund Primary A Shares commenced operations on December 31, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/ or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure.
Nations Capital Growth Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01 03/31/00 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $14.59 $12.05 $13.30 $11.70 $13.43 Net investment income/(loss) (0.03) (0.05) 0.00 ## 0.02 0.05 Net realized and unrealized gain/(loss) on investments (3.90) 3.47 1.59 5.27 1.66 Net increase/(decrease) in net asset value from operations (3.93) 3.42 1.59 5.29 1.71 Distributions: Dividends from net investment income -- -- -- (0.01) (0.05) Distributions from net realized capital gains (2.36) (0.88) (2.84) (3.68) (3.39) Total dividends and distributions (2.36) (0.88) (2.84) (3.69) (3.44) Net asset value, end of year $ 8.30 $14.59 $12.05 $13.30 $11.70 Total return++ (30.69)% 29.90% 14.99% 53.89% 11.88% ================================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $531,657 $816,371 $737,620 $872,150 $533,168 Ratio of operating expenses to average net assets 0.95%(a)(b) 0.96%(a)(b) 0.96%(a) 0.95%(a)(b) 0.96%(b) Ratio of net investment income/(loss) to average net assets (0.28)% (0.38)% (0.04)% 0.13% 0.39% Portfolio turnover rate 96% 39% 39% 113% 75% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.95%(a) 0.96%(a) 0.96%(a) 0.95%(a) 0.96%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset 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%. 167
Nations Aggressive Growth Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01# 03/31/00# 03/31/99 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $20.61 $23.36 $22.17 $18.47 $17.19 Net investment income/(loss) (0.09) 0.03 0.02 0.08 0.14 Net realized and unrealized gain/(loss) on investments (7.89) (0.03) 3.22 7.88 2.79 Net increase/(decrease) in net asset value from operations (7.98) -- 3.24 7.96 2.93 Distributions: Dividends from net investment income -- (0.01) (0.01)## (0.03) (0.14) Distributions from net realized capital gains (1.83) (2.74) (2.04) (4.23) (1.51) Distributions in excess of net realized capital gains (0.57) -- -- -- -- Total dividends and distributions (2.40) (2.75) (2.05) (4.26) (1.65) Net asset value, end of year $10.23 $20.61 $23.36 $22.17 $18.47 Total return++ (42.60)% (0.16)% 15.74% 48.65% 17.00% ================================================================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $113,052 $328,219 $412,176 $132,504 $100,260 Ratio of operating expenses to average net assets 1.00%(a) 0.98%(a)(b) 0.97%(a)(b) 0.98%(a)(b) 1.04%(b) Ratio of net investment income/(loss) to average net assets (0.51)% 0.15% 0.12% 0.37% 0.70% Portfolio turnover rate 135% 79% 72% 79% 120% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.00%(a) 0.98%(a) 0.97%(a) 0.98%(a) 1.04%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount includes distributions in excess of net investment income of less than $0.01 per share. (a) The effect of the custodial expense offset 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%.
Nations Marsico Focused Equities Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Primary A Shares 03/31/01 03/31/00# 03/31/99# 03/31/98*# Operating performance: Net asset value, beginning of period $ 22.59 $16.69 $12.13 $10.00 Net investment income/(loss) (0.01) (0.01) (0.01) (0.01) Net realized and unrealized gain/(loss) on investments (7.13) 6.14 4.58 2.14 Net increase/(decrease) in net asset value from operations (7.14) 6.13 4.57 2.13 Distributions: Distributions from net realized capital gains (0.08) (0.23) (0.01) -- Total dividends and distributions (0.08) (0.23) (0.01) -- Net asset value, end of period $ 15.37 $22.59 $16.69 $12.13 Total return++ (31.67)% 37.13% 37.73% 21.30% ================================================================================================================ Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $354,798 $326,745 $105,458 $8,808 Ratio of operating expenses to average net assets 1.09% 1.16%(a) 1.06%(a) 1.52%+(a) Ratio of net investment income/(loss) to average net assets (0.05)% (0.35)% 0.05% (0.30)%+ Portfolio turnover rate -- 53%(b) 177% 25% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.09% 1.16%(a) 1.06%(a) 1.52%+(a)
* Nations Marsico Focused Equities Fund Primary A Shares commenced operations on December 31, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charge. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure. 168
Nations MidCap Growth Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01 03/31/00# 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $22.41 $13.31 $16.56 $12.86 $14.04 Net investment income/(loss) (0.03) (0.07) (0.04) (0.06) (0.04) Net realized and unrealized gain/(loss) on investments (4.02) 9.81 (0.94) 5.55 0.20 Net increase/(decrease) in net asset value from operations (4.05) 9.74 (0.98) 5.49 0.16 Distributions: Distributions from net realized capital gains (3.73) (0.64) (2.27) (1.79) (1.34) Total dividends and distributions (3.73) (0.64) (2.27) (1.79) (1.34) Net asset value, end of year $14.63 $22.41 $13.31 $16.56 $12.86 Total return++ (20.67)% 75.34% (7.21)% 45.09% 0.48% ================================================================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $388,152 $281,951 $177,861 $318,584 $267,319 Ratio of operating expenses to average net assets 0.98%(a) 1.00%(a)(b) 0.98%(a)(b) 0.98%(a) 0.98%(a) Ratio of operating expenses to average net assets including interest expense -- -- -- 0.99% -- Ratio of net investment income/(loss) to average net assets (0.27)% (0.45)% (0.29)% (0.42)% (0.26)% Portfolio turnover rate 39% 46% 43% 76% 93% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.98%(a) 1.00%(a) 0.98%(a) 0.98%(a) 0.98%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. Nations Marsico 21st Century Fund For a Share outstanding throughout the period Period ended Primary A Shares 03/31/01* Operating performance: Net asset value, beginning of period $10.00 Net investment income/(loss) (0.03) Net realized and unrealized gain/(loss) on investments (2.98) Net increase/(decrease) in net asset value from operations (3.01) Net asset value, end of period $ 6.99 Total return ++ (30.10)% ============================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $5,686 Ratio of operating expenses to average net assets 1.35%+ Ratio of net investment income/(loss) to average net assets (0.41)%+ Portfolio turnover rate 426% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.35%+ * Nations Marsico 21st Century Primary A Shares commenced operations on April 10, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. 169
Nations Small Company Fund For a Share outstanding throughout each period Year ended Year ended Primary A Shares* 03/31/01 03/31/00# Operating performance: Net asset value, beginning of period $22.66 $11.50 Net investment income/(loss) (0.10) (0.10) Net realized and unrealized gain/(loss) on investments (6.67) 11.29 Net increase/(decrease) in net asset value from operations (6.77) 11.19 Distributions: Dividends from net investment income -- -- Distributions from net realized capital gains (2.20) (0.03) Total dividends and distributions (2.20) (0.03) Net asset value, end of period $13.69 $22.66 Total return ++ (31.86)% 97.46% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $477,246 $647,825 Ratio of operating expenses to average net assets 1.15%(a)(b) 1.13%(a)(b) Ratio of net investment income/(loss) to average net assets (0.52)% (0.65)% Portfolio turnover rate 48% 63% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.20%(a) 1.22%(a) Year ended Period ended Period ended Period ended Primary A Shares* 03/31/99# 03/31/98 05/16/97 08/31/96** Operating performance: Net asset value, beginning of period $15.79 $12.07 $ 10.65 $10.00 Net investment income/(loss) (0.05) 0.01 0.04 0.09 Net realized and unrealized gain/(loss) on investments (3.11) 4.43 1.47 0.64 Net increase/(decrease) in net asset value from operations (3.16) 4.44 1.51 0.73 Distributions: Dividends from net investment income -- (0.01) (0.04) (0.08) Distributions from net realized capital gains (1.13) (0.71) (0.05) -- Total dividends and distributions (1.13) (0.72) (0.09) (0.08) Net asset value, end of period $11.50 $15.79 $ 12.07 $10.65 Total return ++ (21.05)% 37.27% 14.21% 7.37% =============================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $327,981 $235,427 $109,450 $70,483 Ratio of operating expenses to average net assets 0.95%(a) 0.95%+(a) 0.98%+ 1.00%+ Ratio of net investment income/(loss) to average net assets (0.42)% 0.05%+ 0.54%+ 1.06%+ Portfolio turnover rate 87% 59% 48% 31% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.22%(a) 1.26%+(a) 1.41%+ 1.54%+
* The financial information for the fiscal periods prior to May 23, 1997 reflect the financial information for the Pilot Small Capitalization Equity Fund's Pilot Shares, which were reorganized into the Primary A Shares of Small Company Fund as of the close of business on May 23, 1997. Prior to May 23, 1997, the investment adviser to Small Company Fund was Boatman's Trust Company. Effective May 23, 1997, the investment sub-adviser to Small Company Fund is Banc of America Capital Management, LLC ** Represents the period from December 12, 1995 (commencement of operations) to August 31, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charge. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%.
Nations International Value Fund For a Share outstanding throughout each period Year ended Year ended Primary A Shares* 03/31/01 03/31/00# Operating performance: Net asset value, beginning of period $ 18.78 $14.45 Net investment income 0.32 0.37 Net realized and unrealized gain/(loss) on investments (0.39) 4.73 Net increase/(decrease) in net asset value from operations (0.07) 5.10 Distributions: Dividends from net investment income (0.21) (0.28) Distributions in excess of net investment income -- -- Distributions from net realized capital gains (1.20) (0.49) Total dividends and distributions (1.41) (0.77) Net asset value, end of period $ 17.30 $18.78 Total return++ (0.50)% 36.03% =========================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $1,163,899 $600,589 Ratio of operating expenses to average net assets 1.13% 1.24%(a) Ratio of net investment income to average net assets 1.89% 2.11% Portfolio turnover rate -- 12%(b) Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.23% 1.34%(a) Period ended Period ended Year ended Period ended Primary A Shares* 03/31/99# 05/15/98 11/30/97 11/30/96** Operating performance: Net asset value, beginning of period $ 15.53 $ 13.17 $ 11.29 $ 10.00 Net investment income 0.16 0.09 0.09 0.06 Net realized and unrealized gain/(loss) on investments 0.28 2.56 1.91 1.29 Net increase/(decrease) in net asset value from operations 0.44 2.65 2.00 1.35 Distributions: Dividends from net investment income (0.18) -- (0.09) (0.06) Distributions in excess of net investment income -- -- (0.01) -- Distributions from net realized capital gains (1.34) (0.29) (0.02) -- Total dividends and distributions (1.52) (0.29) (0.12) (0.06) Net asset value, end of period $ 14.45 $ 15.53 $ 13.17 $ 11.29 Total return++ 1.48% 20.54% 17.75% 13.47% ======================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $142,546 $119,412 $54,277 $17,528 Ratio of operating expenses to average net assets 1.30%+ 1.25%+ 1.21% 0.00%+ Ratio of net investment income to average net assets 1.36%+ 2.06%+ 0.89% 0.00%+ Portfolio turnover rate 44% 88% 29% 50% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.39%+ 1.26%+ 1.21% 3.46%+
* The financial information for the fiscal periods through May 22, 1998 reflect the financial information for the Emerald International Equity Fund Institutional Shares, which were reorganized into the International Value Primary A Shares as of May 22, 1998. ** International Value Primary A Shares commenced operations on December 27, 1995. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure. 170
Nations International Equity Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01# 03/31/00# 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $ 16.74 $14.12 $ 14.81 $ 13.13 $ 13.50 Net investment income 0.12 0.10 0.11 0.11 0.08 Net realized and unrealized gain/(loss) on investments (4.47) 4.91 0.39 1.95 0.11 Net increase/(decrease) in net asset value from operations (4.35) 5.01 0.50 2.06 0.19 Distributions: Dividends from net investment income (0.11) (0.06) (0.12) (0.17) (0.11) Distributions in excess of net investment income -- -- -- (0.05) (0.00)(a) Distributions from net realized capital gains (1.01) (2.33) (1.07) (0.16) (0.42) Distributions in excess of net realized capital gains (0.15) -- -- -- (0.03) Total dividends and distributions (1.27) (2.39) (1.19) (0.38) (0.56) Net asset value, end of year $ 11.12 $16.74 $ 14.12 $ 14.81 $ 13.13 Total return++ (27.40)% 39.85% 3.68% 16.06% 1.32% ========================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $724,572 $866,731 $743,861 $885,329 $976,855 Ratio of operating expenses to average net assets 1.15% 1.14% 1.13% 1.14% 1.16% Ratio of net investment income to average net assets 0.89% 0.69% 0.79% 0.76% 0.62% Portfolio turnover rate -- 129%(b) 146% 64% 36% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.16% 1.18% 1.13% 1.14% 1.16%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) Amount represents less than $0.01 per share. (b) Amount represents results prior to conversion to a master-feeder structure.
Nations Marsico International Opportunities Fund For a Share outstanding throughout the period Period ended Primary A Shares 03/31/01#* Operating performance: Net asset value, beginning of period $10.00 Net investment income 0.00 ## Net realized and unrealized gain/(loss) on investments (1.97) Net increase/(decrease) in net asset value from operations (1.97) Net asset value, end of period $ 8.03 Total return++ (19.70)% ============================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $1,477 Ratio of operating expenses to average net assets 1.47%+ Ratio of net investment income to average net assets 0.12%+ Portfolio turnover rate 442% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 6.28%+
* Nations Marsico International Opportunities Fund Primary A Shares commenced operations on August 1, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. 171
Nations Emerging Markets Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01# 03/31/00# 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $ 15.76 $ 8.14 $ 10.60 $ 11.41 $ 10.34 Net investment income/(loss) (0.05) (0.05) 0.14 0.04 0.01 Net realized and unrealized gain/(loss) on investments (6.76) 7.68 (2.53) (0.76) 1.21 Net increase/(decrease) in net asset value from operations (6.81) 7.63 (2.39) (0.72) 1.22 Distributions: Dividends from net investment income (0.02) (0.01) (0.07) (0.09) (0.02) Distributions in excess of net investment income (0.01) -- -- -- (0.07) Distributions from net realized capital gains -- -- -- -- (0.06) Total dividends and distributions (0.03) (0.01) (0.07) (0.09) (0.15) Net asset value, end of year $ 8.92 $ 15.76 $ 8.14 $ 10.60 $ 11.41 Total return++ (43.21)% 93.71% (22.60)% (6.39)% 11.97% ===================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $34,876 $56,234 $21,689 $73,797 $76,483 Ratio of operating expenses to average net assets 1.80% 1.90% 1.78%(a) 1.57% 1.74% Ratio of operating expenses to average net assets including interest expense 1.84% 1.91% (b) -- -- Ratio of net investment income/(loss) to average net assets (0.40)% (0.40)% 1.66% 0.36% 0.13% Portfolio turnover rate 97% 61% 71% 63% 31% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.86% 2.54% 1.98%(a) 1.57% 1.74%
++ 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 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%.
Nations LargeCap Index Fund For a Share outstanding throughout each year Year ended Year ended Primary A Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 28.90 $ 25.06 Net investment income 0.24 0.26 Net realized and unrealized gain/(loss) on investments (6.55) 4.09 Net increase/(decrease) in net asset value from operations (6.31) 4.35 Distributions: Dividends from net investment income (0.24) (0.25) Distributions from net realized capital gains --## (0.26) Total dividends and distributions (0.24) (0.51) Net asset value, end of year $ 22.35 $ 28.90 Total return++ (21.94)% 17.58% ======================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $2,021,690 $2,826,486 Ratio of operating expenses to average net assets 0.35%(a)(b) 0.35%(a)(b) Ratio of operating expenses to average net assets including interest expense -- -- Ratio of net investment income to average net assets 0.88% 0.96% Portfolio turnover rate 8% 7% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.68%(a) 0.71%(a) Year ended Year ended Year ended Primary A Shares 03/31/99 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 22.41 $ 15.89 $ 13.58 Net investment income 0.26 0.27 0.26 Net realized and unrealized gain/(loss) on investments 3.63 7.11 2.36 Net increase/(decrease) in net asset value from operations 3.89 7.38 2.62 Distributions: Dividends from net investment income (0.25) (0.27) (0.26) Distributions from net realized capital gains (0.99) (0.59) (0.05) Total dividends and distributions (1.24) (0.86) (0.31) Net asset value, end of year $ 25.06 $ 22.41 $ 15.89 Total return++ 18.26% 47.38% 19.41% =============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $933,313 $656,523 $567,039 Ratio of operating expenses to average net assets 0.35%(a) 0.35%(a) 0.35%(a) Ratio of operating expenses to average net assets including interest expense -- 0.36% -- Ratio of net investment income to average net assets 1.17% 1.39% 1.91% Portfolio turnover rate 4% 26% 5% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.71%(a) 0.66%(a) 0.70%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset 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%. 172
Nations MidCap Index Fund For a Share outstanding throughout the period Period ended Primary A Shares 03/31/01* Operating performance: Net asset value, beginning of period $ 10.00 Net investment income 0.08 Net realized and unrealized gain/(loss) on investments (0.72) Net increase/(decrease) in net asset value from operations (0.64) Distributions: Dividends from net investment income (0.08) Distributions from net realized capital gains (0.89) Total dividends and distributions (0.97) Net asset value, end of period $ 8.39 Total return++ (7.27)% =============================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $342,503 Ratio of operating expenses to average net assets 0.35%(a) Ratio of operating expenses to average net assets including interest expense 0.36%(a) Ratio of net investment income to average net assets 0.82% Portfolio turnover rate 69% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.75%(a)
* MidCap Index Fund Primary A Shares commenced operations on March 31, 2000. ++ 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. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%.
Nations SmallCap Index Fund For a Share outstanding throughout each period Year ended Year ended Primary A Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of period $ 13.53 $ 11.04 Net investment income 0.08 0.04 Net realized and unrealized gain/(loss) on investments (0.31) 2.49 Net increase/(decrease) in net asset value from operations (0.23) 2.53 Distributions: Dividends from net investment income (0.06) (0.04) Distributions from net realized capital gains -- -- Total dividends and distributions (0.06) (0.04) Net asset value, end of period $ 13.24 $ 13.53 Total return++ (1.74)% 22.97% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $256,465 $196,593 Ratio of operating expenses to average net assets 0.41%(a)(b) 0.50%(a) Ratio of operating expenses to average net assets including interest expense -- 0.51%(a) Ratio of net investment income to average net assets 0.56% 0.35% Portfolio turnover rate 65% 53% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.79%(a) 0.77%(a) Year ended Year ended Period ended Primary A Shares 03/31/99# 03/31/98 03/31/97* Operating performance: Net asset value, beginning of period $ 14.10 $ 9.83 $ 10.00 Net investment income 0.06 0.06 0.03 Net realized and unrealized gain/(loss) on investments (2.92) 4.58 (0.17) Net increase/(decrease) in net asset value from operations (2.86) 4.64 (0.14) Distributions: Dividends from net investment income (0.06) (0.06) (0.03) Distributions from net realized capital gains (0.14) (0.31) -- Total dividends and distributions (0.20) (0.37) (0.03) Net asset value, end of period $ 11.04 $ 14.10 $ 9.83 Total return++ (20.50)% 47.71% (1.37)% ======================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $189,379 $102,437 $40,851 Ratio of operating expenses to average net assets 0.50%(a)(b) 0.50%(a)(b) 0.50%+ Ratio of operating expenses to average net assets including interest expense -- -- -- Ratio of net investment income to average net assets 0.52% 0.52% 1.05%+ Portfolio turnover rate 65% 62% 18% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.82%(a) 1.02%(a) 1.21%+
* SmallCap Index Fund Primary A Shares commenced operations on October 15, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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% 173
Nations Managed Index Fund For a Share outstanding throughout each period Year ended Year ended Primary A Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of period $ 22.04 $ 19.39 Net investment income 0.13 0.16 Net realized and unrealized gain/(loss) on investments (4.46) 2.78 Net increase/(decrease) in net asset value from operations (4.33) 2.94 Distributions: Dividends from net investment income (0.12) (0.16) Distributions from net realized capital gains (2.69) (0.13) Total dividends and distributions (2.81) (0.29) Net asset value, end of period $ 14.90 $ 22.04 Total return++ (21.49%) 15.33% ===================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $345,795 $593,317 Ratio of operating expenses to average net assets 0.50%(a)(b) 0.50%(a)(b) Ratio of net investment income to average net assets 0.67% 0.80% Portfolio turnover rate 97% 64% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.70%(a) 0.72%(a) Year ended Year ended Period ended Primary A Shares 03/31/99# 03/31/98 03/31/97* Operating performance: Net asset value, beginning of period $ 17.14 $ 11.89 $ 10.00 Net investment income 0.18 0.15 0.15 Net realized and unrealized gain/(loss) on investments 2.40 5.42 1.87 Net increase/(decrease) in net asset value from operations 2.58 5.57 2.02 Distributions: Dividends from net investment income (0.18) (0.17) (0.13) Distributions from net realized capital gains (0.15) (0.15) -- Total dividends and distributions (0.33) (0.32) (0.13) Net asset value, end of period $ 19.39 $ 17.14 $ 11.89 Total return++ 15.25% 47.54% 20.22% ==================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $665,631 $374,504 $42,226 Ratio of operating expenses to average net assets 0.50%(a) 0.50%(a)(b) 0.50%+(a) Ratio of net investment income to average net assets 1.03% 1.26% 1.92%+ Portfolio turnover rate 35% 30% 17% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.73%(a) 0.80%(a) 1.05%+(a)
* Managed Index Fund Primary A Shares commenced operations on July 31, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%.
Nations Short-Term Income Fund For a Share outstanding throughout each year Year Year ended ended Primary A Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 9.51 $ 9.79 Net investment income 0.58 0.56 Net realized and unrealized gain/(loss) on investments 0.29 (0.28) Net increase/(decrease) in net asset value from operations 0.87 0.28 Distributions: Dividends from net investment income (0.58) (0.56) Total dividends and distributions (0.58) (0.56) Net asset value, end of year $ 9.80 $ 9.51 Total return++ 9.44% 3.00% ===================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $358,812 $398,620 Ratio of operating expenses to average net assets 0.51%(a) 0.50%(a) Ratio of net investment income to average net assets 6.04% 5.86% Portfolio turnover rate 42% 62% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.61%(a) 0.63%(a) Year Year Year ended ended ended Primary A Shares 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 9.77 $ 9.68 $ 9.76 Net investment income 0.56 0.56 0.58 Net realized and unrealized gain/(loss) on investments 0.02 0.09 (0.08) Net increase/(decrease) in net asset value from operations 0.58 0.65 0.50 Distributions: Dividends from net investment income (0.56) (0.56) (0.58) Total dividends and distributions (0.56) (0.56) (0.58) Net asset value, end of year $ 9.79 $ 9.77 $ 9.68 Total return++ 6.07% 6.89% 5.25% ========================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $397,467 $331,961 $181,455 Ratio of operating expenses to average net assets 0.50%(a) 0.56%(a)(b) 0.55%(b) Ratio of net investment income to average net assets 5.70% 5.75% 5.97% Portfolio turnover rate 64% 66% 172% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.80%(a) 0.86%(a) 0.85%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 174
Nations Short-Intermediate Government Fund For a Share outstanding throughout each year Year Year ended ended Primary A Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 3.94 $ 4.10 Net investment income 0.23 0.22 Net realized and unrealized gain/(loss) on investments 0.21 (0.16) Net increase/(decrease) in net asset value from operations 0.44 0.06 Distributions: Dividends from net investment income (0.23) (0.22) Total dividends and distributions (0.23) (0.22) Net asset value, end of year $ 4.15 $ 3.94 Total return++ 11.56% 1.63% =================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $496,821 $497,392 Ratio of operating expenses to average net assets 0.59%(a) 0.60%(a) Ratio of net investment income to average net assets 5.77% 5.59% Portfolio turnover rate 108% 177% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.59%(a) 0.65%(a) Year Year Year ended ended ended Primary A Shares 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 4.12 $ 3.99 $ 4.07 Net investment income 0.22 0.23 0.23 Net realized and unrealized gain/(loss) on investments (0.02) 0.13 (0.08) Net increase/(decrease) in net asset value from operations 0.20 0.36 0.15 Distributions: Dividends from net investment income (0.22) (0.23) (0.23) Total dividends and distributions (0.22) (0.23) (0.23) Net asset value, end of year $ 4.10 $ 4.12 $ 3.99 Total return++ 4.97% 9.11% 3.72% ================================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $589,092 $663,833 $371,118 Ratio of operating expenses to average net assets 0.58%(a) 0.61% 0.63%(a)(b) Ratio of net investment income to average net assets 5.36% 5.53% 5.73% Portfolio turnover rate 242% 538% 529% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.78%(a) 0.81% 0.83%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%.
Nations Government Securities Fund For a Share outstanding throughout each year Year Year ended ended Primary A Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 9.38 $ 9.86 Net investment income 0.60 0.58 Net realized and unrealized gain/(loss) on investments 0.48 (0.48) Net increase/(decrease) in net asset value from operations 1.08 0.10 Distributions: Dividends from net investment income (0.59) (0.58) Distributions from capital -- -- Total dividends and distributions (0.59) (0.58) Net asset value, end of year $ 9.87 $ 9.38 Total return++ 11.97% 1.12% =================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $153,799 $108,798 Ratio of operating expenses to average net assets 0.75%(a) 0.78%(b) Ratio of net investment income to average net assets 6.21% 6.17% Portfolio turnover rate 183% 348% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.86%(a) 0.90% Year Year Year ended ended ended Primary A Shares 03/31/99# 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 9.90 $ 9.39 $ 9.67 Net investment income 0.58 0.55 0.60 Net realized and unrealized gain/(loss) on investments (0.05) 0.51 (0.30) Net increase/(decrease) in net asset value from operations 0.53 1.06 0.30 Distributions: Dividends from net investment income (0.57) (0.55) (0.58) Distributions from capital -- -- (0.00)## Total dividends and distributions (0.57) (0.55) (0.58) Net asset value, end of year $ 9.86 $ 9.90 $ 9.39 Total return++ 5.41% 11.65% 3.18% ========================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $119,659 $75,796 $52,606 Ratio of operating expenses to average net assets 0.73%(a) 0.85%(a)(b) 0.80% Ratio of net investment income to average net assets 5.70% 5.63% 6.28% Portfolio turnover rate 600% 303% 468% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.84%(a) 0.99%(a) 0.94%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01. (a) The effect of the custodial expense offset 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%. 175
Nations Intermediate Bond Fund For a Share outstanding throughout each period Year ended Period ended Primary A Shares 03/31/01# 03/31/00* Operating performance: Net asset value, beginning of period $ 9.13 $ 9.52 Net investment income 0.58 0.49 Net realized and unrealized gain/(loss) on investments 0.39 (0.37) Net increase/(decrease) in net asset value from operations 0.97 0.12 Distributions: Dividends from net investment income (0.58) (0.51) Total dividends and distributions (0.58) (0.51) Net asset value, end of period $ 9.52 $ 9.13 Total return++ 11.04% 1.29% ============================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $51,178 $18,365 Ratio of operating expenses to average net assets 0.78% 0.81%+ Ratio of net investment income to average net assets 6.31% 6.08%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.81% 1.05%+
*Intermediate Bond Fund Primary A Shares commenced operations on May 21, 1999. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method.
Nations Bond Fund For a Share outstanding throughout each year Year Year ended ended Primary A Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 9.37 $ 9.93 Net investment income 0.62 0.59 Net realized and unrealized gain/(loss) on investments 0.41 (0.52) Net increase/(decrease) in net asset value from operations 1.03 0.07 Distribution Dividends from net investment income (0.62) (0.59) Distributions from net realized capital gains -- (0.04) Distributions from capital -- -- Total dividends and distributions (0.62) (0.63) Net asset value, end of year $ 9.78 $ 9.37 Total return++ 11.39% 0.97% ======================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $2,333,703 $1,793,913 Ratio of operating expenses to average net assets 0.67%(a) 0.67% Ratio of net investment income to average net assets 6.53% 6.20% Portfolio turnover rate 120% 63% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.67%(a) 0.69% Year Year Year ended ended ended Primary A Shares 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 10.03 $ 9.62 $ 9.93 Net investment income 0.59 0.58 0.58 Net realized and unrealized gain/(loss) on investments (0.04) 0.41 (0.20) Net increase/(decrease) in net asset value from operations 0.55 0.99 0.38 Distributions: Dividends from net investment income (0.59) (0.58) (0.58) Distributions from net realized capital gains (0.06) -- (0.11) Distributions from capital -- -- (0.00)## Total dividends and distributions (0.65) ( 0.58) (0.69) Net asset value, end of year $ 9.93 $ 10.03 $ 9.62 Total return++ 5.61% 10.53% 3.90% ============================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,798,155 $1,681,990 $947,277 Ratio of operating expenses to average net assets 0.68%(a) 0.72%(a)(b) 0.71%(a) Ratio of net investment income to average net assets 5.86% 5.86% 5.98% Portfolio turnover rate 107% 244% 368% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.78%(a) 0.83%(a) 0.81%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01. (a) The effect of the custodial expense offset 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%. 176
Nations Strategic Income Fund For a Share outstanding throughout each year Year Year ended ended Primary A Shares 03/31/01# 03/31/00 Operating performance: Net asset value, beginning of year $ 9.53 $ 10.31 Net investment income 0.66 0.68 Net realized and unrealized gain/(loss) on investments 0.35 (0.78) Net increase/(decrease) in net asset value from operations 1.01 (0.10) Distributions: Dividends from net investment income (0.65) (0.68) Distributions from net realized capital gains -- (0.00)## Total dividends and distributions (0.65) (0.68) Net asset value, end of year $ 9.89 $ 9.53 Total return++ 11.06% (0.95)% ============================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $177,877 $118,458 Ratio of operating expenses to average net assets 0.72% 0.71%(a) Ratio of net investment income to average net assets 6.76% 6.80% Portfolio turnover rate 238% 107% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.84% 0.90%(a) Year Year Year ended ended ended Primary A Shares 03/31/99# 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 10.55 $ 10.11 $ 10.42 Net investment income 0.66 0.65 0.69 Net realized and unrealized gain/(loss) on investments (0.14) 0.44 (0.18) Net increase/(decrease) in net asset value from operations 0.52 1.09 0.51 Distributions: Dividends from net investment income (0.66) (0.65) (0.69) Distributions from net realized capital gains (0.10) -- (0.13) Total dividends and distributions (0.76) (0.65) (0.82) Net asset value, end of year $ 10.31 $ 10.55 $ 10.11 Total return++ 5.00% 11.07% 4.97% ================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $317,937 $263,840 $152,070 Ratio of operating expenses to average net assets 0.70%(a) 0.73%(a) 0.75%(a) Ratio of net investment income to average net assets 6.27% 6.27% 6.73% Portfolio turnover rate 94% 203% 278% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.80%(a) 0.83%(a) 0.85%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%.
Nations High Yield Bond Fund For a Share outstanding throughout each period Year Period ended ended Primary A Shares 03/31/01# 03/31/00*# Operating performance: Net asset value, beginning of period $ 9.90 $ 10.00 Net investment income 0.96 0.09 Net realized and unrealized gain/(loss) on investments (0.54) (0.11) Net increase/(decrease) in net asset value from operations 0.42 (0.02) Distributions: Dividends from net investment income (1.00) (0.08) Distributions in excess of net investment income (0.05) -- Total dividends and distributions (1.05) (0.08) Net asset value, end of period $ 9.27 $ 9.90 Total return++ 4.51% (0.12)% =========================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $61,181 $9,394 Ratio of operating expenses to average net assets 0.93% 0.93%+ Ratio of net investment income to average net assets 10.97% 7.03%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.45% 12.66%+
* High Yield Bond Fund Primary A Shares commenced operations on February 14, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. 177
Nations Short-Term Municipal Income Fund For a Share outstanding throughout each year Year Year ended ended Primary A Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 9.94 $ 10.10 Net investment income 0.44 0.41 Net realized and unrealized gain/(loss) on investments 0.20 (0.16) Net increase/(decrease) in net asset value from operations 0.64 0.25 Distributions: Dividends from net investment income (0.44) (0.41) Total dividends and distributions (0.44) (0.41) Net asset value, end of year $ 10.14 $ 9.94 Total return++ 6.61% 2.58% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $105,004 $94,393 Ratio of operating expenses to average net assets 0.40%(a) 0.40%(a) Ratio of net investment income to average net assets 4.41% 4.16% Portfolio turnover rate 38% 90% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.66% 0.77% Year Year Year ended ended ended Primary A Shares 03/31/99# 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.05 $ 9.95 $ 9.98 Net investment income 0.41 0.42 0.44 Net realized and unrealized gain/(loss) on investments 0.05 0.10 (0.03) Net increase/(decrease) in net asset value from operations 0.46 0.52 0.41 Distributions: Dividends from net investment income (0.41) (0.42) (0.44) Total dividends and distributions (0.41) (0.42) (0.44) Net asset value, end of year $ 10.10 $ 10.05 $ 9.95 Total return++ 4.71% 5.33% 4.15% ================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $79,002 $70,740 $61,072 Ratio of operating expenses to average net assets 0.40%(a) 0.40%(a) 0.40%(a) Ratio of net investment income to average net assets 4.11% 4.17% 4.36% Portfolio turnover rate 53% 94% 80% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.80% 0.77% 0.84%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%.
Nations Intermediate Municipal Bond Fund For a Share outstanding throughout each year Year Year ended ended Primary A Shares 03/31/01 03/31/00# Operating performance: Net asset value, beginning of year $ 9.78 $ 10.30 Net investment income 0.47 0.47 Net realized and unrealized gain/(loss) on investments 0.37 (0.50) Net increase/(decrease) in net asset value from operations 0.84 (0.03) Distributions: Dividends from net investment income (0.47) (0.47) Distributions from net realized capital gains -- (0.02) Total dividends and distributions (0.47) (0.49) Net asset value, end of year $ 10.15 $ 9.78 Total return++ 8.81% (0.27)% ================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,196,121 $849,966 Ratio of operating expenses to average net assets 0.50%(a) 0.50%(a) Ratio of net investment income to average net assets 4.73% 4.75% Portfolio turnover rate 17% 30% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.68% 0.70% Year Year Year ended ended ended Primary A Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.30 $ 10.01 $ 10.03 Net investment income 0.47 0.48 0.48 Net realized and unrealized gain/(loss) on investments 0.07 0.33 (0.02) Net increase/(decrease) in net asset value from operations 0.54 0.81 0.46 Distributions: Dividends from net investment income (0.47) (0.48) (0.48) Distributions from net realized capital gains (0.07) (0.04) -- Total dividends and distributions (0.54) (0.52) (0.48) Net asset value, end of year $ 10.30 $ 10.30 $ 10.01 Total return++ 5.33% 8.20% 4.63% =============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $918,367 $867,154 $108,204 Ratio of operating expenses to average net assets 0.50%(a) 0.50%(a) 0.50%(a) Ratio of net investment income to average net assets 4.55% 4.65% 4.74% Portfolio turnover rate 40% 47% 21% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.68% 0.74% 0.81%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 178
Nations Municipal Income Fund For a Share outstanding throughout each year Year Year ended ended Primary A Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 10.69 $ 11.48 Net investment income 0.56 0.54 Net realized and unrealized gain/(loss) on investments 0.45 (0.78) Net increase/(decrease) in net asset value from operations 1.01 (0.24) Distributions: Dividends from net investment income (0.56) (0.54) Distributions from net realized capital gains -- (0.01) Total dividends and distributions (0.56) (0.55) Net asset value, end of year $ 11.14 $ 10.69 Total return++ 9.80% (2.08)% =================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $881,611 $552,650 Ratio of operating expenses to average net assets 0.60%(a) 0.60%(a) Ratio of net investment income to average net assets 5.13% 4.99% Portfolio turnover rate 18% 36% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.79% 0.82% Year Year Year ended ended ended Primary A Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 11.46 $ 10.89 $ 10.84 Net investment income 0.54 0.57 0.59 Net realized and unrealized gain/(loss) on investments 0.07 0.62 0.05 Net increase/(decrease) in net asset value from operations 0.61 1.19 0.64 Distributions: Dividends from net investment income (0.54) (0.57) (0.59) Distributions from net realized capital gains (0.05) (0.05) -- Total dividends and distributions (0.59) (0.62) (0.59) Net asset value, end of year $ 11.48 $ 11.46 $ 10.89 Total return++ 5.42% 11.12% 6.03% =================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $635,629 $456,485 $77,260 Ratio of operating expenses to average net assets 0.60%(a) 0.60%(a) 0.60%(a) Ratio of net investment income to average net assets 4.71% 4.97% 5.41% Portfolio turnover rate 11% 38% 25% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.80% 0.84% 0.91%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 179 [GRAPHIC] This glossary includes explanations of the important terms that may be used in this prospectus. Some of the terms explained may apply to Nations Funds not included in this prospectus. [GRAPHIC] Terms used in this prospectus Amortized cost method - under Rule 2a-7 of the 1940 Act, the method of calculating an investment company's net asset value whereby portfolio securities are valued at the Fund's acquisition cost as adjusted for amortization of premium or accretion of discount rather than at their current market value. Asset-backed security - a debt security that gives an investor an interest in a pool of assets that is collateralized or "backed" by one or more kinds of assets, including automobile loans or credit card receivables, generally issued by banks, credit card companies or other lenders. Asset-backed securities typically make periodic payments, which may be interest or a combination of interest and a portion of the principal of the underlying assets. Average dollar-weighted maturity - the average length of time until the debt securities held by a Fund reach maturity. In general, the longer the average dollar-weighted maturity, the more a Fund's share price will fluctuate in response to changes in interest rates. Bank obligation - a money market instrument issued by a domestic or U.S. branch of a foreign bank, including certificates of deposit, time deposits and bankers' acceptances. Capital gain or loss - the difference between the purchase price of a security and its selling price. An investor realizes a capital gain when it sells a security for more than it paid for it. An investor realizes a capital loss when it sells a security for less than it paid for it. Cash equivalents - short-term, interest-bearing instruments which can easily be converted into cash, including U.S. government obligations, bank obligations, and certain asset-backed securities, foreign government securities and commercial paper issued by U.S. and foreign issuers which, at the time of investment, is rated at least Prime-2 by Moody's Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch). Collateralized mortgage obligation (CMO) - a type of mortgage-backed security. CMO payment obligations are covered by interest and/or principal payments from a pool of mortgages. In addition, the underlying assets of a CMO are typically separated into classes, called tranches, based on maturity. Each tranche pays a different rate of interest. CMOs are not generally issued by the U.S. government, its agencies or instrumentalities. Commercial paper - a short-term corporate obligation. Commercial paper is typically considered a money market instrument. Common stock - a security that represents part equity ownership in a company. Common stock typically allows an investor to vote at shareholder meetings and to share in the company's profits by receiving dividends. 180 Convertible debt - a debt security that can be exchanged for common stock (or another type of security) on a specified basis and date. Convertible security - a security that can be exchanged for common stock (or another type of security) at a specified rate. Convertible securities include convertible debt, rights and warrants. Crossing networks - an electronic system where anonymous parties can match buy and sell transactions. These transactions don't affect the market, and transaction costs are extremely low. CSFB Convertible Securities Index - 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. CSFB Global High Yield Index - the Credit Suisse First Boston Global High Yield Index is an unmanaged, trader priced portfolio constructed to mirror the high yield debt market. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Debt security - a security issued by a governmental body or company (the issuer) to help fund their operations or major projects. The issuer pays interest at a specified rate on a specified date or dates, and repays the principal when the security matures. Short-term debt securities include money market instruments such as treasury bills. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Depositary receipts - evidence of the deposit of a security with a custodian bank. American Depositary Receipts (ADRs), for example, are certificates traded in U.S. markets representing an interest of a foreign company. They were created to make it possible for foreign issuers to meet U.S. security registration requirements. Other examples include ADSs, GDRs and EDRs. Derivatives - A derivative is a financial contract whose value is based upon, or "derived" from, an underlying financial asset (such as a stock or a bond), a commodity (such as gold), a market index (such as the S&P 500) or a reference rate (such as the prime lending interest rate). Examples of derivative instruments include futures, options, index-, equity-, commodity- and currency-linked securities, warrants and swap contracts. For a detailed description of the derivatives described here, see the SAI. Diversified - A diversified fund, as defined by the 1940 Act, must have at least 75% of its total assets in cash and cash equivalents, government securities, securities of other investment companies, or other securities. For purposes of this calculation, the fund may not count securities of a single issuer that comprise more than 5% of the fund's assets. 181 Dividend yield - rate of return of dividends paid on a common or preferred stock. It equals the amount of the annual dividend on a stock expressed as a percentage of the stock's current market value. Duration - a security's or portfolio's sensitivity to changes in interest rates. For example, if interest rates rise by one percentage point, the share price of a fund with a duration of five years would decline by about 5%. If interest rates fall by one percentage point, the fund's share price would rise by about 5%. Equity security - an investment that gives an investor an equity ownership right in a company. Equity securities (or "equities") include common and preferred stock, rights and warrants. First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds and has the highest short-term rating from a nationally recognized statistical rating organization (NRSRO), or if unrated, is determined by the Fund's portfolio management team to be of comparable quality, or is a money market fund or a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Foreign security - a debt or equity security determined by a Fund's portfolio management team to be foreign based on an issuer's domicile, its principle place of business, the source of its revenues or other factors. Forward foreign currency contracts - a forward foreign currency contract includes an obligation to purchase or sell a foreign currency at a specified future date. Forward purchase agreement - a contract obligating one party to buy and another party to sell an equity security, commodity, currency or other financial instrument at a specific future date. Fundamental analysis - a method of securities analysis that tries to evaluate the intrinsic, or "true," value of a particular stock. It includes a study of the overall economy, industry conditions and the financial condition and management of a company. Futures contract - a contract to buy or sell underlying instruments at a specified price on a specified future date. The price is typically set through a futures exchange. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to NRSROs such as S&P and Moody's. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by a Fund's Board. Please see the SAI for more information about credit ratings. 182 High yield debt security - debt securities that, at the time of purchase, are rated "BB" or below by S&P or "Ba" or below by Moody's, or that are unrated and determined by the portfolio management team to be of comparable quality. Interest rate swap - an agreement between two parties to exchange periodic interest payments based on a predetermined principal amount. Investment grade - a debt security that has been given a medium to high credit rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating by other NRSROs) based on the issuer's ability to pay interest and repay principal on time. The portfolio management team may consider an unrated debt security to be investment grade if the team believes it is of comparable quality. Please see the SAI for more information about credit ratings. Lehman 3-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of two to three years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman 7-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Aggregate Bond Index - an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government Bond Index - an unmanaged index of government bonds with an average maturity of approximately nine years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government/Corporate Bond Index - an unmanaged index of U.S. government, U.S. Treasury and agency securities, and corporate and Yankee bonds. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Intermediate Government Bond Index - an unmanaged index of U.S. government agency and U.S. Treasury securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Intermediate Government/Corporate Bond Index - an unmanaged index of all publicly issued investment grade corporate, U.S. Treasury, and U.S. government and agency securities with maturities of 1 to 10 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 183 Lehman Municipal Bond Index - a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Liquidity - a measurement of how easily a security can be bought or sold at a price that is close to its market value. Merrill Lynch 1-3 Year Treasury Index - an unmanaged index of U.S. Treasury bonds with maturities of 1 to 3 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Money market instrument - a short-term debt security that is considered to mature in 13 months or less. Money market instruments include U.S. Treasury obligations, U.S. government obligations, certificates of deposit, bankers' acceptances, commercial paper, repurchase agreements and certain municipal securities. Mortgage-backed security or Mortgage-related security - a debt security that gives you an interest in, and is backed by, a pool of residential mortgages issued by the U.S. government or by financial institutions. The underlying mortgages may be guaranteed by the U.S. government or one of its agencies, authorities or instrumentalities. Mortgage-backed securities typically make monthly payments, which are a combination of interest and a portion of the principal of the underlying mortgages. MSCI EAFE Index - Morgan Stanley Capital International Europe, Australasia and Far East Index is an unmanaged, capitalization-weighted index. The index reflects the relative size of each market consisting of securities listed on exchanges in European, Australasian and Far Eastern markets and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investment. It is not available for investment. MSCI World Index - Morgan Stanley Capital International World Index is an unmanaged index consisting of securities listed on exchanges in the major European and Asian countries, Australia and the U.S. and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investing. It is not available for investment. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public or private projects and services. "General obligations" are typically backed by the issuer's full taxing and revenue-raising powers. "Revenue securities" depend on the income earned by a specific project or authority, like road or bridge tolls, user fees for water or revenues from a utility. Interest income from municipal securities that pay for "public" projects and services is exempt from federal income taxes and is generally exempt from state taxes if an investor lives in the state that issued the security. If an investor lives in the municipality that issued the security, interest income may also be exempt from local taxes. 184 Non-diversified - a fund that holds securities of fewer issuers than other kinds of funds. Non-diversified funds tend to have greater price swings than more diversified funds because events affecting one or more of its securities may have a disproportionately large effect on the fund. NRSRO - A nationally recognized statistical rating organization, such as S&P or Moody's. Options - An option is the right to buy or sell a security based on an agreed upon price at a specified time. For example, an option may give the holder of a stock the right to sell the stock to another party, allowing the seller to profit if the price has fallen below the agreed price. Options may also be based on the movement of an index such as the S&P 500. Over-the-counter market - a market where dealers trade securities through a telephone or computer network rather than through a public stock exchange. Preferred stock - a type of equity security that gives you a limited ownership right in a company, with certain preferences or priority over common stock. Preferred stock generally pays a fixed annual dividend. If the company goes bankrupt, preferred shareholders generally receive their share of the company's remaining assets before common shareholders and after bondholders and other creditors. Ownership of preferred stock typically does not come with certain voting rights that come with common stock. Pre-refunded bond - a bond that is repaid before its maturity date. The repayment is generally financed by a new issue. Issuers generally pre-refund bonds during periods of lower interest rates to reduce their interest costs. Price-to-earnings ratio (P/E ratio) - the current price of a share divided by its actual or estimated earnings per share. The P/E ratio is one measure of the value of a company. Private placement - a private placement is the sale of stocks, bonds or other investments directly to a qualified investor without having to register the offering with the SEC or other comparable foreign regulatory authorities. Qualified investors are typically large institutional investors or high net worth individuals. Securities acquired through private placements generally may not be resold. Quantitative analysis - an analysis of financial information about a company or security to identify securities that have the potential for growth or are otherwise suitable for a fund to buy. Real Estate Investment Trust (REIT) - a portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls, and real-estate-related loans or interests. 185 Repurchase agreement - a short-term (often overnight) investment arrangement. The investor agrees to buy certain securities from the borrower and the borrower promises to buy them back at a specified date and price. The difference between the purchase price paid by the investor and the repurchase price paid by the borrower represents the investor's return. Repurchase agreements are popular because they provide low-risk returns and can allow a fund to remain fully invested. Reverse repurchase agreement - a repurchase agreement in which an investor sells a security to another party, like a bank or dealer, in return for cash, and agrees to buy the security back at a specified date and price. Reverse repurchase agreements are, in effect, loans to a fund. Right - a temporary privilege allowing investors who already own a common stock to buy additional shares directly from the company at a specified price or formula. Russell 1000 Index - 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. The Russell 3000 Index is a listing of 3000 corporations by the Frank Russell Company that is intended to be representative of the U.S. economy. The Russell 1000 is considered a "large cap" index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 2000 Index - 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. 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. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 186 Russell 3000 Growth Index - an unmanaged index comprised of securities in the Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies based on total market capitalization, with a greater than average growth orientation. Companies in the Russell 3000 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. S&P 500(1) - Standard & Poor's 500 Composite Stock Price Index, an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P/BARRA Value Index(1) - an unmanaged index of a subset of stocks from the S&P 500 that have low price-to-book ratios relative to the S&P 500 as a whole. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P/IFC Investables Index - an unmanaged index that tracks more than 1,400 stocks in 25 emerging markets in Asia, Latin America, Eastern Europe, Africa and the Middle East. The index is weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P MidCap 400(1) - an unmanaged index of 400 domestic stocks chosen for market size, liquidity and industry representation. The index is weighted by market value, and is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SmallCap 600(1) - Standard & Poor's SmallCap 600 Index, an unmanaged index of 600 common stocks, weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SuperComposite 1500(1) - an unmanaged index created by Standard & Poors combining the companies represented in three other indices -- the S&P 500, MidCap 400, and SmallCap 600. The index represents 87% of the total capitalization of U.S. equity markets. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds, but is not a first-tier security. Senior security - a debt security that allows holders to receive their share of a company's remaining assets in a bankruptcy before other bondholders, creditors, and common and preferred shareholders. Settlement date - the date on which an order is settled either by payment or delivery of securities. 187 Total return swap - an agreement between two parties to exchange periodic interest payments for the total return of an equity or fixed income instrument. Trade date - the effective date of a purchase, sale or exchange transaction, or other instructions sent to us. The trade date is determined by the day and time we receive the order or instructions in a form that's acceptable to us. U.S. government obligations - a wide range of debt securities issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities. U.S. Treasury obligation - a debt security issued by the U.S. Treasury. Warrant - a certificate that gives you the right to buy common shares at a specified price within a specified period of time. Zero-coupon bond - a bond that makes no periodic interest payments. Zero coupon bonds are sold at a deep discount to their face value and mature at face value. The difference between the face value at maturity and the purchase price represents the return. (1)S&P and BARRA have not reviewed any stock included in the S&P SuperComposite 1500, S&P 500, S&P SmallCap 600, S&P MidCap 400 Index or BARRA Value Index for its investment merit. S&P and BARRA determine and calculate their indices independently of the Funds and are not a sponsor or affiliate of the Funds. S&P and BARRA give no information and make no statements about the suitability of investing in the Funds or the ability of their indices to track stock market performance. S&P and BARRA make no guarantees about the indices, any data included in them and the suitability of the indices or their data for any purpose. "Standard and Poor's," "S&P 500" and "S&P 600" are trademarks of The McGraw-Hill Companies, Inc. 188 (THIS PAGE INTENTIONALLY LEFT BLANK) (THIS PAGE INTENTIONALLY LEFT BLANK) (THIS PAGE INTENTIONALLY LEFT BLANK) [GRAPHIC] Where to find more information You'll find more information about Nations Funds Stock, International/Global Stock, Index, Government & Corporate Bond and Municipal Bond Funds in the following documents: Annual and semi-annual reports The annual and semi-annual reports contain information about Fund investments and performance, the financial statements and the independent accountants' reports. The annual report also includes a discussion about the market conditions and investment strategies that had a significant effect on each Fund's performance during the period covered. [GRAPHIC] Statement of Additional Information The SAI contains additional information about the Funds and their policies. The SAI is legally part of this prospectus (it's incorporated by reference). A copy has been filed with the SEC. You can obtain a free copy of these documents, request other information about the Funds and make shareholder inquiries by contacting Nations Funds: By telephone: 1.800.321.7854 By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nations-funds.com Information about the Funds can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. The reports and other information about the Funds are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. SEC file numbers: Nations Fund Trust, 811-04305 Nations Fund, Inc., 811-04614 Nations Reserves, 811-6030 Nations Funds Trust, 811-09645 COMPROPA-8/01 [NATIONS FUNDS LOGO]
Part C Item No. Other Information - -------- ----------------- Information required to be included in Part C is set forth under the appropriate Item, so numbered, in Part C of this Document
[GRAPHIC] State Municipal Bond Funds Prospectus -- Primary A Shares August 1, 2001 Nations California Municipal Bond Fund Nations Florida Intermediate Municipal Bond Fund Nations Florida Municipal Bond Fund Nations Georgia Intermediate Municipal Bond Fund Nations Georgia Municipal Bond Fund Nations Kansas Municipal Income Fund Nations Maryland Intermediate Municipal Bond Fund Nations Maryland Municipal Bond Fund Nations North Carolina Intermediate Municipal Bond Fund Nations North Carolina Municipal Bond Fund Nations South Carolina Intermediate Municipal Bond Fund Nations South Carolina Municipal Bond Fund Nations Tennessee Intermediate Municipal Bond Fund Nations Tennessee Municipal Bond Fund Nations Texas Intermediate Municipal Bond Fund Nations Texas Municipal Bond Fund Nations Virginia Intermediate Municipal Bond Fund Nations Virginia Municipal Bond Fund The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. - ------------------- Not FDIC Insured - ------------------- May Lose Value - ------------------- No Bank Guarantee - ------------------- [Nations Funds (logo) An overview of the Funds - -------------------------------------------------------------------------------- [GRAPHIC] Terms used in this prospectus In this prospectus, we, us and our refer to the Nations Funds family (Nations Funds or Nations Funds Family). Some other important terms we've used may be new to you. These are printed in italics where they first appear in a section and are described in Terms used in this prospectus. [GRAPHIC] You'll find Terms used in this prospectus on page 116. Your investment in these Funds is not a bank deposit and is not insured or guaranteed by Bank of America, N.A. (Bank of America), the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Your investment may lose money. Affiliates of Bank of America are paid for the services they provide to the Funds. This booklet, which is called a prospectus, tells you about Nations Funds State Municipal Bond Funds. Please read it carefully because it contains information that's designed to help you make informed investment decisions. About the Funds These Funds invest most of their assets in securities issued by one state and its public authorities and local governments, and are generally intended for residents of that state. Each Fund focuses on the potential to earn income that is generally free from federal and state income tax by investing primarily in municipal securities. Municipal securities have the potential to increase in value because when interest rates fall, the value of these securities tends to rise. When interest rates rise, however, the value of these securities tends to fall. Other things can also affect the value of municipal securities. There's always a risk that you'll lose money, or you may not earn as much as you expect. Because they invest primarily in securities issued by one state, and its public authorities and local governments, the Funds are considered to be non-diversified. This means the value of a Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. Choosing the right Funds for you Not every Fund is right for every investor. When you're choosing a Fund to invest in, you should consider things like your investment goals, how much risk you can accept and how long you're planning to hold your investment. The State Municipal Bond Funds may be suitable for you if: o you're looking for income o you want to reduce taxes on your investment o you have longer-term investment goals They may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with fixed income securities 2 Comparing the Funds There are two groups of State Municipal Bond Funds in the Nations Funds Family: Intermediate Municipal Bond Funds and Long-Term Municipal Bond Funds. The main difference between the two groups is their portfolio duration -- a measure used to estimate how much a Fund's securities will fluctuate in response to a change in interest rates. The Long-Term Municipal Bond Funds, which have longer portfolio durations, generally have the potential to earn more income than the Intermediate Municipal Bond Funds, but they also have more risk because their prices tend to change more when interest rates change. The table below is designed to help you understand the differences between these two groups of Funds only and their relative income and risk potential -- you should not use it to compare these Funds with other mutual funds or other kinds of investments. A Fund's income and risk potential can change over time. Income Risk Duration potential potential Intermediate Municipal Bond Funds 3 to 6 yrs moderate moderate Kansas Municipal Income Fund 3 to 8 yrs moderate moderate Long-Term Municipal Bond Funds more than 6 yrs high high You'll find a discussion of each Fund's principal investments, strategies and risks in the Fund descriptions that start on page 6. For more information If you have any questions about the Funds, please call us at 1.800.321.7854 or contact your investment professional. You'll find more information about the Funds in the Statement of Additional Information (SAI). The SAI includes more detailed information about each Fund's investments, policies, performance and management, among other things. Please turn to the back cover to find out how you can get a copy. 3 What's inside - -------------------------------------------------------------------------------- [GRAPHIC] Banc of America Advisors, LLC Banc of America Advisors, LLC (BA Advisors) is the investment adviser to each of the Funds. BA Advisors is responsible for the overall management and supervision of the investment management of each Fund. BA Advisors and Nations Funds have engaged a sub-adviser -- Banc of America Capital Management, LLC (BACAP), which is responsible for the day-to-day investment decisions for each of the Funds. [GRAPHIC] You'll find more about BA Advisors and BACAP starting on page 96. [GRAPHIC] About the Funds Nations California Municipal Bond Fund 6 Sub-adviser: BACAP - ------------------------------------------------------------------ Nations Florida Intermediate Municipal Bond Fund 11 Sub-adviser: BACAP - ------------------------------------------------------------------ Nations Florida Municipal Bond Fund 16 Sub-adviser: BACAP - ------------------------------------------------------------------ Nations Georgia Intermediate Municipal Bond Fund 21 Sub-adviser: BACAP - ------------------------------------------------------------------ Nations Georgia Municipal Bond Fund 26 Sub-adviser: BACAP - ------------------------------------------------------------------ Nations Kansas Municipal Income Fund 31 Sub-adviser: BACAP - ------------------------------------------------------------------ Nations Maryland Intermediate Municipal Bond Fund 35 Sub-adviser: BACAP - ------------------------------------------------------------------ Nations Maryland Municipal Bond Fund 40 Sub-adviser: BACAP - ------------------------------------------------------------------ Nations North Carolina Intermediate Municipal Bond Fund 45 Sub-adviser: BACAP - ------------------------------------------------------------------ Nations North Carolina Municipal Bond Fund 50 Sub-adviser: BACAP - ------------------------------------------------------------------ Nations South Carolina Intermediate Municipal Bond Fund 55 Sub-adviser: BACAP - ------------------------------------------------------------------ Nations South Carolina Municipal Bond Fund 60 Sub-adviser: BACAP - ------------------------------------------------------------------ Nations Tennessee Intermediate Municipal Bond Fund 65 Sub-adviser: BACAP - ------------------------------------------------------------------ Nations Tennessee Municipal Bond Fund 70 Sub-adviser: BACAP - ------------------------------------------------------------------ Nations Texas Intermediate Municipal Bond Fund 75 Sub-adviser: BACAP - ------------------------------------------------------------------ Nations Texas Municipal Bond Fund 80 Sub-adviser: BACAP - ------------------------------------------------------------------ Nations Virginia Intermediate Municipal Bond Fund 85 Sub-adviser: BACAP - ------------------------------------------------------------------ Nations Virginia Municipal Bond Fund 90 Sub-adviser: BACAP - ------------------------------------------------------------------
4 Other important information 95 - ------------------------------------------------------------------ How the Funds are managed 96
[GRAPHIC] About your investment
Information for investors Buying, selling and exchanging shares 100 Distributions and taxes 104 - ------------------------------------------------------------------ Financial highlights 106 - ------------------------------------------------------------------ Terms used in this prospectus 116 - ------------------------------------------------------------------ Where to find more information back cover
5 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 98. [GRAPHIC] This Fund at a glance o Who should consider investing: Residents of California o Duration: More than 6 years o Income potential: High o Risk potential: High [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations California Municipal Bond Fund [GRAPHIC] Investment objective The Fund seeks as high a level of current interest income free of federal income tax and California state individual income tax as is consistent with prudent investment management and preservation of capital. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and California state individual income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than seven years, and its duration will be more than six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 6 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations California Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 7 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and California state individual income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by California and its municipalities, is more vulnerable to unfavorable developments in California than funds that invest in municipal bonds of many different states. Although California has a larger and more diverse economy than most other states, its economy continues to be driven by, among other industries, agriculture, tourism, high technology and manufacturing. Adverse conditions affecting California generally could have an impact on California municipal securities. 8 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [GRAPHIC] [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 2000 12.47% *Year-to-date return as of June 30, 2001: 1.14% Best and worst quarterly returns during this period Best: 4th quarter 2000: 3.97% Worst: 2nd quarter 2000: 1.59% Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Municipal Bond Index, a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. The index is not available for investment. Since 1 year inception* Primary A Shares 12.47% 4.80% Lehman Municipal Bond Index 11.68% 5.46% *The inception date of Primary A Shares is May 21, 1999. The return for the index shown is from that date. 9 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.50% Other expenses 0.32% ------ Total annual Fund operating expenses 0.82% Fee waivers and/or reimbursements (0.22)% ------ Total net expenses(2) 0.60% ====== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $61 $240 $433 $993 10 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 98. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Florida State Municipal Bond Funds. o Who should consider investing: Residents of Florida o Duration: 3 to 6 years o Income potential: Moderate o Risk potential: Moderate [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations Florida Intermediate Municipal Bond Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal income and the Florida state intangibles taxes consistent with moderate fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and Florida state intangibles tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between three and 10 years, and its duration will be between three and six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 11 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Florida Intermediate Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities of the state of Florida, its public authorities and local governments. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the portfolio management team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 12 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and Florida state intangibles tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Florida and its municipalities, is more vulnerable to unfavorable developments in Florida than funds that invest in municipal bonds of many different states. For example, the state's economy relies on various industries including retirement migration, tourism and agriculture, which have historically driven the economy, as well as high technology jobs, service sector jobs and international trade which complement the three traditional industries. Adverse conditions affecting these industries could have an impact on Florida municipal securities. 13 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1993 1994 1995 1996 1997 1998 1999 2000 11.30% -4.12% 14.31% 3.74% 7.21% 5.38% -0.59% 8.27% *Year-to-date return as of June 30, 2001: 2.65% Best and worst quarterly returns during this period Best: 1st quarter 1995: 5.85% Worst: 1st quarter 1994: -4.25% Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman 7-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. The index is not available for investment. Since 1 year 5 years inception* Primary A Shares 8.27% 4.75% 5.53% Lehman 7-Year Municipal Bond Index 9.09% 5.41% 6.07% *The inception date of Primary A Shares is December 11, 1992. The return for the index shown is from that date. 14 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Other expenses 0.31% ------ Total annual Fund operating expenses 0.71% Fee waivers and/or reimbursements (0.21)% ------ Total net expenses(2) 0.50% ====== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $51 $206 $374 $863 15 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 98. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Florida State Municipal Bond Funds. o Who should consider investing: Residents of Florida o Duration: More than 6 years o Income potential: High o Risk potential: High [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations Florida Municipal Bond Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal income and the Florida state intangibles taxes with the potential for principal fluctuation associated with investments in long-term municipal securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade long-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and Florida state intangibles tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than seven years, and its duration will be more than six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 16 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Florida Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities of the state of Florida, its public authorities and local governments. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 17 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and Florida state intangibles tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Florida and its municipalities, is more vulnerable to unfavorable developments in Florida than funds that invest in municipal bonds of many different states. For example, the state's economy relies on various industries including retirement migration, tourism and agriculture, which have historically driven the economy, as well as high technology jobs, service sector jobs and international trade which complement the three traditional industries. Adverse conditions affecting these industries could have an impact on Florida municipal securities. 18 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [Bar chart appears here with the following plot points] - -8.08% 19.98% 3.17% 8.98% 5.84% -2.57% 11.3% 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 2.74% Best and worst quarterly returns during this period Best: 1st quarter 1995: 8.21% Worst: 1st quarter 1994: -8.01%
Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Municipal Bond Index, a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Primary A Shares 11.33% 5.23% 5.20% Lehman Municipal Bond Index 11.68% 5.84% 6.00%
*The inception date of Primary A Shares is December 13, 1993. The return for the index shown is from that date. 19 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.50% Other expenses 0.33% ------ Total annual Fund operating expenses 0.83% Fee waivers and/or reimbursements (0.23)% ------ Total net expenses(2) 0.60% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Primary A Shares $61 $242 $438 $1,004
20 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 98. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Georgia State Municipal Bond Funds. o Who should consider investing: Residents of Georgia o Duration: 3 to 6 years o Income potential: Moderate o Risk potential: Moderate [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations Georgia Intermediate Municipal Bond Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal and Georgia state income taxes consistent with moderate fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and Georgia state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between three and 10 years, and its duration will be between three and six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 21 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Georgia Intermediate Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 22 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and Georgia state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Georgia and its municipalities, is more vulnerable to unfavorable developments in Georgia than funds that invest in municipal bonds of many different states. For example, the state's economy relies on various industries such as textiles, apparel, automobile production, real estate and construction. Adverse conditions affecting these industries could have an impact on Georgia municipal securities. 23 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [Bar chart appears here with the following plot points] 11.26% -4.61% 14.30% 3.65% 7.19% 5.59% -1.32% 8.30 1993 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 3.32% Best and worst quarterly returns during this period Best: 1st quarter 1995: 5.57% Worst: 1st quarter 1994: -4.58%
Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman 7-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Primary A Shares 8.30% 4.63% 5.79% Lehman 7-Year Municipal Bond Index 9.09% 5.41% 6.78%
*The inception date of Primary A Shares is March 1, 1992. The return for the index shown is from that date. 24 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Other expenses 0.33% ------ Total annual Fund operating expenses 0.73% Fee waivers and/or reimbursements (0.23)% ------ Total net expenses2 0.50% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Primary A Shares $51 $210 $383 $885
25 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 98. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Georgia State Municipal Bond Funds. o Who should consider investing: Residents of Georgia o Duration: More than 6 years o Income potential: High o Risk potential: High [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations Georgia Municipal Bond Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal and Georgia state income taxes with the potential for principal fluctuation associated with investments in long-term municipal securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment gradelong-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and Georgia state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than seven years, and its duration will be more than six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 26 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Georgia Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 27 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and Georgia state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Georgia and its municipalities, is more vulnerable to unfavorable developments in Georgia than funds that invest in municipal bonds of many different states. For example, the state's economy relies on various industries such as textiles, apparel, automobile production, real estate and construction. Adverse conditions affecting these industries could have an impact on Georgia municipal securities. 28 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [Bar chart appears here with the following plot points] 19.67% 3.60% 8.77% 6.49% -3.43% 11.20% 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 2.71% Best and worst quarterly returns during this period Best: 1st quarter 1995: 7.99% Worst: 1st quarter 1996: -1.96%
Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Municipal Bond Index, a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Primary A Shares 11.20% 5.20% 4.99% Lehman Municipal Bond Index 11.68% 5.84% 5.65%
*The inception date of Primary A Shares is January 13, 1994. The return for the index shown is from that date. 29 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Primary A Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.50% Other expenses 0.58% ---- Total annual Fund operating expenses 1.08% Fee waivers and/or reimbursements 0.48% ---- Total net expenses(2) 0.60% ====
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Primary A Shares $61 $296 $549 $1,274
30 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 98. [GRAPHIC] This Fund at a glance o Who should consider investing: Residents of Kansas o Duration: 3 to 8 years o Income potential: Moderate o Risk potential: Moderate [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations Kansas Municipal Income Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal and Kansas state income taxes consistent with moderate fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is free from federal income tax and Kansas state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between three and 10 years, and its duration will be between three and eight years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation or when other investments are more attractive. 31 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Kansas Municipal Income Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 32 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and Kansas state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Kansas and its municipalities, is more vulnerable to unfavorable developments in Kansas than funds that invest in municipal bonds of many different states. For example, the state's economy relies significantly on its agricultural resources. Adverse conditions affecting these resources and the states agricultural industry could have a significant impact on Kansas municipal securities. [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. 33 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.50% Other expenses 0.43% ------ Total annual Fund operating expenses 0.93% Fee waivers and/or reimbursements (0.33)% ------ Total net expenses(2) 0.60% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Primary A Shares $61 $263 $482 $1,113
34 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 98. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Maryland State Municipal Bond Funds. o Who should consider investing: Residents of Maryland o Duration: 3 to 6 years o Income potential: Moderate o Risk potential: Moderate [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations Maryland Intermediate Municipal Bond Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal and Maryland state income taxes consistent with moderate fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and Maryland state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between three and 10 years, and its duration will be between three and six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 35 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Maryland Intermediate Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 36 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and Maryland state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Maryland and its municipalities, is more vulnerable to unfavorable developments in Maryland than funds that invest in municipal bonds of many different states. For example, the state's economy relies on the service, wholesale and retail trade, government and manufacturing sectors of the economy. Adverse conditions affecting these sectors could have an impact on Maryland municipal securities. 37 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [Bar chart appears here with the following plot points] 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 10.17% 7.15% 10.17% -4.52% 13.84% 3.64% 6.76% 5.30% -0.83% 8.55% *Year-to-date return as of June 30, 2001: 2.79% Best and worst quarterly returns during this period Best: 1st quarter 1995: 5.62% Worst: 1st quarter 1994: -4.49%
Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman 7-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years 10 years inception* Primary A Shares 8.55% 4.63% 5.89% 6.11% Lehman 7-Year Municipal Bond Index 9.09% 5.41% 9.30% 6.86%
*The inception date of Primary A Shares is September 1, 1990. The return for the index shown is from that date. 38 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Other expenses 0.31% ------ Total annual Fund operating expenses 0.71% Fee waivers and/or reimbursements (0.21)% ------ Total net expenses(2) 0.50% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Primary A Shares $51 $206 $374 $863
39 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 98. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Maryland State Municipal Bond Funds. o Who should consider investing: Residents of Maryland o Duration: More than 6 years o Income potential: High o Risk potential: High [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations Maryland Municipal Bond Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal and Maryland state income taxes with the potential for principal fluctuation associated with investments in long-term municipal securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade long-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and Maryland state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than seven years, and its duration will be more than six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 40 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Maryland Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 41 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and Maryland state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Maryland and its municipalities, is more vulnerable to unfavorable developments in Maryland than funds that invest in municipal bonds of many different states. For example, the state's economy relies on the service, wholesale and retail trade, government and manufacturing sectors of the economy. Adverse conditions affecting these sectors could have a significant impact on Maryland municipal securities. 42 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [Bar chart appears here with the following points] 19.27% 3.22% 9.21% 5.73% -2.18% 10.97% 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 2.84% Best and worst quarterly returns during this period Best: 1st quarter 1995: 8.13% Worst: 1st quarter 1996: -2.15%
[GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Municipal Bond Index, a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Primary A Shares 10.97% 5.29% 6.78% Lehman Municipal Bond Index 11.68% 5.84% 7.13%
*The inception date of Primary A Shares is September 20, 1994. The return for the index shown is from that date. 43 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.50% Other expenses 0.50% ------ Total annual Fund operating expenses 1.00% Fee waivers and/or reimbursements (0.40)% ------ Total net expenses(2) 0.60% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Primary A Shares $61 $279 $514 $1,188
44 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 98. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two North Carolina State Municipal Bond Funds. o Who should consider investing: Residents of North Carolina o Duration: 3 to 6 years o Income potential: Moderate o Risk potential: Moderate [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations North Carolina Intermediate Municipal Bond Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal and North Carolina state income taxes consistent with moderate fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and North Carolina state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between three and 10 years, and its duration will be between three and six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 45 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations North Carolina Intermediate Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 46 o Tax considerations - Most of the distributions paid by the Fund come from interest on North Carolina municipal securities, and are generally free from federal income tax and North Carolina state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by North Carolina and its municipalities, is more vulnerable to unfavorable developments in North Carolina than funds that invest in municipal bonds of many different states. For example, the state's economy relies significantly on a combination of industries such as manufacturing, agriculture (tobacco), biotechnology (including pharmaceutical research), educational services, banking and tourism. Also, North Carolina voters have approved the issuance of $3.1 billion of bonds for the state's universities and community colleges which would more than double the state's bonds outstanding. These factors could have a significant impact on North Carolina state and municipal securities. 47 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [Bar chart appears here with the following points] 10.45% -4.09% 14.14% 3.85% 7.22% 5.37% -1.37% 8.59% 1993 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 2.72% Best and worst quarterly returns during this period Best: 1st quarter 1995: 5.83% Worst: 1st quarter 1994: -4.03%
[GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman 7-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Primary A Shares 8.59% 4.67% 5.38% Lehman 7-Year Municipal Bond Index 9.09% 5.41% 6.07%
*The inception date of Primary A Shares is December 11, 1992. The return for the index shown is from that date. 48 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Other expenses 0.31% ------ Total annual Fund operating expenses 0.71% Fee waivers and/or reimbursements (0.21)% ------ Total net expenses(2) 0.50% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Primary A Shares $51 $206 $374 $863
49 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 98. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two North Carolina State Municipal Bond Funds. o Who should consider investing: Residents of North Carolina o Duration: More than 6 years o Income potential: High o Risk potential: High [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations North Carolina Municipal Bond Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal and North Carolina state income taxes with the potential for principal fluctuation associated with investments in long-term municipal securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade long-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and North Carolina state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than seven years, and its duration will be more than six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 50 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations North Carolina Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 51 o Tax considerations - Most of the distributions paid by the Fund come from interest on North Carolina municipal securities, and are generally free from federal income tax and North Carolina state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by North Carolina and its municipalities, is more vulnerable to unfavorable developments in North Carolina than funds that invest in municipal bonds of many different states. For example, the state's economy relies significantly on a combination of industries such as manufacturing, agriculture (tobacco), biotechnology (including pharmaceutical research), educational services, banking and tourism. Also, North Carolina voters have approved the issuance of $3.1 billion of bonds for the state's universities and community colleges which would more than double the state's bonds outstanding. These factors could have a significant impact on North Carolina state and municipal securities. 52 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [Bar chart appears here with the following points] 20.38% 2.71% 9.06% 6.17% -3.19% 10.63% 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 2.90% Best and worst quarterly returns during this period Best: 1st quarter 1995: 8.45% Worst: 1st quarter 1996: -2.48%
[GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Municipal Bond Index, a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Primary A Shares 10.63% 4.96% 4.84% Lehman Municipal Bond Index 11.68% 5.84% 5.75%
*The inception date of Primary A Shares is January 11, 1994. The return for the index shown is from that date. 53 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.50% Other expenses 0.48% ------ Total annual Fund operating expenses 0.98% Fee waivers and/or reimbursements (0.38)% ------ Total net expenses(2) 0.60% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $61 $274 $505 $1,167
54 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 98. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two South Carolina State Municipal Bond Funds. o Who should consider investing: Residents of South Carolina o Duration: 3 to 6 years o Income potential: Moderate o Risk potential: Moderate [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations South Carolina Intermediate Municipal Bond Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal and South Carolina state income taxes consistent with moderate fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and South Carolina state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between three and 10 years, and its duration will be between three and six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 55 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations South Carolina Intermediate Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 56 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and South Carolina state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by South Carolina and its municipalities, is more vulnerable to unfavorable developments in South Carolina than funds that invest in municipal bonds of many different states. Traditionally, South Carolina has primarily relied upon agriculture, manufacturing and related industries and services. However, recent positive growth in the state's economy has been driven by gains in the tourism, business services and international trade industries. Adverse conditions affecting any of these industries could have an impact on South Carolina municipal securities. 57 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [Bar chart appears here with the following points] 10.11% -2.93% 13.67% 3.96% 6.83% 5.54% -1.12% 8.71% 1993 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 2.86% Best and worst quarterly returns during this period Best: 1st quarter 1995: 5.23% Worst: 1st quarter 1994: -3.47%
[GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund'saverage annual total return for each period, compared with the Lehman 7-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Primary A Shares 8.71% 4.73% 5.70% Lehman 7-Year Municipal Bond Index 9.09% 5.41% 7.29%
*The inception date of Primary A Shares is January 6, 1992. The return for the index shown is from that date. 58 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Other expenses 0.30% ------ Total annual Fund operating expenses 0.70% Fee waivers and/or reimbursements (0.20)% ------ Total net expenses(2) 0.50% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Primary A Shares $51 $204 $370 $852
59 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 98. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two South Carolina State Municipal Bond Funds. o Who should consider investing: Residents of South Carolina o Duration: More than 6 years o Income potential: High o Risk potential: High [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations South Carolina Municipal Bond Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal and South Carolina state income taxes with the potential for principal fluctuation associated with investments in long-term municipal securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade long-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and South Carolina state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than seven years, and its duration will be more than six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 60 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations South Carolina Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 61 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and South Carolina state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by South Carolina and its municipalities, is more vulnerable to unfavorable developments in South Carolina than funds that invest in municipal bonds of many different states. Traditionally, South Carolina has primarily relied upon agriculture, manufacturing and related industries and services. However, recent positive growth in the state's economy has been driven by gains in the tourism, business services and international trade industries. Adverse conditions affecting any of these industries could have an impact on South Carolina municipal securities. 62 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [Bar chart appears here with the following points] - -6.06% 19.63% 3.47% 8.65% 5.46% -3.21% 11.96% 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 3.09% Best and worst quarterly returns during this period Best: 1st quarter 1995: 7.91% Worst: 1st quarter 1994: -5.64%
[GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Municipal Bond Index, a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Primary A Shares 11.96% 5.14% 5.40% Lehman Municipal Bond Index 11.68% 5.84% 5.75%
*The inception date of Primary A Shares is December 27, 1993. The return for the index shown is from that date. 63 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.50% Other expenses 0.49% ------ Total annual Fund operating expenses 0.99% Fee waivers and/or reimbursements (0.39)% ------ Total net expenses(2) 0.60% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Primary A Shares $61 $276 $509 $1,178
64 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 98. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Tennessee State Municipal Bond Funds. o Who should consider investing: Residents of Tennessee o Duration: 3 to 6 years o Income potential: Moderate o Risk potential: Moderate [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations Tennessee Intermediate Municipal Bond Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal income tax and the Tennessee Hall Income Tax on unearned income consistent with moderate fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and the Tennessee Hall Income Tax on unearned income. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between three and 10 years, and its duration will be between three and six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons and expected and timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 65 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Tennessee Intermediate Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 66 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and the Tennessee Hall Income Tax on unearned income, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Tennessee and its municipalities, is more vulnerable to unfavorable developments in Tennessee than funds that invest in municipal bonds of many different states. For example, the state's economic diversity has improved substantially over the last several years with investments announced in new and expanding businesses. Adverse conditions affecting these investments could have an impact on Tennessee municipal securities. 67 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [Bar chart appears here with the following points] - -4.47% 14.15% 3.92% 6.92% 5.41% -1.25% 8.31% 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 3.21% Best and worst quarterly returns during this period Best: 1st quarter 1995: 5.82% Worst: 1st quarter 1994: -4.19%
[GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman 7-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Primary A Shares 8.31% 4.61% 4.93% Lehman 7-Year Municipal Bond Index 9.09% 5.41% 5.74%
*The inception date of Primary A Shares is April 13, 1993. The return for the index shown is from that date. 68 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Other expenses 0.44% ------ Total annual Fund operating expenses 0.84% Fee waivers and/or reimbursements (0.34)% ------ Total net expenses(2) 0.50% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Primary A Shares $51 $234 $433 $1,006
69 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 98. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Tennessee State Municipal Bond Funds. o Who should consider investing: Residents of Tennessee o Duration: More than 6 years o Income potential: High o Risk potential: High [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations Tennessee Municipal Bond Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal income tax and the Tennessee Hall Income Tax on unearned income with the potential for principal fluctuation associated with investments in long-term municipal securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade long-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and the Tennessee Hall Income Tax on unearned income. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than seven years, and its duration will be more than six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 70 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Tennessee Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 71 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and the Tennessee Hall Income Tax on unearned income, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Tennessee and its municipalities, is more vulnerable to unfavorable developments in Tennessee than funds that invest in municipal bonds of many different states. For example, the state's economic diversity has improved substantially over the last several years with investments announced in new and expanding businesses. Adverse conditions affecting these investments could have an impact on Tennessee municipal securities. 72 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [Bar chart appears here with the following points] 19.44% 3.77% 9.26% 5.74% -3.55% 11.60% 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 2.99% Best and worst quarterly returns during this period Best: 1st quarter 1995: 7.98% Worst: 2nd quarter 1999: -2.08%
[GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Municipal Bond Index, a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Primary A Shares 11.60% 5.23% 5.96% Lehman Municipal Bond Index 11.68% 5.84% 6.13%
*The inception date of Primary A Shares is March 2, 1994. The return for the index shown is from that date. 73 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.50% Other expenses 1.06% ------ Total annual Fund operating expenses 1.56% Fee waivers and/or reimbursements (0.96)% ------ Total net expenses(2) 0.60% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Primary A Shares $61 $398 $759 $1,775
74 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 98. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Texas State Municipal Bond Funds. o Who should consider investing: Residents of Texas o Duration: 3 to 6 years o Income potential: Moderate o Risk potential: Moderate [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations Texas Intermediate Municipal Bond Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal income tax consistent with moderate fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between three and 10 years, and its duration will be between three and six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 75 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Texas Intermediate Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities of the state of Texas, its public authorities and local governments. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 76 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and is generally free from federal income tax, but may be subject to the federal alternative minimum tax, and state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Texas and its municipalities, is more vulnerable to unfavorable developments in Texas than funds that invest in municipal bonds of many different states. For example, the state's economy relies significantly on the high-technology, oil, real estate and agriculture industries as well as the service-producing and goods-producing sectors. Adverse conditions affecting these industries and sectors could have an impact on Texas municipal securities. 77 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [Bar chart appears here with the following points] - -3.33% 12.93% 3.65% 7.12% 5.41% -1.19% 8.53% 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 2.86% Best and worst quarterly returns during this period Best: 1st quarter 1995: 4.94% Worst: 1st quarter 1994: -3.98%
[GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman 7-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Primary A Shares 8.53% 4.65% 5.19% Lehman 7-Year Municipal Bond Index 9.09% 5.41% 5.95%
*The inception date of Primary A Shares is January 12, 1993. The return for the index shown is from that date. 78 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Other expenses 0.30% ------ Total annual Fund operating expenses 0.70% Fee waivers and/or reimbursements (0.20)% ------ Total net expenses(2) 0.50% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Primary A Shares $51 $204 $370 $852
79 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 98. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Texas State Municipal Bond Funds. o Who should consider investing: Residents of Texas o Duration: More than 6 years o Income potential: High o Risk potential: High [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations Texas Municipal Bond Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal income tax with the potential for principal fluctuation associated with investments in long-term municipal securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade long-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than seven years, and its duration will be more than six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 80 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Texas Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities of the state of Texas, its public authorities and local governments. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 81 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax, but may be subject to the federal alternative minimum tax, and state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Texas and its municipalities, is more vulnerable to unfavorable developments in Texas than funds that invest in municipal bonds of many different states. For example, the state's economy relies significantly on the high-technology, oil, real estate and agriculture industries as well as the service-producing and goods-producing sectors. Adverse conditions affecting these industries and sectors could have an impact on Texas municipal securities. 82 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [Bar chart appears here with the following points] 19.83% 3.80% 9.03% 6.39% -3.31% 11.85% 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 2.31% Best and worst quarterly returns during this period Best: 1st quarter 1995: 8.02% Worst: 2nd quarter 1999: -2.02%
[GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Municipal Bond Index, a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Primary A Shares 11.85% 5.42% 5.13% Lehman Municipal Bond Index 11.68% 5.84% 5.65%
*The inception date of Primary A Shares is February 3, 1994. The return for the index shown is from that date. 83 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.50% Other expenses 0.87% ------ Total annual Fund operating expenses 1.37% Fee waivers and/or reimbursements (0.77)% ------ Total net expenses(2) 0.60% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Primary A Shares $61 $358 $676 $1,579
84 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 98. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Virginia State Municipal Bond Funds. o Who should consider investing: Residents of Virginia o Duration: 3 to 6 years o Income potential: Moderate o Risk potential: Moderate [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations Virginia Intermediate Municipal Bond Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal and Virginia state income taxes consistent with moderate fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and Virginia state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between three and 10 years, and its duration will be between three and six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 85 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Virginia Intermediate Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 86 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and Virginia state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Virginia and its municipalities, is more vulnerable to unfavorable developments in Virginia than funds that invest in municipal bonds of many different states. Traditionally, Virginia's economy has relied heavily upon industries such as agriculture (tobacco) and federal government-related employment. However, recent growth in the state's economy has been related to new businesses in high-technology, wine-producing and tourism industries. Adverse conditions affecting the industries could have a significant impact on Virginia municipal securities. 87 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [Bar chart appears here with the following points] 9.66% 6.96% 10.08% -4.29% 13.39% 3.82% 6.83% 5.46% -1.01% 8.70% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 2.91% Best and worst quarterly returns during this period Best: 1st quarter 1995: 5.24% Worst: 1st quarter 1994: -4.07%
[GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman 7-Year Municipal Bond Index, a broad-based, unmanaged index of 8,000 investment grade bonds with maturities of seven to eight years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years 10 years inception* Primary A Shares 8.70% 4.71% 5.84% 6.00% Lehman 7-Year Municipal Bond Index 9.09% 5.41% 9.30% 7.40%
* The inception date of Primary A Shares is September 20, 1989. The return for the index shown is from that date. 88 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Other expenses 0.30% ------ Total annual Fund operating expenses 0.70% Fee waivers and/or reimbursements (0.20)% ------ Total net expenses(2) 0.50% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Primary A Shares $51 $204 $370 $852
89 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 98. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Virginia State Municipal Bond Funds. o Who should consider investing: Residents of Virginia o Duration: More than 6 years o Income potential: High o Risk potential: High [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations Virginia Municipal Bond Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal and Virginia state income taxes with the potential for principal fluctuation associated with investments in long-term municipal securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade long-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and Virginia state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than seven years, and its duration will be more than six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 90 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Virginia Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 91 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and Virginia state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Virginia and its municipalities, is more vulnerable to unfavorable developments in Virginia than funds that invest in municipal bonds of many different states. Traditionally, Virginia's economy has relied heavily upon industries such as agriculture (tobacco) and federal government-related employment. However, recent growth in the state's economy has been related to new businesses in high-technology, wine-producing and tourism industries. Adverse conditions affecting these industries could have a significant impact on Virginia municipal securities. 92 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [Bar chart appears here with the following points] 19.80% 3.70% 9.47% 5.92% -3.04% 10.35% 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 2.79% Best and worst quarterly returns during this period Best: 1st quarter 1995: 8.19% Worst: 1st quarter 1996: -1.97%
[GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Municipal Bond Index, a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Primary A Shares 10.35% 5.17% 4.84% Lehman Municipal Bond Index 11.68% 5.84% 5.75%
*The inception date of Primary A Shares is January 11, 1994. The return for the index shown is from that date. 93 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.50% Other expenses 0.57% ------ Total annual Fund operating expenses 1.07% Fee waivers and/or reimbursements (0.47)% ------ Total net expenses(2) 0.60% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Primary A Shares $61 $294 $545 $1,263
94 [GRAPHIC] Other important information You'll find specific information about each Fund's principal investments, strategies and risks in the descriptions starting on page 6. The following are some other risks and information you should consider before you invest: o Changing investment objectives and policies - The investment objective and certain investment policies of any Fund can be changed without shareholder approval. Other investment policies may be changed only with shareholder approval. o Holding other kinds of investments - The Funds may hold investments that aren't part of their principal investment strategies. Please refer to the SAI for more information. The management team can also choose not to invest in specific securities described in this prospectus and in the SAI. o Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest up to 25% of their assets in Nations Money Market Funds. BA Advisors and its affiliates are entitled to receive fees from the Nations Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Funds for services provided directly. BA Advisors may waive fees which it is entitled to receive from either the Nations Money Market Funds or the Funds. o Investing defensively - A Fund may temporarily hold investments that are not part of its investment objective or its principal investment strategies to try to protect it during a market or economic downturn or because of political or other conditions. A Fund may not achieve its investment objective while it is investing defensively. o Bank of America and its affiliates - Bank of America and its affiliates currently provide services to some or all of the Funds, including investment advisory, investment sub-advisory, co-administration, sub-transfer agency and brokerage services, and are paid for providing these services. Bank of America and its affiliates also may, at times, provide other services and be compensated for them, including transfer agency, interfund lending and securities lending services, or make loans to the Funds. Finally, Bank of America or its affiliates may serve as counterparties in transactions with Nations Funds where permitted by law or regulation, and may receive compensation in that capacity. o Portfolio turnover - A Fund that replaces -- or turns over -- more than 100% of its investments in a year is considered to trade frequently. Frequent trading can result in larger distributions of short-term capital gains to shareholders. These gains are taxable at higher rates than long-term capital gains. Frequent trading can also mean higher brokerage and other transaction costs, which could reduce the Fund's returns. The Funds generally buy securities for capital appreciation, investment income, or both, and don't engage in short-term trading. You'll find the portfolio turnover rate for each Fund in Financial highlights. 95 [GRAPHIC] How the Funds are managed [GRAPHIC] Banc of America Advisors, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Investment adviser BA Advisors is the investment adviser to over 75 mutual fund portfolios in the Nations Funds Family, including the Funds described in this prospectus. BA Advisors is a registered investment adviser. It's a wholly-owned subsidiary of Bank of America, which is owned by Bank of America Corporation. Nations Funds pays BA Advisors an annual fee for its investment advisory services. The fee is calculated as a percentage of the average daily net assets of the Fund and is paid monthly. BA Advisors uses part of this money to pay the investment sub-adviser for the services it provides to each Fund. BA Advisors has agreed to waive fees and/or reimburse expenses for certain Funds until July 31, 2002. You'll find a discussion of any waiver and/or reimbursement in the Fund descriptions. There is no assurance that BA Advisors will continue to waive and/or reimburse any fees and/or expenses after this date. 96 The following chart shows the maximum advisory fees BA Advisors can receive, along with the actual advisory fees it received during the Funds' last fiscal year, after waivers and/or reimbursements: Annual investment advisory fee, as a % of average daily net assets
Maximum Actual fee advisory paid last fee fiscal year Nations California Municipal Bond Fund 0.50% 0.30% Nations Florida Intermediate Municipal Bond Fund 0.40% 0.21% Nations Florida Municipal Bond Fund 0.50% 0.29% Nations Georgia Intermediate Municipal Bond Fund 0.40% 0.19% Nations Georgia Municipal Bond Fund 0.50% 0.04% Nations Kansas Municipal Income Fund 0.50% N/A Nations Maryland Intermediate Municipal Bond Fund 0.40% 0.20% Nations Maryland Municipal Bond Fund 0.50% 0.12% Nations North Carolina Intermediate Municipal Bond Fund 0.40% 0.21% Nations North Carolina Municipal Bond Fund 0.50% 0.14% Nations South Carolina Intermediate Municipal Bond Fund 0.40% 0.21% Nations South Carolina Municipal Bond Fund 0.50% 0.13% Nations Tennessee Intermediate Municipal Bond Fund 0.40% 0.08% Nations Tennessee Municipal Bond Fund 0.50% 0.00% Nations Texas Intermediate Municipal Bond Fund 0.40% 0.22% Nations Texas Municipal Bond Fund 0.50% 0.00% Nations Virginia Intermediate Municipal Bond Fund 0.40% 0.22% Nations Virginia Municipal Bond Fund 0.50% 0.05%
97 Investment sub-adviser Nations Funds and BA Advisors engage one or more investment sub-advisers for each Fund to make day-to-day investment decisions for the Fund. BA Advisors retains ultimate responsibility (subject to Board oversight) for overseeing the sub-advisers and evaluates the Funds' needs and available sub-advisers' skills and abilities on an ongoing basis. Based on its evaluations, BA Advisors may at times recommend to a Fund's Board that the Fund: o change, add or terminate one or more sub-advisers; o continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or o materially change a sub-advisory agreement with a sub-adviser. Applicable law requires a Fund to obtain shareholder approval in order to act on most of these types of recommendations, even if the Fund's Board has approved the proposed action and believes that the action is in shareholders' best interests. BA Advisors and the Funds have applied for relief from the SEC to permit the Funds to act on many of BA Advisors' recommendations with approval only by the Funds' Board and not by Fund shareholders. BA Advisors or a Fund would inform the Fund's shareholders of any actions taken in reliance on this relief. Until BA Advisors and the Fund obtain the relief, each Fund will continue to submit these matters to shareholders for their approval to the extent required by applicable law. [GRAPHIC] Banc of America Capital Management, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Banc of America Capital Management, LLC BACAP is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Its management expertise covers all major domestic asset classes, including equity and fixed income securities, and money market instruments. Currently managing more than $125 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 60 funds in the Nations Funds Family. BACAP takes a team approach to investment management. Each team has access to the latest technology and analytical resources. BACAP is the investment sub-adviser to the Funds. BACAP's Municipal Fixed Income Management Team is responsible for making the day-to-day investment decisions for each Fund. 98 [GRAPHIC] Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 The financial institution or intermediary that buys shares for you is also referred to as a selling or servicing agent. Selling and servicing agents include banks, brokerage firms, mutual fund dealers and other financial institutions, including affiliates of Bank of America. Other service providers The Funds are distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. BA Advisors is also co-administrator of the Funds, and assists in overseeing the administrative operations of the Funds. The Funds pay BA Advisors and Stephens a combined fee of 0.22% for their services, plus certain out-of-pocket expenses. The fee is calculated as an annual percentage of the average daily net assets of the Funds, and is paid monthly. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. [GRAPHIC] PFPC Inc. 400 Bellevue Parkway Wilmington, Delaware 19809 PFPC Inc. (PFPC) is the transfer agent for the Funds' shares. Its responsibilities include processing purchases, sales and exchanges, calculating and paying distributions, keeping shareholder records, preparing account statements and providing customer service. 99 About your investment - -------------------------------------------------------------------------------- [GRAPHIC] When you sell shares of a mutual fund, the fund is effectively "buying" them back from you. This is called a redemption. [GRAPHIC] Buying, selling and exchanging shares This prospectus offers Primary A Shares of the Funds. Here are some general rules about this class of shares: o Primary A Shares are available to certain financial institutions and intermediaries for their own accounts, and for certain client accounts for which they act as a fiduciary, agent or custodian. These include: o Bank of America and certain of its affiliates o certain other financial institutions and intermediaries, including financial planners and investment advisers o institutional investors o endowments o other Funds in the Nations Funds Family o The minimum initial investment is $250,000. Financial institutions or intermediaries can total the investments they make on behalf of their clients to meet the minimum initial investment amount. Client accounts for which the financial institution or intermediary no longer acts as fiduciary, agent or custodian may no longer be eligible to purchase or hold Primary A Shares. o There is no minimum amount for additional investments. o There are no sales charges for buying, selling or exchanging these shares. You'll find more information about buying, selling and exchanging Primary A Shares on the pages that follow. You should also ask your financial institution or intermediary about its limits, fees and policies for buying, selling and exchanging shares, which may be different from those described here, and about its related programs or services. The Funds also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. Please contact your investment professional, or call us at 1.800.321.7854 if you have any questions, or you need help placing an order. 100 [GRAPHIC] A business day is any day that the New York Stock Exchange (NYSE) is open. A business day ends at the close of regular trading on the NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes early, the business day ends as of the time the NYSE closes. The NYSE is closed on weekends and on the following national holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. How shares are priced All transactions are based on the price of a Fund's shares -- or its net asset value per share. We calculate net asset value per share for each class of each Fund at the end of each business day. First, we calculate the net asset value for each class of a Fund by determining the value of the Fund's assets in the class and then subtracting its liabilities. Next, we divide this amount by the number of shares that investors are holding in the class. Valuing securities in a Fund The value of a Fund's assets is based on the total market value of all of the securities it holds. The prices reported on stock exchanges and securities markets around the world are usually used to value securities in a Fund. If prices aren't readily available, we'll base the price of a security on its fair value. We use the amortized cost method, which approximates market value, to value short-term investments maturing in 60 days or less. How orders are processed Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents before the end of a business day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive that day's net asset value per share. Orders received after the end of a business day will receive the next business day's net asset value per share. The business day that applies to your order is also called the trade date. We may refuse any order to buy or exchange shares. If this happens, we'll return any money we've received. 101 [GRAPHIC] The net asset value per share is the price of a share calculated by a Fund every business day. [GRAPHIC] Buying shares Here are some general rules for buying shares: o You buy Primary A Shares at net asset value per share. o If we don't receive payment within three business days of receiving an order, we'll refuse the order. We'll return any payment received for orders that we refuse. o Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. o Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. o Financial institutions and intermediaries are responsible for recording the beneficial ownership of the shares of their clients, and for reporting this ownership on account statements they send to their clients. [GRAPHIC] Selling shares Here are some general rules for selling shares: o We normally send the sale proceeds by Fedwire to investors within three business days after Stephens, PFPC or their agents receive your order. o If you paid for your shares with a check that wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared, whichever is later. o Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. o Under certain circumstances allowed under the Investment Company Act of 1940 (1940 Act), we can pay you in securities or other property when you sell your shares. o We can delay payment of the sale proceeds for up to seven days. We may sell your shares: o if the value of your account falls below $500. We'll give you 60 days notice in writing if we're going to do this o if a financial institution or intermediary tells us to sell your shares under arrangements made with you o under certain other circumstances allowed under the 1940 Act 102 [GRAPHIC] You should make sure you understand the investment objective and principal investment strategies of the Fund you're exchanging into. Please read its prospectus carefully. [GRAPHIC] Exchanging shares You can sell shares of a Fund to buy shares of another Nations Fund. This is called an exchange. You might want to do this if your investment goals or tolerance for risk changes. Here's how exchanges work: o You can exchange Primary A Shares of a Fund for Primary A Shares of any other Nations Fund. In some cases, the only Money Market Fund option is Trust Class Shares of Nations Reserves Money Market Funds. o The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. o You may only make exchanges into a Fund that is legally sold in your state of residence. o You generally may only make an exchange into a Fund that is accepting investments. o We may limit the number of exchanges you can make within a specified period of time. o We may change or cancel your right to make an exchange by giving the amount of notice required by regulatory authorities (generally 60 days for a material change or cancellation). 103 [GRAPHIC] Distributions and taxes [GRAPHIC] The power of compounding Reinvesting your distributions buys you more shares of a Fund -- which lets you take advantage of the potential for compound growth. Putting the money you earn back into your investment means it, in turn, may earn even more money. Over time, the power of compounding has the potential to significantly increase the value of your investment. There is no assurance, however, that you'll earn more money if you reinvest your distributions. About distributions A mutual fund can make money two ways: o It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. o A fund can also have capital gain if the value of its investments increases. If a fund sells an investment at a gain, the gain is realized. If a fund continues to hold the investment, any gain is unrealized. A mutual fund is not subject to federal income tax as long as it distributes its net investment income and realized capital gain to its shareholders. The Funds intend to pay out a sufficient amount of their income and capital gain to their shareholders so the Funds won't have to pay any federal income tax. When a Fund makes this kind of a payment, it's split among all shares, and is called a distribution. All of the Funds distribute any net realized capital gain at least once a year. The Funds declare distributions of net investment income daily and pay them monthly. Any distribution you receive is based on the number of shares you hold on the record date, which is usually the day the distribution is declared (daily dividend Funds) or the day before the distribution is declared (all other Funds). Shares are eligible to receive net investment income distributions from the settlement date (daily dividend Funds), trade date (all other Funds) or realized capital gain from the trade date of the purchase up to and including the day before the shares are sold. Different share classes of a Fund usually pay different net investment income distribution amounts, because each class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. We'll automatically reinvest distributions in additional shares of the same Fund unless you tell us you want to receive your distributions in cash. You can do this by writing to us at the address on the back cover or by calling us at 1.800.321.7854. We generally pay cash distributions within five business days after the end of the month, quarter or year in which the distribution was made. If you sell all of your shares, we'll normally pay any distribution that applies to those shares in cash within five business days after the sale was made. If you buy shares of a Fund shortly before it makes a distribution, you will, in effect, receive part of your purchase back in the distribution, which may be subject to tax. Similarly, if you buy shares of a Fund that holds securities with unrealized capital gain, you will, in effect, receive part of your purchase back if and when the Fund sells those securities and distributes the gain. This distribution is subject to tax. The Funds have built up, or have the potential to build up, high levels of unrealized capital gain. 104 [GRAPHIC] This information is a summary of how federal income taxes may affect your investment in the Funds. It is not intended as a substitute for careful tax planning. You should consult with your own tax adviser about your situation, including any foreign, state and local taxes that may apply. [GRAPHIC] For more information about taxes, please see the SAI. How taxes affect your investment Distributions that come from a Fund's tax-exempt interest income are generally free from federal income tax. These distributions are generally not subject to state income tax (or other applicable state tax, like the Florida intangible personal property tax) if a Fund invests primarily in securities from that state and its subdivisions. For example, you generally won't be subject to California state individual income tax on distributions that come from Nations California Municipal Bond Fund's investments in California state and municipal debt obligations. You may, however, be subject to other state and local taxes on these distributions. A portion of these distributions may also be subject to the federal alternative minimum tax. Texas doesn't impose state income tax. Any distributions that come from taxable income or realized capital gain are generally subject to tax. Distributions that come from taxable income, net short-term capital gain and certain other items generally are taxable to you as ordinary income. Distributions of net long-term capital gain generally are taxable to you as long-term capital gain. Corporate shareholders will not be able to deduct any distributions from a Fund when determining their taxable income. In general, all taxable distributions are taxable to you when paid, whether they are paid in cash or automatically reinvested in additional shares of the Fund. However, any distributions declared to shareholders of record in October, November or December of one year and distributed in January of the following year will be taxable as if they had been paid to you on December 31 of the first year. We'll send you a notice every year that tells you how much you've received in distributions during the year and their federal tax status. Foreign, state and local taxes may also apply to these distributions. Withholding tax We're required by federal law to withhold tax on any taxable distributions and redemption proceeds paid to you (including amounts to be paid for in securities or other property and exchanges) if: o you haven't given us a correct Taxpayer Identification Number (TIN) and haven't certified that the TIN is correct and withholding doesn't apply o the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records o the IRS informs us that you're otherwise subject to backup withholding The IRS may also impose penalties against you if you don't give us a correct TIN. Amounts we withhold are applied to your federal income tax liability. You may receive a refund from the IRS if the withholding tax results in an overpayment of taxes. We're also normally required by federal law to withhold tax on distributions (other than capital gain distributions) paid to foreign shareholders. Taxation of redemptions and exchanges Your redemptions (including redemptions paid in securities) and exchanges of Fund shares will usually result in a taxable capital gain or loss, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. 105 [GRAPHIC] Financial highlights The financial highlights table is designed to help you understand how the Funds have performed for the past five years or, if shorter, the period of the Fund's operations. Certain information reflects financial results for a single Fund share. The total investment return line indicates how much an investment in the Fund would have earned, assuming all dividends and distributions had been reinvested. This information has been audited by PricewaterhouseCoopers LLP. The independent accountants' report and Nations Funds financial statements are incorporated by reference into the SAI. Please see the back cover to find out how you can get a copy. 106
Nations California Municipal Bond Fund For a Share outstanding throughout each period Year ended Period ended Primary A Shares 03/31/01# 03/31/00* Operating performance: Net asset value, beginning of period $ 7.13 $ 7.51 Net investment income 0.37 0.30 Net realized and unrealized gain/(loss) on investments 0.33 (0.36) Net increase/(decrease) in net asset value from operations 0.70 (0.06) Distributions: Dividends from net investment income (0.36) (0.30) Distributions from net realized capital gains (0.02) (0.02) Total dividends and distributions (0.38) (0.32) Net asset value, end of period $ 7.45 $ 7.13 Total return++ 10.05% (0.66)% ================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $37,285 $21,654 Ratio of operating expenses to average net assets 0.60%(a) 0.60%+(a) Ratio of net investment income to average net assets 5.04% 4.70%+ Portfolio turnover rate 20% 34% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.82% 0.79%+ * California Municipal Bond Fund Primary A Shares commenced operations on May 21, 1999. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%.
Nations Florida Intermediate Municipal Bond Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01 03/31/00# 03/31/00 03/31/00 03/31/00 Operating performance: Net asset value, beginning of year $ 10.34 $ 10.79 $10.77 $10.40 $10.46 Net investment income 0.50 0.50 0.50 0.50 0.49 Net realized and unrealized gain/(loss) on investments 0.37 (0.45) 0.02 0.37 (0.06) Net increase/(decrease) in net asset value from operations 0.87 0.05 0.52 0.87 0.43 Distributions: Dividends from net investment income (0.51) (0.50) (0.50) (0.50) (0.49) Net asset value, end of year $10.70 $10.34 $10.79 $10.77 $10.40 Total return++ 8.59% 0.54% 4.95% 8.55% 4.22% =========================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $240,441 $207,704 $234,530 $203,710 $51,748 Ratio of operating expenses to average net assets 0.50%(a) 0.50%(a) 0.50% 0.50%(a) 0.50%(a) Ratio of net investment income to average net assets 4.82% 4.80% 4.65% 4.74% 4.72% Portfolio turnover rate 6% 12% 14% 13% 16% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.71% 0.74% 0.72% 0.76% 0.81% ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%.
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Nations Florida Municipal Bond Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01 03/31/00# 03/31/00 03/31/00 03/31/00 Operating performance: Net asset value, beginning of year $9.53 $9.99 $9.99 $9.48 $9.47 Net investment income 0.48 0.48 0.48 0.48 0.48 Net realized and unrealized gain/(loss) on investments 0.46 (0.46) 0.00 0.51 0.01 Net increase/(decrease) in net asset value from operations 0.94 0.02 0.48 0.99 0.49 Distributions: Dividends from net investment income (0.48) (0.48) (0.48) (0.48) (0.48) Distributions from net realized capital gains (0.01) -- -- -- -- Total dividends and distributions (0.49) (0.48) (0.48) (0.48) (0.48) Net asset value, end of year $9.98 $9.53 $9.99 $9.99 $9.48 Total return++ 10.13% 0.26% 4.90% 10.60% 5.29% =================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $92,327 $79,335 $77,197 $27,378 $16,702 Ratio of operating expenses to average net assets 0.60%(a) 0.60%(a) 0.60%(a) 0.60%(a) 0.60%(a) Ratio of net investment income to average net assets 4.93% 4.98% 4.80% 4.85% 5.07% Portfolio turnover rate 7% 18% 16% 19% 23% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.83% 0.86% 0.85% 0.90% 0.93% ++ 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. (a) The effect of interest expense on the operating expense ratio was less than 0.01%.
Nations Georgia Intermediate Municipal Bond Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01 03/31/00 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $10.42 $10.94 $10.92 $10.58 $10.63 Net investment income 0.51 0.50 0.49 0.49 0.50 Net realized and unrealized gain/(loss) on investments 0.40 (0.51) 0.07 0.38 (0.05) Net increase/(decrease) in net asset value from operations 0.91 (0.01) 0.56 0.87 0.45 Distributions: Dividends from net investment income (0.51) (0.50) (0.50) (0.49) (0.50) Distributions from net realized capital gains -- (0.01) (0.04) (0.04) -- Total dividends and distributions (0.51) (0.51) (0.54) (0.53) (0.50) Net asset value, end of year $10.82 $10.42 $10.94 $10.92 $10.58 Total return++ 8.93% (0.02)% 5.20% 8.45% 4.33% =================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $128,158 $121,948 $132,016 $125,654 $43,470 Ratio of operating expenses to average net assets 0.50%(a) 0.50%(a) 0.50% 0.50% 0.50% Ratio of net investment income to average net assets 4.80% 4.69% 4.51% 4.54% 4.72% Portfolio turnover rate 10% 28% 14% 25% 9% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.73% 0.78% 0.73% 0.75% 0.80% ++ 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. (a) The effect of interest expense on the operating expense ratio was less than 0.01%.
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Nations Georgia Municipal Bond Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01# 03/31/00 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $9.53 $10.12 $10.00 $9.50 $9.48 Net investment income 0.47 0.46 0.46 0.47 0.47 Net realized and unrealized gain/(loss) on investments 0.49 (0.59) 0.12 0.50 0.02 Net increase/(decrease) in net asset value from operations 0.96 (0.13) 0.58 0.97 0.49 Distributions: Dividends from net investment income (0.47) (0.46) (0.46) (0.47) (0.47) Net asset value, end of year $10.02 $9.53 $10.12 $10.00 $9.50 Total return++ 10.38% (1.27)% 5.89% 10.43% 5.29% =================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $17,408 $13,064 $9,719 $8,138 $5,550 Ratio of operating expenses to average net assets 0.60%(a) 0.60% 0.60% 0.60%(a) 0.60%(a) Ratio of net investment income to average net assets 4.87% 4.74% 4.53% 4.82% 4.96% Portfolio turnover rate 11% 50% 17% 30% 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.08% 1.38% 1.18% 1.02% 1.05% ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%.
Nations Kansas Municipal Income Fund For a Share outstanding throughout the period Period ended Primary A Shares 03/31/01*# Operating performance: Net asset value, beginning of period $10.00 Net investment income 0.46 Net realized and unrealized gain/(loss) on investments 0.18 Net increase/(decrease) in net asset value from operations 0.64 Distributions: Dividends from net investment income (0.31) Distributions from net realized capital gains 0.00 Total dividends and distributions (0.31) Net asset value, end of period $10.33 Total return++ 6.60% ================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $111,226 Ratio of operating expenses to average net assets 0.60%+(a) Ratio of net investment income to average net assets 4.44%+(a) Portfolio turnover rate 17% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.93%+ *Kansas Municipal Income Fund Primary A Shares commenced operations on July 17, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%.
109
Nations Maryland Intermediate Municipal Bond Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01# 03/31/00 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $10.58 $11.07 $11.01 $10.70 $10.80 Net investment income 0.51 0.50 0.50 0.51 0.51 Net realized and unrealized gain/(loss) on investments 0.43 (0.48) 0.06 0.31 (0.10) Net increase/(decrease) in net asset value from operations 0.94 0.02 0.56 0.82 0.41 Distributions: Dividends from net investment income (0.51) (0.50) (0.50) (0.51) (0.51) Distributions from net realized capital gains -- (0.01) -- -- -- Total dividends and distributions (0.51) (0.51) (0.50) (0.51) (0.51) Net asset value, end of year $11.01 $10.58 $11.07 $11.01 $10.70 Total return++ 9.08% 0.17% 5.17% 7.83% 3.83% ===================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $178,304 $169,218 $183,356 $84,715 $63,549 Ratio of operating expenses to average net assets 0.50% 0.50% 0.50% 0.50% 0.50%(a) Ratio of net investment income to average net assets 4.72% 4.65% 4.51% 4.63% 4.70% Portfolio turnover rate 13% 21% 22% 12% 10% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.71% 0.76% 0.74% 0.80% 0.78% ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%.
Nations Maryland Municipal Bond Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01# 03/31/00# 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $9.53 $9.99 $9.94 $9.41 $9.39 Net investment income 0.46 0.42 0.43 0.45 0.46 Net realized and unrealized gain/(loss) on investments 0.55 (0.45) 0.05 0.53 0.02 Net increase/(decrease) in net asset value from operations 1.01 (0.03) 0.48 0.98 0.48 Distributions: Dividends from net investment income (0.46) (0.42) (0.43) (0.45) (0.46) Distributions from net realized capital gains -- (0.01) (0.00)## -- -- Total dividends and distributions (0.46) (0.43) (0.43) (0.45) (0.46) Net asset value, end of year $10.08 $9.53 $9.99 $9.94 $9.41 Total return++ 10.90% (0.25)% 4.92% 10.62% 5.20% =================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $20,029 $17,587 $17,033 $9,049 $4,596 Ratio of operating expenses to average net assets 0.60%(a) 0.60% 0.60% 0.60% 0.60% Ratio of net investment income to average net assets 4.74% 4.41% 4.29% 4.61% 4.88% Portfolio turnover rate 25% 50% 22% 17% 18% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.00% 1.22% 1.07% 1.07% 1.12% ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of interest expense on the operating expense ratio was less than 0.01%.
110 Nations North Carolina Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01# 03/31/00 03/31/00 03/31/00 03/31/00 Operating performance: Net asset value, beginning of year $10.21 $10.71 $10.70 $10.34 $0.36 Net investment income 0.49 0.48 0.49 0.49 0.47 Net realized and unrealized gain/(loss) on investments 0.37 (0.48) 0.04 0.36 (0.02) Net increase/(decrease) in net asset value from operations 0.86 0.00 0.53 0.85 0.45 Distributions: Dividends from net investment income (0.49) (0.48) (0.49) (0.49) (0.47) Distributions from net realized capital gains -- (0.02) (0.03) -- -- Total dividends and distributions (0.49) (0.50) (0.52) (0.49) (0.47) Net asset value, end of year $10.58 $10.21 $10.71 $10.70 $10.34 Total return++ 8.61% 0.05% 5.03% 8.39% 4.45% ================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $180,126 $175,650 $193,398 $179,729 $25,855 Ratio of operating expenses to average net assets 0.50%(a) 0.50%(a) 0.50% 0.50%(a) 0.50%(a) Ratio of net investment income to average net assets 4.71% 4.67% 4.57% 4.69% 4.57% Portfolio turnover rate 19% 19% 16% 21% 26% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.71% 0.76% 0.71% 0.76% 0.82% ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%.
Nations North Carolina Municipal Bond Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01# 03/31/00 03/31/00 03/31/00 03/31/00 Operating performance: Net asset value, beginning of year $9.52 $10.08 $10.01 $9.47 $9.49 Net investment income 0.47 0.45 0.45 0.47 0.47 Net realized and unrealized gain/(loss) on investments 0.47 (0.56) 0.08 0.54 (0.02) Net increase/(decrease) in net asset value from operations 0.94 (0.11) 0.53 1.01 0.45 Distributions: Dividends from net investment income (0.47) (0.45) (0.46) (0.47) (0.47) Total dividends and distributions (0.47) (0.45) (0.46) (0.47) (0.47) Net asset value, end of year $9.99 $9.52$ 10.08 $10.01 $9.47 Total return++ 10.15% (0.98)% 5.39% 10.86% 4.84% =================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $21,966 $17,787 $16,293 $6,452 $3,095 Ratio of operating expenses to average net assets 0.60%(a) 0.60%(a) 0.60%(a) 0.60%(a) 0.60%(a) Ratio of net investment income to average net assets 4.86% 4.74% 4.57% 4.78% 4.95% Portfolio turnover rate 19% 37% 11% 20% 28% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.98% 1.13% 1.00% 0.93% 0.94% ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%.
111
Nations South Carolina Intermediate Municipal Bond Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01# 03/31/00 03/31/00 03/31/00 03/31/00 Operating performance: Net asset value, beginning of year $10.27 $10.79 $10.79 $10.50 $10.52 Net investment income 0.52 0.51 0.51 0.52 0.51 Net realized and unrealized gain/(loss) on investments 0.37 (0.51) 0.04 0.29 (0.02) Net increase/(decrease) in net asset value from operations 0.89 -- 0.55 0.81 0.49 Distributions: Dividends from net investment income (0.52) (0.51) (0.51) (0.52) (0.51) Distributions from net realized capital gains -- (0.01) (0.04) (0.00)## -- Total dividends and distributions (0.52) (0.52) (0.55) (0.52) (0.51) Net asset value, end of year $10.64 $10.27 $10.79 $10.79 $10.50 Total return++ 8.85% 0.09% 5.22% 7.88% 4.71% =================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $217,513 $204,854 $239,195 $253,090 $48,918 Ratio of operating expenses to average net assets 0.50%(a) 0.50%(a) 0.50%(a) 0.50%(a) 0.50%(a) Ratio of net investment income to average net assets 4.95% 4.88% 4.75% 4.86% 4.80% Portfolio turnover rate 9% 14% 9% 16% 13% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.70% 0.74% 0.69% 0.75% 0.79% ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of interest expense on the operating expense ratio was less than 0.01%.
Nations South Carolina Municipal Bond Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01# 03/31/00 03/31/00 03/31/00 03/31/00 Net asset value, beginning of year $9.75 $10.30 $10.26 $9.79 $9.77 Net investment income 0.48 0.46 0.49 0.49 0.49 Net realized and unrealized gain/(loss) on investments 0.55 (0.55) 0.03 0.47 0.02 Net increase/(decrease) in net asset value from operations 1.03 (0.09) 0.52 0.96 0.51 Distributions: Dividends from net investment income (0.48) (0.46) (0.48) (0.49) (0.49) Distributions from net realized capital gains -- -- -- (0.00)## -- Total dividends and distributions (0.48) (0.46) (0.48) (0.49) (0.49) Net asset value, end of year $10.30 $9.75 $10.30 $10.26 $9.79 Total return++ 10.90% (0.72)% 5.13% 10.04% 5.32% =================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $25,908 $28,784 $12,793 $9,455 $5,113 Ratio of operating expenses to average net assets 0.60%(a) 0.60%(a) 0.60% 0.60%(a) 0.60%(a) Ratio of net investment income to average net assets 4.87% 4.79% 4.62% 4.79% 4.99% Portfolio turnover rate 8% 71% 3% 9% 30% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.99% 1.28% 1.18% 0.99% 1.00% ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of interest expense on the operating expense ratio was less than 0.01%.
112
Nations Tennessee Intermediate Municipal Bond Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01# 03/31/00 03/31/00 03/31/00 03/31/00 Operating performance: Net asset value, beginning of year $9.91 $10.46 $10.40 $10.08 $10.09 Net investment income 0.48 0.47 0.47 0.47 0.46 Net realized and unrealized gain/(loss) on investments 0.44 (0.54) 0.06 0.32 (0.01) Net increase/(decrease) in net asset value from operations 0.92 (0.07) 0.53 0.79 0.45 Distributions: Dividends from net investment income (0.48) (0.47) (0.47) (0.47) (0.46) Distributions from net realized capital gains -- (0.01) -- -- -- Total dividends and distributions (0.48) (0.48) (0.47) (0.47) (0.46) Net asset value, end of year $10.35 $9.91 $10.46 $10.40 $10.08 Total return++ 9.53% (0.67)% 5.18% 7.99% 4.54% =================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $38,928 $37,736 $42,826 $39,091 $8,869 Ratio of operating expenses to average net assets 0.50%(a) 0.50%(a) 0.50% 0.50%(a) 0.50%(a) Ratio of net investment income to average net assets 4.77% 4.62% 4.48% 4.58% 4.55% Portfolio turnover rate 10% 49% 22% 38% 28% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.84% 0.94% 0.85% 0.84% 0.93% ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%.
Nations Tennessee Municipal Bond Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01# 03/31/00 03/31/00 03/31/00 03/31/00 Operating performance: Net asset value, beginning of year $9.68 $10.30 $10.22 $9.70 $9.68 Net investment income 0.49 0.47 0.48 0.48 0.48 Net realized and unrealized gain/(loss) on investments 0.56 (0.62) 0.08 0.52 0.02 Net increase/(decrease) in net asset value from operations 1.05 (0.15) 0.56 1.00 0.50 Distributions: Dividends from net investment income (0.49) (0.47) (0.48) (0.48) (0.48) Net asset value, end of year $10.24 $9.68 $10.30 $10.22 $9.70 Total return++ 11.10% (1.36)% 5.53% 10.45% 5.23% =================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $4,726 $5,114 $5,762 $4,559 $2,594 Ratio of operating expenses to average net assets 0.60%(a) 0.60% 0.60% 0.60% 0.60% Ratio of net investment income to average net assets 4.92% 4.83% 4.61% 4.74% 4.91% Portfolio turnover rate 9% 34% 40% 19% 31% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.57% 2.14% 1.55% 1.20% 1.24% ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%.
113 Nations Texas Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01# 03/31/00 03/31/00 03/31/00 03/31/00 Operating performance: Net asset value, beginning of year $10.00 $10.48 $10.50 $10.18 $10.21 Net investment income 0.51 0.49 0.49 0.49 0.47 Net realized and unrealized gain/(loss) on investments 0.35 (0.48) 0.02 0.32 (0.03) Net increase/(decrease) in net asset value from operations 0.86 0.01 0.51 0.81 0.44 Distributions: Dividends from net investment income (0.51) (0.49) (0.49) (0.49) (0.47) Distributions from net realized capital gains -- (0.00)# (0.04) -- -- Total dividends and distributions (0.51) (0.49) (0.53) (0.49) (0.47) Net asset value, end of year $10.35 $10.00 $10.48 $10.50 $10.18 Total return++ 8.78% 0.17% 4.98% 8.09% 4.37% =================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $286,949 $326,323 $391,431 $385,770 $24,764 Ratio of operating expenses to average net assets 0.50%(a) 0.50%(a) 0.50% 0.50% 0.50% Ratio of net investment income to average net assets 5.00% 4.84% 4.66% 4.74% 4.59% Portfolio turnover rate 6% 33% 22% 19% 34% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.70% 0.72% 0.68% 0.75% 0.84% ++ 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. # Amount represents less than $0.01 per share. (a) The effect of interest expense on the operating expense ratio was less than 0.01%.
Nations Texas Municipal Bond Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01# 03/31/00 03/31/00 03/31/00 03/31/00 Operating performance: Net asset value, beginning of year $9.56 $10.11 $10.04 $9.48 $9.49 Net investment income 0.49 0.48 0.46 0.48 0.48 Net realized and unrealized gain/(loss) on investments 0.50 (0.55) 0.07 0.56 (0.01) Net increase/(decrease) in net asset value from operations 0.99 (0.07) 0.53 1.04 0.47 Distributions: Dividends from net investment income (0.49) (0.48) (0.46) (0.48) (0.48) Net asset value, end of year $10.06 $9.56 $10.11 $10.04 $9.48 Total return++ 10.64% (0.63)% 5.41% 11.12% 5.00% =================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $8,237 $7,868 $9,393 $7,615 $5,675 Ratio of operating expenses to average net assets 0.60%(a) 0.60%(a) 0.60% 0.60%(a) 0.60%(a) Ratio of net investment income to average net assets 5.03% 4.95% 4.59% 4.83% 4.99% Portfolio turnover rate 10% 39% 34% 33% 52% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.37% 1.75% 1.25% 1.07% 1.03% ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%.
114 Nations Virginia Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01# 03/31/00 03/31/00 03/31/00 03/31/00 Operating performance: Net asset value, beginning of year $10.51 $10.98 $10.92 $10.59 $10.69 Net investment income 0.50 0.50 0.50 0.51 0.51 Net realized and unrealized gain/(loss) on investments 0.41 (0.47) 0.06 0.33 (0.10) Net increase/(decrease) in net asset value from operations 0.91 0.03 0.56 0.84 0.41 Distributions: Dividends from net investment income (0.50) (0.50) (0.50) (0.51) (0.51) Distributions from net realized capital gains -- (0.00)## -- -- -- Total dividends and distributions (0.50) (0.50) (0.50) (0.51) (0.51) Net asset value, end of year $10.92 $10.51 $10.98 $10.92 $10.59 Total return++ 8.92% 0.29% 5.21% 8.12% 3.92% ======================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $252,741 $228,698 $227,299 $170,969 $148,701 Ratio of operating expenses to average net assets 0.50% 0.50%(a) 0.50%(a) 0.50%(a) 0.50%(a) Ratio of net investment income to average net assets 4.73% 4.66% 4.54% 4.77% 4.79% Portfolio turnover rate 9% 23% 5% 21% 20% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.70% 0.73% 0.70% 0.74% 0.74% ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of interest expense on the operating expense ratio was less than 0.01%.
Nations Virginia Municipal Bond Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01# 03/31/00 03/31/00 03/31/00 03/31/00 Operating performance: Net asset value, beginning of year $9.45 $9.99 $9.95 $9.40 $9.38 Net investment income 0.49 0.46 0.47 0.47 0.48 Net realized and unrealized gain/(loss) on investments 0.37 (0.54) 0.04 0.55 0.02 Net increase/(decrease) in net asset value from operations 0.86 (0.08) 0.51 1.02 0.50 Distributions: Dividends from net investment income (0.48) (0.46) (0.47) (0.47) (0.48) Net asset value, end of year $9.83 $9.45 $9.99 $9.95 $9.40 Total return++ 9.46% (0.69)% 5.18% 11.11% 5.44% ================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $19,709 $16,378 $12,992 $11,026 $5,726 Ratio of operating expenses to average net assets 0.60% 0.60% 0.60%(a) 0.59%(a) 0.60%(a) Ratio of net investment income to average net assets 5.11% 4.87% 4.66% 4.86% 5.10% Portfolio turnover rate 17% 21% 11% 9% 37% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.07% 1.35% 1.11% 0.96% 0.98% ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%.
115 [GRAPHIC] This glossary includes explanations of the important terms that may be used in this prospectus. Some of the terms explained may apply to Nations Funds not included in this prospectus. [GRAPHIC] Terms used in this prospectus Amortized cost method - under Rule 2a-7 of the 1940 Act, the method of calculating an investment company's net asset value whereby portfolio securities are valued at the Fund's acquisition cost as adjusted for amortization of premium or accretion of discount rather than at their current market value. Asset-backed security - a debt security that gives an investor an interest in a pool of assets that is collateralized or "backed" by one or more kinds of assets, including automobile loans or credit card receivables, generally issued by banks, credit card companies or other lenders. Asset-backed securities typically make periodic payments, which may be interest or a combination of interest and a portion of the principal of the underlying assets. Average dollar-weighted maturity - the average length of time until the debt securities held by a Fund reach maturity. In general, the longer the average dollar-weighted maturity, the more a Fund's share price will fluctuate in response to changes in interest rates. Bank obligation - a money market instrument issued by a domestic or U.S. branch of a foreign bank, including certificates of deposit, time deposits and bankers' acceptances. Capital gain or loss - the difference between the purchase price of a security and its selling price. An investor realizes a capital gain when it sells a security for more than it paid for it. An investor realizes a capital loss when it sells a security for less than it paid for it. Cash equivalents - short-term, interest-bearing instruments which can easily be converted into cash, including U.S. government obligations, bank obligations, and certain asset-backed securities, foreign government securities and commercial paper issued by U.S. and foreign issuers which, at the time of investment, is rated at least Prime-2 by Moody's Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch). Collateralized mortgage obligation (CMO) - a type of mortgage-backed security. CMO payment obligations are covered by interest and/or principal payments from a pool of mortgages. In addition, the underlying assets of a CMO are typically separated into classes, called tranches, based on maturity. Each tranche pays a different rate of interest. CMOs are not generally issued by the U.S. government, its agencies or instrumentalities. Commercial paper - a short-term corporate obligation. Commercial paper is typically considered a money market instrument. Common stock - a security that represents part equity ownership in a company. Common stock typically allows an investor to vote at shareholder meetings and to share in the company's profits by receiving dividends. 116 Convertible debt - a debt security that can be exchanged for common stock (or another type of security) on a specified basis and date. Convertible security - a security that can be exchanged for common stock (or another type of security) at a specified rate. Convertible securities include convertible debt, rights and warrants. Crossing networks - an electronic system where anonymous parties can match buy and sell transactions. These transactions don't affect the market, and transaction costs are extremely low. CSFB Global High Yield Index - the Credit Suisse First Boston Global High Yield Index is an unmanaged, trader priced portfolio constructed to mirror the high yield debt market. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Debt security - a security issued by a governmental body or company (the issuer) to help fund their operations or major projects. The issuer pays interest at a specified rate on a specified date or dates, and repays the principal when the security matures. Short-term debt securities include money market instruments such as treasury bills. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Depositary receipts - evidence of the deposit of a security with a custodian bank. American Depositary Receipts (ADRs), for example, are certificates traded in U.S. markets representing an interest of a foreign company. They were created to make it possible for foreign issuers to meet U.S. security registration requirements. Other examples include ADSs, GDRs and EDRs. Derivatives - A derivative is a financial contract whose value is based upon, or "derived" from, an underlying financial asset (such as a stock or a bond), a commodity (such as gold), a market index (such as the S&P 500) or a reference rate (such as the prime lending interest rate). Examples of derivative instruments include futures, options, index-, equity-, commodity- and currency-linked securities, warrants and swap contracts. For a detailed description of the derivatives described here, see the SAI. Diversified - A diversified fund, as defined by the 1940 Act, must have at least 75% of its total assets in cash and cash equivalents, government securities, securities of other investment companies, or other securities. For purposes of this calculation, the fund may not count securities of a single issuer that comprise more than 5% of the fund's assets. Dividend yield - rate of return of dividends paid on a common or preferred stock. It equals the amount of the annual dividend on a stock expressed as a percentage of the stock's current market value. Duration - a security's or portfolio's sensitivity to changes in interest rates. For example, if interest rates rise by one percentage point, the share price of a fund with a duration of five years would decline by about 5%. If interest rates fall by one percentage point, the fund's share price would rise by about 5%. 117 Equity security - an investment that gives an investor an equity ownership right in a company. Equity securities (or "equities") include common and preferred stock, rights and warrants. First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds and has the highest short-term rating from a nationally recognized statistical rating organization (NRSRO), or if unrated, is determined by the Fund's portfolio management team to be of comparable quality, or is a money market fund or a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Foreign security - a debt or equity security determined by a Fund's portfolio management team to be foreign based on an issuer's domicile, its principle place of business, the source of its revenues or other factors. Forward foreign currency contracts - a forward foreign currency contract includes an obligation to purchase or sell a foreign currency at a specified future date. Forward purchase agreement - a contract obligating one party to buy and another party to sell an equity security, commodity, currency or other financial instrument at a specific future date. Fundamental analysis - a method of securities analysis that tries to evaluate the intrinsic, or "true," value of a particular stock. It includes a study of the overall economy, industry conditions and the financial condition and management of a company. Futures contract - a contract to buy or sell underlying instruments at a specified price on a specified future date. The price is typically set through a futures exchange. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to NRSROs such as S&P and Moody's. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by a Fund's Board. Please see the SAI for more information about credit ratings. High yield debt security - debt securities that, at the time of purchase, are rated "BB" or below by S&P or "Ba" or below by Moody's, or that are unrated and determined by the portfolio management team to be of comparable quality. Interest rate swap - an agreement between two parties to exchange periodic interest payments based on a predetermined principal amount. Investment grade - a debt security that has been given a medium to high credit rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating by other NRSROs) based on the issuer's ability to pay interest and repay principal on time. The portfolio management team may consider an unrated debt security to be investment grade if the team believes it is of comparable quality. Please see the SAI for more information about credit ratings. 118 Lehman 3-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of two to three years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman 7-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Aggregate Bond Index - an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government Bond Index - an unmanaged index of government bonds with an average maturity of approximately nine years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government/Corporate Bond Index - an unmanaged index of U.S. government, U.S. Treasury and agency securities, and corporate and Yankee bonds. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Intermediate Government Bond Index - an unmanaged index of U.S. government agency and U.S. Treasury securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Intermediate Government/Corporate Bond Index - an unmanaged index of all publicly issued investment grade corporate, U.S. Treasury, and U.S. government and agency securities with maturities of 1 to 10 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Municipal Bond Index - a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Liquidity - a measurement of how easily a security can be bought or sold at a price that is close to its market value. Merrill Lynch 1-3 Year Treasury Index - an unmanaged index of U.S. Treasury bonds with maturities of 1 to 3 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Money market instrument - a short-term debt security that is considered to mature in 13 months or less. Money market instruments include U.S. Treasury obligations, U.S. government obligations, certificates of deposit, bankers' acceptances, commercial paper, repurchase agreements and certain municipal securities. 119 Mortgage-backed security or Mortgage-related security - a debt security that gives you an interest in, and is backed by, a pool of residential mortgages issued by the U.S. government or by financial institutions. The underlying mortgages may be guaranteed by the U.S. government or one of its agencies, authorities or instrumentalities. Mortgage-backed securities typically make monthly payments, which are a combination of interest and a portion of the principal of the underlying mortgages. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public or private projects and services. "General obligations" are typically backed by the issuer's full taxing and revenue-raising powers. "Revenue securities" depend on the income earned by a specific project or authority, like road or bridge tolls, user fees for water or revenues from a utility. Interest income from municipal securities that pay for "public" projects and services is exempt from federal income taxes and is generally exempt from state taxes if an investor lives in the state that issued the security. If an investor lives in the municipality that issued the security, interest income may also be exempt from local taxes. Non-diversified - a fund that holds securities of fewer issuers than other kinds of funds. Non-diversified funds tend to have greater price swings than more diversified funds because events affecting one or more of its securities may have a disproportionately large effect on the fund. NRSRO - A nationally recognized statistical rating organization, such as S&P or Moody's. Options - An option is the right to buy or sell a security based on an agreed upon price at a specified time. For example, an option may give the holder of a stock the right to sell the stock to another party, allowing the seller to profit if the price has fallen below the agreed price. Options may also be based on the movement of an index such as the S&P 500. Over-the-counter market - a market where dealers trade securities through a telephone or computer network rather than through a public stock exchange. Preferred stock - a type of equity security that gives you a limited ownership right in a company, with certain preferences or priority over common stock. Preferred stock generally pays a fixed annual dividend. If the company goes bankrupt, preferred shareholders generally receive their share of the company's remaining assets before common shareholders and after bondholders and other creditors. Ownership of preferred stock typically does not come with certain voting rights that come with common stock. Pre-refunded bond - a bond that is repaid before its maturity date. The repayment is generally financed by a new issue. Issuers generally pre-refund bonds during periods of lower interest rates to reduce their interest costs. Price-to-earnings ratio (P/E ratio) - the current price of a share divided by its actual or estimated earnings per share. The P/E ratio is one measure of the value of a company. 120 Private placement - a private placement is the sale of stocks, bonds or other investments directly to a qualified investor without having to register the offering with the SEC or other comparable foreign regulatory authorities. Qualified investors are typically large institutional investors or high net worth individuals. Securities acquired through private placements generally may not be resold. Quantitative analysis - an analysis of financial information about a company or security to identify securities that have the potential for growth or are otherwise suitable for a fund to buy. Real Estate Investment Trust (REIT) - a portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls, and real-estate-related loans or interests. Repurchase agreement - a short-term (often overnight) investment arrangement. The investor agrees to buy certain securities from the borrower and the borrower promises to buy them back at a specified date and price. The difference between the purchase price paid by the investor and the repurchase price paid by the borrower represents the investor's return. Repurchase agreements are popular because they provide low-risk returns and can allow a fund to remain fully invested. Reverse repurchase agreement - a repurchase agreement in which an investor sells a security to another party, like a bank or dealer, in return for cash, and agrees to buy the security back at a specified date and price. Reverse repurchase agreements are, in effect, loans to a fund. Right - a temporary privilege allowing investors who already own a common stock to buy additional shares directly from the company at a specified price or formula. Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds, but is not a first-tier security. Senior security - a debt security that allows holders to receive their share of a company's remaining assets in a bankruptcy before other bondholders, creditors, and common and preferred shareholders. Settlement date - the date on which an order is settled either by payment or delivery of securities. Total return swap - an agreement between two parties to exchange periodic interest payments for the total return of an equity or fixed income instrument. Trade date - the effective date of a purchase, sale or exchange transaction, or other instructions sent to us. The trade date is determined by the day and time we receive the order or instructions in a form that's acceptable to us. U.S. government obligations - a wide range of debt securities issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities. U.S. Treasury obligation - a debt security issued by the U.S. Treasury. 121 Warrant - a certificate that gives you the right to buy common shares at a specified price within a specified period of time. Zero-coupon bond - a bond that makes no periodic interest payments. Zero coupon bonds are sold at a deep discount to their face value and mature at face value. The difference between the face value at maturity and the purchase price represents the return. 122 (THIS PAGE INTENTIONALLY LEFT BLANK) [GRAPHIC] Where to find more information You'll find more information about Nations Funds State Municipal Bond Funds in the following documents: Annual and semi-annual reports The annual and semi-annual reports contain information about Fund investments and performance, the financial statements and the independent accountants' reports. The annual report also includes a discussion about the market conditions and investment strategies that had a significant effect on each Fund's performance during the period covered. [GRAPHIC] Statement of Additional Information The SAI contains additional information about the Funds and their policies. The SAI is legally part of this prospectus (it's incorporated by reference). A copy has been filed with the SEC. You can obtain a free copy of these documents, request other information about the Funds and make shareholder inquiries by contacting Nations Funds: By telephone: 1.800.321.7854 By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nations-funds.com Information about the Funds can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. The reports and other information about the Funds are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. SEC file numbers: [GRAPHIC] Nations Fund Trust, 811-04305 Nations Funds Trust, 811-09645 SMBPROPA-8/01 [GRAPHIC] Nations LifeGoal Portfolios Prospectus -- Primary A Shares August 1, 2001 Nations LifeGoal Growth Portfolio Nations LifeGoal Balanced Growth Portfolio Nations LifeGoal Income and Growth Portfolio The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. - ------------------ Not FDIC Insured - ------------------ May Lose Value - ------------------ No Bank Guarantee - ------------------ [NATIONS FUNDS LOGO] An overview of the Portfolios - -------------------------------------------------------------------------------- [GRAPHIC] Terms used in this prospectus In this prospectus, we, us and our refer to the Nations Funds family (Nations Funds or Nations Funds Family). Some other important terms we've used may be new to you. These are printed in italics where they first appear in a section and are described in Terms used in this prospectus. [GRAPHIC] You'll find Terms used in this prospectus on page 37. Your investment in a Portfolio is not a bank deposit and is not insured or guaranteed by Bank of America, N. A. (Bank of America), the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Your investment may lose money. Affiliates of Bank of America are paid for the services they provide to the Portfolios and the underlying Funds. This booklet, which is called a prospectus, tells you about Nations LifeGoal Portfolios. Please read it carefully because it contains information that's designed to help you make informed investment decisions. Unlike traditional mutual funds, which invest in individual securities, the Portfolios invest in a mix of Nations Funds Stock, International/Global Stock, Government & Corporate Bond and Money Market Funds using an asset allocation approach. These kinds of mutual funds are sometimes called "funds of funds." About asset allocation Asset allocation is the process of creating a diversified portfolio by investing in different asset classes -- for example, equity securities, fixed income securities and money market instruments -- in varying proportions. The mix of asset classes and how much is invested in each may be the most important factor in how a Portfolio performs and the amount of risk involved. Each asset class, and market segments within a class, like large, mid- and small capitalization stocks, has different return and risk characteristics, and reacts in different ways to changes in the economy. An investment approach that combines asset classes and market segments may help to reduce overall Portfolio volatility. About the Portfolios Each Portfolio has its own asset allocation strategy, which gives it distinctive risk/return characteristics. The performance of each Portfolio depends on many factors, including its allocation strategy and the performance of the Nations Funds it invests in. In general, the more a Nations LifeGoal Portfolio allocates to Stock and International/Global Stock Funds, the greater the potential return and the greater the risk of a decline in share price. The more a Nations LifeGoal Portfolio allocates to Government & Corporate Bond Funds, the greater the potential for price stability and the lower the potential return. There's always a risk, however, that you'll lose money or you may not earn as much as you expect. Nations LifeGoal Growth Portfolio focuses on long-term growth by normally allocating all of its assets to a mix of Funds that invest primarily in equity securities. Equities have the potential to provide higher returns than many other kinds of investments, but they also tend to have the highest risk. Nations LifeGoal Balanced Growth Portfolio focuses on long-term growth by normally allocating its assets to a balanced mix of Funds that invest in equity and fixed income securities. Fixed income securities have the potential to increase in value, because, when interest rates fall, the value of these securities tends to rise. When interest rates rise, however, the value of these securities tends to fall. Other things can also affect the value of fixed income securities. 2 Nations LifeGoal Income and Growth Portfolio focuses on current income and modest growth. It normally allocates most of its assets to Funds that invest in fixed income securities, but may also allocate some assets to Funds that invest in equity securities. Over time, the return on this Portfolio may be lower than the return on the other Portfolios. Is LifeGoal right for you? When you're choosing a Portfolio to invest in, you should consider things like your investment goals, how much risk you can accept and how long you're planning to hold your investment. Nations LifeGoal Portfolios may be suitable for you if: o you have longer-term investment goals o they're part of a balanced portfolio They may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with equity and fixed income securities o you have short-term investment goals o you're looking for a regular stream of income You'll find a discussion of each Portfolio's principal investments, strategies and risks in the Portfolio descriptions that start on page 5. For more information If you have any questions about the Portfolios, please call us at 1.800.321.7854 or contact your investment professional. You'll find more information about the Portfolios in the Statement of Additional Information (SAI). The SAI includes more detailed information about each Portfolio's investments, policies, performance and management, among other things. Please turn to the back cover to find out how you can get a copy. 3 What's inside - -------------------------------------------------------------------------------- [GRAPHIC] Banc of America Advisors, LLC Banc of America Advisors, LLC (BA Advisors) is the investment adviser to each of the Portfolios. BA Advisors is responsible for the overall management and supervision of the investment management of each Portfolio. BA Advisors and Nations Funds have engaged a sub-adviser -- Banc of America Capital Management, LLC (BACAP), which is responsible for the day-to-day investment decisions for each of the Portfolios. [GRAPHIC] You'll find more about BA Advisors and BACAP starting on page 24. [GRAPHIC] About the Portfolios Nations LifeGoal Growth Portfolio 5 Sub-adviser: BACAP - ---------------------------------------------- Nations LifeGoal Balanced Growth Portfolio 9 Sub-adviser: BACAP - ---------------------------------------------- Nations LifeGoal Income and Growth Portfolio 14 Sub-adviser: BACAP - ---------------------------------------------- About the Nations Funds 19 - ---------------------------------------------- Other important information 22 - ---------------------------------------------- How the Portfolios are managed 24 [GRAPHIC] About your investment Information for investors Buying, selling and exchanging shares 29 Distributions and taxes 32 - ---------------------------------------------- Financial highlights 34 - ---------------------------------------------- Terms used in this prospectus 37 - ---------------------------------------------- Where to find more information back cover 4 [GRAPHIC] About the sub-adviser BACAP is this Portfolio's sub-adviser. BACAP's Investment Strategies Team makes the day-to-day investment decisions for the Portfolio. [GRAPHIC] You'll find more about BACAP on page 25. [GRAPHIC] About the underlying Nations Funds You'll find more information about the Funds in which the Portfolio invests, including their objectives and strategies, in About the Nations Funds and in the SAI. Nations LifeGoal Growth Portfolio [GRAPHIC] Investment objective The Portfolio seeks capital appreciation through exposure to a variety of equity market segments. [GRAPHIC] Investment strategies The Portfolio normally invests most of its assets in Primary A Shares of Nations Funds Stock and International/Global Stock Funds. The team uses asset allocation as its principal investment approach. It: o allocates assets among Fund categories, within the target allocations set for the Portfolio. It bases its allocations on the Portfolio's investment objective, historical returns for each asset class and on its outlook for the economy o chooses individual Funds within each category and the amount it will allocate to each, looking at each Fund's historical returns, as well as the expected performance of the mix of Funds o reviews the allocations to Fund categories and individual Funds at least monthly, and may change these allocations when it believes it's appropriate to do so The actual amount in each Fund or category of Funds may vary from the allocations set by the team, depending on how the Funds perform, and for other reasons. The team may use various strategies to try to manage how much the actual amount varies, and for how long. For example: o if there are more assets in a Fund category than in the target allocation, the team may allocate money coming into the Portfolio to the other Fund categories o if there are fewer assets in a Fund category than in the target allocation, it may allocate money coming into the Portfolio to that Fund category The Portfolio normally sells a proportionate amount of the shares it owns in each Nations Fund to meet its redemption requests.
Nations LifeGoal Growth Portfolio Target allocation for each can invest in: Fund category: Large-capitalization stock funds 30-70% Nations Value Fund Nations Blue Chip Fund Nations Strategic Growth Fund Nations Marsico Focused Equities Fund Mid-capitalization stock fund 10-30% Nations MidCap Growth Fund Small-capitalization stock fund 10-30% Nations Small Company Fund International/Global stock funds 10-30% Nations International Value Fund Nations International Equity Fund Emerging markets stock fund 0-5% Nations Emerging Markets Fund
The team can substitute or add other Funds to this list at any time, including Funds introduced after the date of this prospectus. 5 [GRAPHIC] You'll find detailed information about each Fund's investment strategies and risks in its prospectus, and in its SAI. Please call us at 1.800.321.7854 for a copy. [GRAPHIC] You'll find more about other risks of investing in this Portfolio in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations LifeGoal Growth Portfolio has the following risks: o Investment strategy risk - The team uses an asset allocation strategy to try to achieve the highest total return. There is a risk that the mix of investments will not produce the returns they expect, or that the Portfolio will fall in value. There is also the risk that the Funds the Portfolio invests in will not produce the returns the team expects, or will fall in value. o Stock market risk - The Portfolio allocates assets to Funds that invest in stocks. The value of the stocks a Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Small company risk - The Portfolio allocates assets to Funds that may invest in smaller companies. Stocks of smaller companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains, but also carry more risk. o Foreign investment risk - The Portfolio allocates assets to Funds that invest in foreign securities. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Emerging markets risk - The Portfolio allocates assets to Funds that invest in securities of companies in emerging markets. Securities issued by companies in developing or emerging market countries, like those in Eastern Europe, the Middle East, Asia or Africa, may be more sensitive to the risks of foreign investing. In particular, these countries may experience instability resulting from rapid social, political and economic development. Many of these countries are dependent on international trade, which makes them sensitive to world commodity prices and economic downturns in other countries. Some emerging countries have a higher risk of currency devaluation, and some countries may experience long periods of high inflation or rapid changes in inflation rates. o Technology and technology-related risk - The Portfolio allocates assets to Funds that may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. o Rebalancing policy - The actual amount in each Fund or category of Funds may vary from the allocations set by the team. This could continue for some time. 6 [GRAPHIC] Many things affect a Portfolio's performance, including market conditions, the composition of the Portfolio's holdings and Portfolio expenses. [GRAPHIC] A look at the Portfolio's performance The following bar chart and table show you how the Portfolio has performed in the past, and can help you understand the risks of investing in the Portfolio. A Portfolio's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Portfolio's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 14.70% 12.74% 25.89% 4.58% - --------------------------------- 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -8.95% Best and worst quarterly returns during this period
Best: 4th quarter 1998: 23.67% Worst: 3rd quarter 1998: -16.67%
[GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Portfolio's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment.
Since 1 year inception* Primary A Shares 4.58% 14.40% S&P 500 -9.10% 17.94%
*The inception date of Primary A Shares is October 15, 1996. The return for the index shown is from that date. 7 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a portfolio's assets and from the assets of the Nations Funds the Portfolio invests in. [GRAPHIC] What it costs to invest in the Portfolio This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio.
Shareholder fees (Fees paid directly from your investment) Primary A Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Portfolio operating expenses (Expenses that are deducted from the Portfolio's assets) Management fees 0.25% ---- Total annual Portfolio operating expenses 0.25% ====
Indirect Expenses The Portfolio's annual operating expenses include a portion of the annual Fund operating expenses of the Nations Funds in which the Portfolio invests. This portion is estimated to be between 0.99% and 1.17% (expressed as a weighted average, including any fee waiver and/or reimbursement commitments that will expire July 31, 2002), and is based on: o the amount the Portfolio expects to invest in each Fund, based on the target allocation o each Fund's annualized expense ratio for the period ended March 31, 2001, adjusted as necessary to reflect current service provider fees [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Portfolio's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Portfolio with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Portfolio for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Portfolio o your investment has a 5% return each year o the Portfolio's operating expenses remain the same as shown in the table above o the Portfolio's indirect expenses remain at the average of the range as shown above for the 1 year example, excluding any fee waivers and/or reimbursements for the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
1 year 3 years 5 years 10 years Primary A Shares $135 $424 $733 $1,612
8 [GRAPHIC] About the sub-adviser BACAP is this Portfolio's sub-adviser. BACAP's Investment Strategies Team makes the day-to-day investment decisions for the Portfolio. [GRAPHIC] You'll find more about BACAP on page 25. [GRAPHIC] About the underlying Nations Funds You'll find more information about the Funds in which the Portfolio invests, including their objectives and strategies, in About the Nations Funds and in the SAI. Nations LifeGoal Balanced Growth Portfolio [GRAPHIC] Investment objective The Portfolio seeks total return through a balanced portfolio of equity and fixed income securities. [GRAPHIC] Investment strategies The Portfolio normally invests all of its assets in Primary A Shares of a balanced mix of Nations Funds Stock and International/Global Stock and Government & Corporate Bond Funds. The team uses asset allocation as its principal investment approach. It: o allocates assets among Fund categories, within the target allocations set for the Portfolio. It bases its allocations on the Portfolio's investment objective, historical returns for each asset class and on its outlook for the economy o chooses individual Funds within each category and the amount it will allocate to each, looking at each Fund's historical returns, as well as the expected performance of the mix of Funds o reviews the allocations to Fund categories and individual Funds at least monthly, and may change these allocations when it believes it's appropriate to do so The actual amount in each Fund or category of Funds may vary from the allocations set by the team, depending on how the Funds perform, and for other reasons. The team may use various strategies to try to manage how much the actual amount varies, and for how long. For example: o if there are more assets in a Fund category than in the target allocation, the team may allocate money coming into the Portfolio to the other Fund categories o if there are fewer assets in a Fund category than in the target allocation, it may allocate money coming into the Portfolio to that Fund category The Portfolio normally sells a proportionate amount of the shares it owns in each Nations Fund to meet its redemption requests. 9
Nations LifeGoal Balanced Growth Target allocation for each Portfolio can invest in: Fund category: Large-capitalization stock funds 15-40% Nations Value Fund Nations Blue Chip Fund Nations Strategic Growth Fund Nations Marsico Focused Equities Fund Mid-capitalization stock fund 5-15% Nations MidCap Growth Fund Small-capitalization stock fund 5-15% Nations Small Company Fund International/Global stock funds 5-15% Nations International Value Fund Nations International Equity Fund Government & corporate bond funds 35-60% Nations Bond Fund International Bond Portfolio High yield bond fund 0-10% Nations High Yield Bond Fund
The team can substitute or add other Funds to this list at any time, including Funds introduced after the date of this prospectus. [GRAPHIC] You'll find detailed information about each Fund's investment strategies and risks in its prospectus, and in its SAI. Please call us at 1.800.321.7854 for a copy. [GRAPHIC] You'll find more about other risks of investing in this Portfolio in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations LifeGoal Balanced Growth Portfolio has the following risks: o Investment strategy risk - The team uses an asset allocation strategy to try to achieve the highest total return. There is a risk that the mix of investments will not produce the returns they expect, or that the Portfolio will fall in value. There is also the risk that the Funds the Portfolio invests in will not produce the returns the team expects, or will fall in value. o Stock market risk - The Portfolio allocates assets to Funds that invest in stocks. The value of the stocks a Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Small company risk - The Portfolio allocates assets to Funds that may invest in smaller companies. Stocks of smaller companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains, but also carry more risk. 10 o Foreign investment risk - The Portfolio allocates assets to Funds that invest in foreign securities. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, may also apply to some foreign investments. Funds that invest in securities of companies in emerging markets have high growth potential, but can be more volatile than securities in more developed markets. o Interest rate risk - The Portfolio allocates assets to Funds that may invest in fixed income securities. The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - A Fund that invests in fixed income securities could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but generally is not a factor for U.S. government obligations. The Portfolio allocates assets to Funds that typically invest in securities that are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Technology and technology-related risk - The Portfolio allocates assets to Funds that may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. o Derivatives risk - The Portfolio allocates assets to Funds that may use derivative instruments. The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Rebalancing policy - The actual amount in each Fund or category of Funds may vary from the allocations set by the team. This could continue for some time. 11 [GRAPHIC] Many things affect a Portfolio's performance, including market conditions, the composition of the Portfolio's holdings and Portfolio expenses. [GRAPHIC] A look at the Portfolio's performance The following bar chart and table show you how the Portfolio has performed in the past, and can help you understand the risks of investing in the Portfolio. A Portfolio's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Portfolio's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 11.42% 11.76% 14.56% 7.21% - --------------------------------- 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -2.66% Best and worst quarterly returns during this period Best: 4th quarter 1998: 12.48% Worst: 3rd quarter 1998: -8.92%
[GRAPHIC] The returns shown for the indices do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Portfolio's average annual total return for each period, compared with the S&P 500 and the Lehman Aggregate Bond Index. The S&P 500 is an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The Lehman Aggregate Bond Index is an index of fixed income securities issued by the U.S. government and its agencies, and by corporations. The indices are not available for investment.
Since 1 year inception* Primary A Shares 7.21% 11.26% S&P 500 -9.10% 17.94% Lehman Aggregate Bond Index 11.63% 7.08%
*The inception date of Primary A Shares is October 15, 1996. The returns for the indices shown are from that date. 12 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a portfolio's assets and from the assets of the Nations Funds the Portfolio invests in. [GRAPHIC] What it costs to invest in the Portfolio This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio.
Shareholder fees (Fees paid directly from your investment) Primary A Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Portfolio operating expenses (Expenses that are deducted from the Portfolio's assets) Management fees 0.25% ---- Total annual Portfolio operating expenses 0.25% ====
Indirect Expenses The Portfolio's annual operating expenses include a portion of the annual Fund operating expenses of the Nations Funds in which the Portfolio invests. This portion is estimated to be between 0.46% and 0.97% (expressed as a weighted average, including any fee waiver and/or reimbursement commitments that will expire in July 31, 2002), and is based on: o the amount the Portfolio expects to invest in each Fund, based on the target allocation o each Fund's annualized expense ratio for the period ended March 31, 2001, adjusted as necessary to reflect current service provider fees [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Portfolio's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Portfolio with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Portfolio for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Portfolio o your investment has a 5% return each year o the Portfolio's operating expenses remain the same as shown in the table above o the Portfolio's indirect expenses remain at the average of the range as shown above for the 1 year example, excluding any fee waivers and/or reimbursements for the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
1 year 3 years 5 years 10 years Primary A Shares $98 $312 $544 $1,210
13 Nations LifeGoal Income and Growth Portfolio [GRAPHIC] About the sub-adviser BACAP is this Portfolio's sub-adviser. BACAP Investment Strategies Team makes the day-to-day investment decisions for the Portfolio. [GRAPHIC] You'll find more about BACAP on page 25. [GRAPHIC] About the underlying Nations Funds You'll find more information about the Funds in which the Portfolio invests, including their objectives and strategies, in About the Nations Funds and in the SAI. [GRAPHIC] Investment objective The Portfolio seeks current income and modest growth to protect against inflation and to preserve purchasing power. [GRAPHIC] Investment strategies The Portfolio normally invests most of its assets in Primary A Shares of Nations Funds Government & Corporate Bond Funds, but may also invest in Nations Funds Stock and International/Global Stock Funds, and Nations Money Market Funds. The team uses asset allocation as its principal investment approach. It: o allocates assets among Fund categories, within the target allocations set for the Portfolio. It bases its allocations on the Portfolio's investment objective, historical returns for each asset class and on its outlook for the economy o chooses individual Funds within each category and the amount they will allocate to each, looking at each Fund's historical returns, as well as the expected performance of the mix of Funds o reviews the allocations to Fund categories and individual Funds at least monthly, and may change these allocations when it believes it's appropriate to do so The actual amount in each Fund or category of Funds may vary from the allocations set by the team, depending on how the Funds perform, and for other reasons. The team may use various strategies to try to manage how much the actual amount varies, and for how long. For example: o if there are more assets in a Fund category than in the target allocation, the team may allocate money coming into the Portfolio to the other Fund categories o if there are fewer assets in a Fund category than in the target allocation, it may allocate money coming into the Portfolio to that Fund category The Portfolio normally sells a proportionate amount of the shares it owns in each Nations Fund to meet its redemption requests. 14
Nations LifeGoal Income and Growth Portfolio Target allocation for each can invest in: Fund category: Large-capitalization stock funds 10-30% Nations Value Fund Nations Blue Chip Fund Nations Strategic Growth Fund Nations Marsico Focused Equities Fund Small-capitalization stock fund 0-10% Nations Small Company Fund International/Global stock funds 0-10% Nations International Value Fund Nations International Equity Fund Government & corporate bond funds 50-90% Nations Short-Term Income Fund Nations Bond Fund International Bond Portfolio High yield bond fund 0-10% Nations High Yield Bond Fund Money market fund 0-20% Nations Prime Fund
Nations LifeGoal Income and Growth Portfolio's target allocation for total investments in stock and international/global stock funds is 30%. The team can substitute or add other Funds to this list at any time, including Funds introduced after the date of this prospectus. [GRAPHIC] You'll find detailed information about each Fund's investment strategies and risks in its prospectus, and in its SAI. Please call us at 1.800.321.7854 for a copy. [GRAPHIC] You'll find more about other risks of investing in this Portfolio in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations LifeGoal Income and Growth Portfolio has the following risks: o Investment strategy risk - The team use an asset allocation strategy to try to achieve the highest total return. There is a risk that the mix of investments will not produce the returns they expect, or that the Portfolio will fall in value. There is also the risk that the Funds the Portfolio invests in will not produce the returns the team expects, or will fall in value. o Stock market risk - The Portfolio allocates assets to Funds that invest in stocks. The value of the stocks a Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Small company risk - The Portfolio allocates assets to Funds that may invest in smaller companies. Stocks of smaller companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains, but also carry more risk. 15 o Foreign investment risk - The Portfolio allocates assets to Funds that invest in foreign securities. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. Funds that invest in securities of companies in emerging markets have high growth potential, but can be more volatile than securities in more developed markets. o Interest rate risk - The Portfolio allocates assets to Funds that may invest in fixed income securities. The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - A Fund that invests in fixed income securities could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but generally is not a factor for U.S. government obligations. The Portfolio allocates assets to Funds that typically invest in securities that are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The Portfolio allocates assets to Funds that may use derivative instruments. The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Rebalancing policy - The actual amount in each Fund or category of Funds may vary from the allocations set by the team. This could continue for some time. 16 [GRAPHIC] Many things affect a Portfolio's performance, including market conditions, the composition of the Portfolio's holdings and Portfolio expenses. [GRAPHIC] A look at the Portfolio's performance The following bar chart and table show you how the Portfolio has performed in the past, and can help you understand the risks of investing in the Portfolio. A Portfolio's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Portfolio's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 8.73% 10.17% 6.11% 5.91% - ------------------------------- 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 1.24% Best and worst quarterly returns during this period Best: 4th quarter 1998: 6.23% Worst: 3rd quarter 1998: -2.33%
[GRAPHIC] The returns shown for the indices do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Portfolio's average annual total return for each period, compared with the S&P 500 and the Lehman Aggregate Bond Index. The S&P 500 is an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The Lehman Aggregate Bond Index is an index of fixed income securities issued by the U.S. government and its agencies, and by corporations. The indices are not available for investment.
Since 1 year inception* Primary A Shares 5.91% 7.84% S&P 500 -9.10% 17.94% Lehman Aggregate Bond Index 11.63% 7.08%
*The inception date of Primary A Shares is October 15, 1996. The returns for the indices shown are from that date. 17 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a portfolio's assets and from the assets of the Nations Funds the Portfolio invests in. [GRAPHIC] What it costs to invest in the Portfolio This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio.
Shareholder fees (Fees paid directly from your investment) Primary A Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Portfolio operating expenses (Expenses that are deducted from the Portfolio's assets) Management fees 0.25% ---- Total annual Portfolio operating expenses 0.25% ====
Indirect Expenses The Portfolio's annual operating expenses include a portion of the annual Fund operating expenses of the Nations Funds in which the Portfolio invests. This portion is estimated to be between 0.18% and 0.90% (expressed as a weighted average, including any fee waiver and/or reimbursement commitments that will expire July 31, 2002), and is based on: o the amount the Portfolio expects to invest in each Fund, based on the target allocation o each Fund's annualized expense ratio for the period ended March 31, 2001, adjusted as necessary to reflect current service provider fees [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Portfolio's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Portfolio with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Portfolio for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Portfolio o your investment has a 5% return each year o the Portfolio's operating expenses remain the same as shown in the table above o the Portfolio's indirect expenses remain at the average of the range as shown above for the 1 year example, excluding any fee waivers and/or reimbursements for the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
1 year 3 years 5 years 10 years Primary A Shares $81 $257 $448 $1,000
18 About the Nations Funds The table starting on the next page is a brief overview of the objectives and principal investments of the underlying Nations Funds in which the Nations LifeGoal Portfolios invest in. Each Portfolio invests in a different mix of Nations Funds. You'll find the mix of Nations Funds and target allocations for each Portfolio starting on page 5. The team can substitute or add other Funds to this table at any time, including Funds introduced after the date of this prospectus. For more information You'll find more detailed information about each Fund's investment strategies and risks in its prospectus and in its SAI. Please call us at 1.800.321.7854 for copies. 19
The Fund's/Portfolio's investment objective -------------------------------------------------- Stock Funds Nations Value Fund Growth of capital by investing in companies that are believed to be undervalued. - -------------------------------- ------------------------------------------------- Nations Blue Chip Fund Long-term capital appreciation through investments in blue chip stocks. - -------------------------------- ------------------------------------------------- Nations Strategic Growth Fund Long-term, after-tax returns by investing in a diversified portfolio of common stocks. - -------------------------------- ------------------------------------------------- Nations Marsico Focused Long-term growth of capital. Equities Fund - -------------------------------- ------------------------------------------------- Nations MidCap Growth Fund Capital appreciation by investing in emerging growth companies that are believed to have superior long-term earnings growth prospects. - -------------------------------- ------------------------------------------------- Nations Small Company Fund Long-term capital growth by investing primarily in equity securities. - -------------------------------- ------------------------------------------------- International/Global Stock Funds Nations International Value Long-term capital appreciation by investing Fund primarily in equity securities of foreign issuers, including emerging markets countries. - -------------------------------- ------------------------------------------------- Nations International Equity Long-term capital growth by investing Fund primarily in equity securities of non-U.S. companies in Europe, Australia, the Far East and other regions, including developing countries. - -------------------------------- ------------------------------------------------- What the Fund/Portfolio invests in ----------------------------------------------------------- Stock Funds Nations Value Fund o at least 65% of its assets in common stocks of U.S. companies. The Fund generally invests in companies in a broad range of industries with market capitali- zations of at least $1 billion and daily trading volumes of at least $3 million. - -------------------------------- ----------------------------------------------------------- Nations Blue Chip Fund Nations Blue Chip Master Portfolio. The Master Portfolio invests: o at least 65% of its assets in blue chip stocks o primarily in blue chip stocks that are included in the S&P 500 - -------------------------------- ----------------------------------------------------------- Nations Strategic Growth Fund o at least 65% of its assets in common stocks of companies selected from most major industry sectors - -------------------------------- ----------------------------------------------------------- Nations Marsico Focused Nations Marsico Focused Equities Master Portfolio. The Equities Fund Master Portfolio invests in: o at least 65% of its assets in common stocks of large companies. The Master Portfolio, which is non-diversified, generally holds a core position of 20 to 30 common stocks o up to 25% of its assets in foreign securities - -------------------------------- ----------------------------------------------------------- Nations MidCap Growth Fund o at least 65% of its assets in companies chosen from a universe of medium capitalization companies. The Fund generally holds securities of between 60 and 100 issuers, which include common stocks, preferred stocks and convertible securities like warrants, rights and convertible debt - -------------------------------- ----------------------------------------------------------- Nations Small Company Fund o at least 65% of its assets in companies with a market capitalization of $2 billion or less. The Fund usually holds 75 to 130 equity securities - -------------------------------- ----------------------------------------------------------- International/Global Stock Funds Nations International Value Nations International Value Master Portfolio. The Master Fund Portfolio invests: o at least 65% of its assets in foreign companies anywhere in the world that have a market capitalization of more than $1 billion at the time of investment. The Master Portfolio typically invests in at least three countries other than the United States at any one time o primarily in common stocks, preferred stocks, convertible securities, either directly or indirectly through closed-end investment companies and depositary receipts - -------------------------------- ----------------------------------------------------------- Nations International Equity Nations International Equity Master Portfolio. The Master Fund Portfolio invests: o at least 65% of its assets in established companies located in at least three countries other than the United States. The investment managers select countries, including emerging market or developing countries, that they believe have the potential for growth o primarily in equity securities, which may include equity interests in foreign investment funds or trusts, convertible securities, real estate investment trust securities and depositary receipts - -------------------------------- -----------------------------------------------------------
20
The Fund's/Portfolio's investment objective -------------------------------------------------- Emerging Markets Stock Fund Nations Emerging Markets Long-term capital growth by investing primarily Fund in equity securities of companies in emerging market countries, such as those in Latin America, Eastern Europe, the Pacific Basin, the Far East and India. - ------------------------------- -------------------------------------------------- Government & Corporate Bond Funds Nations Short-Term Income High current income consistent with minimal Fund fluctuations of principal. - ------------------------------- -------------------------------------------------- Nations Bond Fund Total return by investing in investment grade fixed income securities. - ------------------------------- -------------------------------------------------- International Bond Portfolio Maximize total return by investing in a diversified portfolio of bonds of primarily non-U.S. issuers. - ------------------------------- -------------------------------------------------- High Yield Bond Fund Nations High Yield Bond Fund Maximum income by investing in a diversified portfolio of high yield debt securities. - ------------------------------- -------------------------------------------------- Money Market Fund Nations Prime Fund Maximization of current income to the extent consistent with the preservation of capital and the maintenance of liquidity. - ------------------------------- -------------------------------------------------- What the Fund/Portfolio invests in --------------------------------------------------------- Emerging Markets Stock Fund Nations Emerging Markets o at least 65% of its assets in companies in emerging Fund markets or developing countries. The Fund typically invests in securities of companies in at least three emerging markets countries at any one time o may invest in foreign currency exchange contracts to convert foreign currencies to and from the U.S. dollar, and to hedge against changes in foreign currency exchange rates - ------------------------------ --------------------------------------------------------- Government & Corporate Bond Funds Nations Short-Term Income o at least 65% of its total assets in investment grade Fund fixed income securities. The team may choose unrated securities if it believes they are of comparable quality to investment grade securities at the time of investment o corporate debt securities, including bonds, notes and debentures, mortgage-related securities issued by governments, asset-backed securities or U.S. government obligations - ------------------------------ --------------------------------------------------------- Nations Bond Fund o at least 65% of its assets in investment grade fixed income securities. The portfolio management team may choose unrated securities if it believes they are of comparable quality to investment grade securities at the time of investment o corporate debt securities, including bonds, notes and debentures, U.S. government obligations, foreign debt securities denominated in U.S. dollars, mortgage-related securities, asset-backed securities or municipal securities - ------------------------------ --------------------------------------------------------- International Bond Portfolio o at least 80% of its assets in foreign bonds (which may be collateralized with U.S. cash equivalents) o non-U.S. government and agency securities; investment grade foreign debt securities; foreign high yield securities rated at least "B" by at least one NRSRO - ------------------------------ --------------------------------------------------------- High Yield Bond Fund Nations High Yield Bond Fund Nations High Yield Bond Master Portfolio. The Master Portfolio invests: o at least 65% of its assets in domestic and foreign corporate high yield debt securities which are not rated investment grade but generally will be rated "Ba" or "B" by Moody's Investor Services, Inc. or "BB" or "B" by Standard & Poor's Corporation o primarily in U.S. government obligations, zero-coupon bonds, as well as domestic corporate high yield debt securities and U.S. dollar-denominated foreign corporate high yield debt securities, both of which include private placements o up to 25% of its assets in equity securities which may include convertible securities - ------------------------------ --------------------------------------------------------- Money Market Fund Nations Prime Fund o money market instruments, including commercial paper, bank obligations, short-term debt securities, guaranteed investment contracts, short-term taxable municipal securities, repurchase agreements secured by first-tier securities or U.S. government obligations - ------------------------------ ---------------------------------------------------------
21 [GRAPHIC] You'll find specific information about each Portfolio's principal investments, strategies and risks in the descriptions starting on page 5. [GRAPHIC] Other important information The following are some other risks and information you should consider before you invest: o Changing investment objectives and policies - The investment objective and certain investment policies of any Portfolio or Fund can be changed without shareholder approval. Other investment policies may be changed only with shareholder approval. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. Each Portfolio may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If a Portfolio becomes a feeder fund it will have the additional risks of investing in a master portfolio. o Holding other kinds of investments - The Portfolios or any Fund may hold investments that aren't part of their principal investment strategies. Please refer to the SAI for more information. The management team can also choose not to invest in specific securities described in this prospectus and in the SAI. o Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds and the Portfolios may invest up to 25% of their assets in Nations Money Market Funds. BA Advisors and its affiliates are entitled to receive fees from the Nations Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Funds and the Portfolios for services provided directly. BA Advisors may waive fees which it is entitled to receive from either the Nations Money Market Funds or the Funds. o Foreign investment risk - Funds that invest in foreign securities may be affected by changes in currency exchange rates and the costs of converting currencies; foreign government controls on foreign investment, repatriation of capital, and currency and exchange; foreign taxes; inadequate supervision and regulation of some foreign markets; difficulties selling some investments, which may increase volatility; different settlement practices or delayed settlements in some markets; difficulty getting complete or accurate information about foreign companies; less strict accounting, auditing and financial reporting standards than those in the U.S.; political, economic or social instability; and difficulty enforcing legal rights outside the U.S. If a Fund invests in emerging markets there may be other risks involved, such as those of immature economies and less developed and more thinly traded securities markets. 22 o Investing defensively - A Portfolio may temporarily hold up to 100% of its assets in Nations Prime Fund, a money market fund, to try to protect it during a market or economic downturn or because of political or other conditions. A Portfolio may not achieve its investment objective while it is investing defensively. o Securities lending program - A Fund may lend portfolio securities to approved broker-dealers or other financial institutions on a fully collateralized basis in order to earn additional income. There may be delays in receiving additional collateral after the loan is made or in recovering the securities loaned. o Bank of America and its affiliates - Bank of America and its affiliates currently provide services to some or all of the Portfolios and the Funds, including investment advisory, investment sub-advisory, co-administration, sub-transfer agency and brokerage services, and are paid for providing these services. Bank of America and its affiliates also may, at times, provide other services and be compensated for them, including transfer agency, interfund lending and securities lending services, or make loans to the Portfolios and the Funds. Finally, Bank of America or its affiliates may serve as counterparties in transactions with Nations Funds where permitted by law or regulation, and may receive compensation in that capacity. o Portfolio turnover - A Portfolio or Fund that replaces -- or turns over -- more than 100% of its investments in a year is considered to trade frequently. Frequent trading can result in larger distributions of short-term capital gains to shareholders. These gains are taxable at higher rates than long-term capital gains. Frequent trading can also mean higher brokerage and other transaction costs, which could reduce the Portfolio's returns. The Portfolios generally buy securities for capital appreciation, investment income, or both, and don't engage in short-term trading. You'll find the portfolio turnover rate for each Portfolio in Financial highlights. 23 [GRAPHIC] Banc of America Advisors, LLC One Bank of America Plaza Charlotte, North Carolina 28255 [GRAPHIC] How the Portfolios are managed Investment adviser BA Advisors is the investment adviser to over 75 mutual fund portfolios in the Nations Funds Family, including the Portfolios described in this prospectus. BA Advisors is a registered investment adviser. It's a wholly-owned subsidiary of Bank of America, which is owned by Bank of America Corporation. Nations Funds pays BA Advisors an annual fee for its investment advisory services. The fee is calculated as a percentage of the average daily net assets of each Portfolio and is paid monthly. BA Advisors uses part of this money to pay the investment sub-adviser for the services it provides to each Portfolio. BA Advisors has also agreed to pay all other Portfolio expenses, except taxes, brokerage fees and commissions, extraordinary expenses, and any distribution (12b-1), shareholder servicing or shareholder administration fees. The following chart shows the maximum advisory fees BA Advisors can receive, along with the actual advisory fees it received during the Portfolios' last fiscal year: Annual investment advisory fee, as a % of average daily net assets
Maximum Actual fee advisory paid last fee fiscal year Nations LifeGoal Growth Portfolio 0.25% 0.25% Nations LifeGoal Balanced Growth Portfolio 0.25% 0.25% Nations LifeGoal Income and Growth Portfolio 0.25% 0.25%
24 Investment sub-advisers Nations Funds and BA Advisors engage one or more investment sub-advisers for each Portfolio to make day-to-day investment decisions for the Portfolio. BA Advisors retains ultimate responsibility (subject to Board oversight) for overseeing the sub-advisers and evaluates the Portfolios' needs and available sub-advisers' skills and abilities on an ongoing basis. Based on its evaluations, BA Advisors may at times recommended to the Portfolio's Board that the Portfolio: o change, add or terminate one or more sub-advisers; o continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or o materially change a sub-advisory agreement with a sub-adviser. Applicable law requires a Portfolio to obtain shareholder approval in order to act on most of these types of recommendations, even if the Portfolio's Board has approved the proposed action and believes that the action is in shareholders' best interests. BA Advisors and Nations Funds have applied for relief from the SEC to permit the Portfolios to act on many of BA Advisors' recommendations with approval only by the Portfolios' Board and not by Portfolios shareholders. BA Advisors or a Portfolio would inform the Portfolio's shareholders of any actions taken in reliance on this relief. Until BA Advisors and the Portfolios obtain the relief, each Portfolio will continue to submit these matters to shareholders for their approval to the extent required by applicable law. [GRAPHIC] Banc of America Capital Management, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Banc of America Capital Management, LLC BACAP is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Its management expertise covers all major domestic asset classes, including equity and fixed income securities, and money market instruments. Currently managing more than $125 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 60 funds in the Nations Funds Family. BACAP generally takes a team approach to investment management. Each team or individual portfolio manager has access to the latest technology and analytical resources. BACAP is the investment sub-adviser to all of the LifeGoal Portfolios. BACAP's Investment Strategies Team is responsible for making the day-to-day investment decisions for each Portfolio. BACAP is also the investment sub-adviser to the Nations Funds that appear in the table below. The table tells you which internal BACAP asset management team is responsible for making the day-to-day investment decisions for each Fund.
Fund BACAP Team Nations Value Fund Value Strategies Team Nations Small Company Fund SmallCap Strategies Team Nations Short-Term Income Fund Fixed Income Management Team Nations Bond Fund Fixed Income Management Team International Bond Portfolio International Team Nations Prime Fund Taxable Money Market Management Team Nations Strategic Growth Fund Growth Strategies Team Nations MidCap Growth Fund Growth Strategies Team
25 Nations Funds and BA Advisors have engaged investment sub-advisers to provide day-to-day portfolio management for the underlying Nations Funds in which the Portfolios invest. These sub-advisers function under the supervision of BA Advisors and the Boards of Nations Funds. [GRAPHIC] Marsico Capital Management, LLC 1200 17th Street Suite 1300 Denver, Colorado 80202 Marsico Capital Management, LLC Marsico Capital is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Marsico Capital is a full service investment advisory firm founded by Thomas F. Marsico in September 1997. Marsico Capital currently has over $13 billion in assets under management. Marsico Capital is the investment sub-adviser to Nations Marsico Focused Equities Master Portfolio. Thomas F. Marsico, Chairman and Chief Executive Officer of Marsico Capital, is the portfolio manager responsible for making the day-to-day investment decisions for Nations Marsico Focused Equities Master Portfolio. Mr. Marsico was an executive vice president and portfolio manager at Janus Capital Corporation from 1988 until he formed Marsico Capital in September 1997. He has more than 20 years of experience as a securities analyst and portfolio manager. [GRAPHIC] Brandes Investment Partners, L.P. 11988 El Camino Real Suite 500 San Diego, California 92130 Brandes Investment Partners, L.P. Founded in 1974, Brandes is an investment advisory firm with 56 investment professionals who manage more than $50 billion in assets. Brandes uses a value-oriented approach to managing international investments, seeking to build wealth by buying high quality, undervalued stocks. Brandes is the investment sub-adviser to Nations International Value Master Portfolio. Brandes' Large Cap Investment Committee is responsible for making the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] Chicago Equity Partners, LLC 180 North LaSalle Suite 3800 Chicago, Illinois 60601 Chicago Equity Partners, LLC Chicago Equity is a registered investment adviser and is owned by the firm's senior management. Chicago Equity is the investment sub-adviser to Nations Blue Chip Master Portfolio. Chicago Equity's Equity Management Team is responsible for making the day-to-day investment decisions for Nations Blue Chip Master Portfolio. 26 [GRAPHIC] Gartmore Global Partners Gartmore House 8 Fenchurch Place London EC3M 4PH, England Gartmore Global Partners Gartmore is a global asset manager dedicated to serving the needs of U.S. based investors. Gartmore was formed in 1995 as a registered investment adviser and manages more than $991 million in assets. Gartmore is a general partnership which is an indirect wholly-owned subsidiary of Nationwide Mutual Insurance Company. Gartmore generally follows a growth philosophy, which is reflected in its active management of market allocation and stock selection. Gartmore is co-investment sub-adviser to: o Nations International Equity Master Portfolio Gartmore is investment sub-adviser to: o Nations Emerging Markets Fund Gartmore's Global Equities Portfolio Construction Team is responsible for the day-to-day investment decisions for its portion of the Master Portfolio. Christopher Palmer has been responsible since August 1999 for investments in developing countries, and has been the principal portfolio manager of Nations Emerging Markets Fund since that time. He joined Gartmore in 1995 and is a senior investment manager on the Gartmore Emerging Markets Team. Before he joined Gartmore, Mr. Palmer worked for Unifund, S.A., a private investment bank, in its Mexico City and Hong Kong offices, and managed global derivatives, credit and counterparty credit risk as vice president in the Institutional Credit Department of Bear Stearns & Co. He graduated from Colgate University in 1986 with a BA Honors degree in History and completed an MBA in Finance at New York University in 1988. Mr. Palmer was awarded the CFA designation by the Association of Investment Management and Research in 1993. [GRAPHIC] INVESCO Global Asset Management (N.A.), Inc. 1360 Peachtree Street, N.E. Atlanta, Georgia 30309 INVESCO Global Asset Management (N.A.), Inc. INVESCO Global is a division of AMVESCAP PLC, a publicly traded UK financial holding company located in London. INVESCO Global is one of the three investment sub-advisers to Nations International Equity Master Portfolio. INVESCO's International Equity Portfolio Management Team is responsible for making the day-to-day investment decisions for its portion of the Master Portfolio. 27 [GRAPHIC] Putnam Investment Management LLC One Post Office Square Boston, Massachusetts 02109 Putnam Investment Management LLC Putnam is a wholly-owned subsidiary of Putnam Investments, Inc., which, except for shares held by employees, is owned by Marsh & McLennan Companies. Putnam is one of three investment sub-advisers to Nations International Equity Master Portfolio. Putnam's Core International Equity Group is responsible for making the day-to-day investment decisions for its portion of the Master Portfolio. [GRAPHIC] MacKay Shields LLC 9 West 57th Street New York, New York 10019 MacKay Shields LLC Founded in 1938, MacKay Shields is an independently-managed, wholly-owned subsidiary of New York Life Insurance Company. The firm's 63 investment professionals manage more than $30 billion in assets, including over $6 billion in high yield assets. MacKay Shields' High Yield Portfolio Management Team is responsible for making the day-to-day decisions for Nations High Yield Bond Master Portfolio. [GRAPHIC] Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 The financial institution or intermediary that buys shares for you is also referred to as a selling or servicing agent. Selling and servicing agents include banks, brokerage firms, mutual fund dealers and other financial institutions, including affiliates of Bank of America. Other service providers The Portfolios are distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. Stephens does not receive any fees for the administrative services it provides to the Portfolios. BA Advisors is also co-administrator of the Portfolios, and assists in overseeing the administrative operations of the Funds. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. [GRAPHIC] PFPC Inc. 400 Bellevue Parkway Wilmington, Delaware 19809 PFPC Inc. (PFPC) is the transfer agent for the Portfolios' shares. Its responsibilities include processing purchases, sales and exchanges, calculating and paying distributions, keeping shareholder records, preparing account statements and providing customer service. 28 About your investment - -------------------------------------------------------------------------------- [GRAPHIC] When you sell shares of a mutual fund, the fund is effectively "buying" them back from you. This is called a redemption. [GRAPHIC] A business day is any day that the New York Stock Exchange (NYSE) is open. A business day ends at the close of regular trading on the NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes early, the business day ends as of the time the NYSE closes. The NYSE is closed on weekends and on the following national holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. [GRAPHIC] Buying, selling and exchanging shares This prospectus offers Primary A Shares of the Portfolios. Here are some general rules about this class of shares: o Primary A Shares are available to certain financial institutions and intermediaries for their own accounts, and for certain client accounts for which they act as a fiduciary, agent or custodian. These include: o Bank of America and certain of its affiliates o certain other financial institutions and intermediaries, including financial planners and investment advisers o institutional investors o charitable foundations o endowments o other Funds in the Nations Funds Family o The minimum initial investment is $250,000. Financial institutions or intermediaries can total the investments they make on behalf of their clients to meet the minimum initial investment amount. Client accounts for which the financial institution or intermediary no longer acts as fiduciary, agent or custodian may no longer be eligible to purchase or hold Primary A Shares. o There is no minimum amount for additional investments. o There are no sales charges for buying, selling or exchanging these shares. You'll find more information about buying, selling and exchanging Primary A Shares on the pages that follow. You should also ask your financial institution or intermediary about its limits, fees and policies for buying, selling and exchanging shares, which may be different from those described here, and about its related programs and services. The Portfolios also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. Please contact your investment professional, or call us at 1.800.321.7854 if you have any questions, or you need help placing an order. How shares are priced All transactions are based on the price of a Portfolio's shares -- or its net asset value per share. We calculate net asset value per share for each class of each Portfolio at the end of each business day. The net asset value per share of a Portfolio is based on the net asset value per share of the Nations Funds the Portfolio invests in. We calculate the net asset value for each class of a Fund by determining the value of the Fund's assets in the class and then subtracting its liabilities. Next, we divide this amount by the number of shares that investors are holding in the class. 29 Valuing securities in an underlying Fund The value of a Fund's assets is based on the total market value of all of the securities it holds. The prices reported on stock exchanges and securities markets around the world are usually used to value securities in a Fund. If prices aren't readily available, or the value of a security has been materially affected by events occurring after a foreign exchange closes, we'll base the price of a security on its fair value. When a Fund uses fair value to price securities it may value those securities higher or lower than another fund that uses market quotations to price the same securities. We use the amortized cost method, which approximates market value, to value short-term investments maturing in 60 days or less. International markets may be open on days when U.S. markets are closed. The value of foreign securities owned by a Fund could change on days when Fund shares may not be bought or sold. How orders are processed Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents before the end of a business day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive that day's net asset value per share. Orders received after the end of a business day will receive the next business day's net asset value per share. The business day that applies to your order is also called the trade date. We may refuse any order to buy or exchange shares. If this happens, we'll return any money we've received. [GRAPHIC] The net asset value per share is the price of a share calculated by a Portfolio every business day. [GRAPHIC] Buying shares Here are some general rules for buying shares: o You buy Primary A Shares at net asset value per share. o If we don't receive payment within three business days of receiving an order, we'll refuse the order. We'll return any payment received for orders that we refuse. o Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. o Shares purchased are recorded on the books of the Portfolio. We generally don't issue certificates. o Financial institutions and intermediaries are responsible for recording the beneficial ownership of the shares of their clients, and for reporting this ownership on account statements they send to their clients. [GRAPHIC] Selling shares Here are some general rules for selling shares: o We normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. o If you paid for your shares with a check that wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared, whichever is later. 30 o Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. o Under certain circumstances allowed under the Investment Company Act of 1940 (1940 Act), we can pay you in securities or other property when you sell shares. o We can delay payment of the sale proceeds for up to seven days. o Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. We may sell your shares: o if the value of your account falls below $500. We'll give you 60 days notice in writing if we're going to do this o if a financial institution or intermediary tells us to sell your shares under arrangements made with you o under certain other circumstances allowed under the 1940 Act [GRAPHIC] You should make sure you understand the investment objective and principal investment strategies of the Portfolio or Fund you're exchanging into. Please read its prospectus carefully. [GRAPHIC] Exchanging shares You can sell shares of a Portfolio to buy shares of another Portfolio or Nations Fund. This is called an exchange. You might want to do this if your investment goals or tolerance for risk change. Here's how exchanges work: o You can exchange Primary A Shares of a Portfolio for Primary A Shares of any other Portfolio or Nations Fund. In some cases, the only Money Market Fund option is Trust Class Shares of Nations Reserves Money Market Funds. o The rules for buying shares of a Portfolio or Fund, including any minimum investment requirements, apply to exchanges into that Portfolio or Fund. o You may only make exchanges into a Portfolio or Fund that is legally sold in your state of residence. o You generally may only make an exchange into a Portfolio or Fund that is accepting investments. o We may limit the number of exchanges you can make within a specified period of time. o We may change or cancel your right to make an exchange by giving the amount of notice required by regulatory authorities (generally 60 days for a material change or cancellation). 31 [GRAPHIC] Distributions and taxes [GRAPHIC] The power of compounding Reinvesting your distributions buys you more shares of a Portfolio -- which lets you take advantage of the potential for compound growth. Putting the money you earn back into your investment means it, in turn, may earn even more money. Over time, the power of compounding has the potential to significantly increase the value of your investment. There is no assurance, however, that you'll earn more money if you reinvest your distributions. About distributions A mutual fund can make money two ways: o It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. o A fund can also have capital gain if the value of its investments increases. If a fund sells an investment at a gain, the gain is realized. If a fund continues to hold the investment, any gain is unrealized. A mutual fund is not subject to federal income tax as long as it distributes its net investment income and realized capital gain to its shareholders. The Portfolios intend to pay out a sufficient amount of their income and capital gain to their shareholders so the Portfolios won't have to pay any federal income tax. When a Portfolio makes this kind of a payment, it's split among all shares, and is called a distribution. All of the Portfolios distribute net investment income quarterly, and any net realized capital gain at least once a year. Any distribution you receive is based on the number of shares you hold on the record date, which is usually the day the distribution is declared (daily dividend Funds) or the day before the distribution is declared (all other Funds). Shares are eligible to receive net investment income distributions from the settlement date (daily dividend Funds), trade date (all other Funds) or realized capital gain from the trade date of the purchase up to and including the day before the shares are sold. Different share classes of a Portfolio usually pay different net investment income distribution amounts, because each class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. We'll automatically reinvest distributions in additional shares of the same Portfolio unless you tell us you want to receive your distributions in cash. You can do this by writing to us at the address on the back cover or by calling us at 1.800.321.7854. We generally pay cash distributions within five business days after the end of the month, quarter or year in which the distribution was made. If you sell all of your shares, we'll normally pay any distribution that applies to those shares in cash within five business days after the sale was made. If you buy shares of a Portfolio shortly before it makes a distribution, you will, in effect, receive part of your purchase back in the distribution, which is subject to tax. Similarly, if you buy shares of a Portfolio that holds securities with unrealized capital gain, you will, in effect, receive part of your purchase back if and when the Portfolio sells those securities and distributes the gain. This distribution is also subject to tax. The Portfolios have built up, or have the potential to build up, high levels of unrealized capital gain. 32 [GRAPHIC] This information is a summary of how federal income taxes may affect your investment in the Funds. It is not intended as a substitute for careful tax planning. You should consult with your own tax adviser about your situation, including any foreign, state and local taxes that may apply. [GRAPHIC] For more information about taxes, please see the SAI. How taxes affect your investment Distributions that come from net investment income, any net short-term capital gain and certain other items generally are taxable to you as ordinary income. A portion of such distributions to corporate shareholders may qualify for the dividends-received deduction. Distributions that come from net long-term capital gain generally are taxable to you as long-term capital gain. In general, all distributions are taxable to you when paid, whether they are paid in cash or automatically reinvested in additional shares of the Portfolio. However, any distributions declared to shareholders of record in October, November or December of one year and distributed in January of the following year will be taxable as if they had been paid to you on December 31 of the first year. We'll send you a notice every year that tells you how much you've received in distributions during the year and their federal tax status. Foreign, state and local taxes may also apply to these distributions. U.S. government obligations If you invest in U.S. government obligations directly, interest on those obligations is free from state and local and individual income taxes. Distributions you receive that come from interest each Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. Withholding tax We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts to be paid for in securities or other property and exchanges) if: o you haven't given us a correct Taxpayer Identification Number (TIN) and haven't certified that the TIN is correct and withholding doesn't apply o the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records o the IRS informs us that you are otherwise subject to backup withholding The IRS may also impose penalties against you if you don't give us a correct TIN. Amounts we withhold are applied to your federal income tax liability. You may receive a refund from the IRS if the withholding tax results in an overpayment of taxes. We're also normally required by federal law to withhold tax on distributions (other than capital gain distributions) paid to foreign shareholders. Taxation of redemptions and exchanges Your redemptions (including redemptions paid in securities) and exchanges of Portfolio shares will usually result in a taxable capital gain or loss to you, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. 33 [GRAPHIC] Financial highlights The financial highlights table is designed to help you understand how the Portfolios have performed for the past five years or, if shorter, the period of the Portfolio's operations. Certain information reflects financial results for a single Portfolio share. The total investment return line indicates how much an investment in the Portfolio would have earned, assuming all dividends and distributions had been reinvested. This information has been audited by PricewaterhouseCoopers LLP. The independent accountants' report and Nations Funds financial statements are incorporated by reference into the SAI. Please see the back cover to find out how you can get a copy. 34
Nations LifeGoal Growth Portfolio For a Share outstanding throughout each period Year ended Year ended Year ended Year ended Period ended Primary A Shares 03/31/01 03/31/00# 03/31/99 03/31/98# 03/31/97* Operating performance: Net asset value, beginning of period $15.50 $12.15 $12.49 $10.15 $10.06 Net investment income 0.09 0.04 0.04 0.08 0.12 Net realized and unrealized gain/(loss) on investments (2.29) 3.88 0.31 2.87 0.09 Net increase/(decrease) in net assets resulting from investment operations (2.20) 3.92 0.35 2.95 0.21 Distributions: Dividends from net investment income (0.07) -- -- (0.01) (0.12) Distributions in excess of net investment income -- (0.18) (0.09) (0.39) -- Distributions from net realized capital gains (2.85) (0.39) (0.60) (0.21) -- Total dividends and distributions (2.92) (0.57) (0.69) (0.61) (0.12) Net asset value, end of period $10.38 $15.50 $12.15 $12.49 $10.15 Total return++ (16.52)% 32.94% 3.04% 29.80% 2.10% ================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $66,504 $15,265 $4,291 $289 $929 Ratio of operating expenses to average net assets+++ 0.25% 0.25% 0.25% 0.25% 0.25%+ Ratio of net investment income to average net assets 0.81% 0.34% 0.46% 0.65% 1.11%+ Portfolio turnover rate 58% 161% 159% 69% 25% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.25% -- -- -- --
* Nations LifeGoal Growth Portfolio Primary A Shares commenced investment operations on October 2, 1996. Shares were offered to the public on October 15, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated and does not reflect the deduction of any applicable sales charges. +++ The Portfolio's expenses do not include the expenses of the underlying Funds. # Per share net investment income has been calculated using the monthly average shares method.
Nations LifeGoal Balanced Growth Portfolio For a Share outstanding throughout each period Year ended Year ended Year ended Year ended Period ended Primary A Shares 03/31/01 03/31/00# 03/31/99 03/31/98# 03/31/97* Operating performance: Net asset value, beginning of period $11.97 $10.80 $10.92 $9.95 $10.05 Net investment income 0.44 0.36 0.26 0.33 0.19 Net realized and unrealized gain/(loss) on investments (0.71) 1.54 0.23 1.74 (0.10) Net increase/(decrease) in net assets resulting from investment operations (0.27) 1.90 0.49 2.07 0.09 Distributions: Dividends from net investment income (0.42) (0.40) (0.28) (0.28) (0.19) Distributions in excess of net investment income -- (0.04) -- (0.32) -- Distributions from net realized capital gains (0.95) (0.29) (0.33) (0.50) -- Total dividends and distributions (1.37) (0.73) (0.61) (1.10) (0.19) Net asset value, end of period $10.33 $11.97 $10.80 $10.92 $9.95 Total return++ (2.39)% 18.34% 4.77% 21.74% 0.90% ================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $194,842 $13,325 $14,844 $103 $2,114 Ratio of operating expenses to average net assets+++ 0.25% 0.25% 0.25% 0.25% 0.25%+ Ratio of net investment income to average net assets 3.69% 3.37% 2.77% 2.87% 3.94%+ Portfolio turnover rate 106% 124% 121% 94% 1% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.25% -- -- -- --
* Nations LifeGoal Balanced Growth Portfolio Primary A Shares commenced investment operations on October 2, 1996. Shares were offered to the public on October 15, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated and does not reflect the deduction of any applicable sales charges. +++ The Portfolio's expenses do not include the expenses of the underlying Funds. # Per share net investment income has been calculated using the monthly average shares method. 35
Nations LifeGoal Income and Growth Portfolio For A Share outstanding throughout each period Year ended Year ended Year ended Year ended Period ended Primary A Shares 03/31/01# 03/31/00# 03/31/99 03/31/98# 03/31/97* Operating performance: Net asset value, beginning of period $ 10.63 $ 10.86 $ 10.70 $ 9.97 $ 10.03 Net investment income 0.52 0.49 0.35 0.43 0.32 Net realized and unrealized gain/(loss) on investments ( 0.04) 0.02 0.37 0.89 ( 0.06) Net increase in net assets resulting from investment operations 0.48 0.51 0.72 1.32 0.26 Distributions: Dividends from net investment income ( 0.50) ( 0.51) ( 0.36) ( 0.40) ( 0.32) Distributions in excess of net investment income -- -- -- ( 0.12) -- Distributions from net realized capital gains ( 0.24) ( 0.23) ( 0.20) ( 0.07) -- Total dividends and distributions ( 0.74) ( 0.74) ( 0.56) ( 0.59) ( 0.32) Net asset value, end of period $ 10.37 $ 10.63 $ 10.86 $ 10.70 $ 9.97 Total return++ 4.60% 4.91% 6.98% 13.56% 2.59% ================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $15,297 $4,736 $8,489 $ 476 $ 223 Ratio of operating expenses to average net assets+++ 0.25% 0.25% 0.25% 0.25% 0.25%+ Ratio of net investment income to average net assets 5.05% 4.78% 3.99% 4.17% 6.34%+ Portfolio turnover rate 35% 96% 107% 64% 2%
* Nations LifeGoal Income and Growth Portfolio Primary A Shares commenced investment operations on October 2, 1996. Shares were offered to the public on October 15, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated and does not reflect the deduction of any applicable sales charges. +++ The Portfolio's expenses do not include the expenses of the underlying Funds. # Per share net investment income has been calculated using the monthly average shares method. 36 [GRAPHIC] This glossary includes explanations of the important terms that may be used in this prospectus. Some of the terms explained may apply to Nations Funds not included in this prospectus. [GRAPHIC] Terms used in this prospectus Amortized cost method - under Rule 2a-7 of the 1940 Act, the method of calculating an investment company's net asset value whereby portfolio securities are valued at the Fund's acquisition cost as adjusted for amortization of premium or accretion of discount rather than at their current market value. Asset-backed security - a debt security that gives an investor an interest in a pool of assets that is collateralized or "backed" by one or more kinds of assets, including automobile loans or credit card receivables, generally issued by banks, credit card companies or other lenders. Asset-backed securities typically make periodic payments, which may be interest or a combination of interest and a portion of the principal of the underlying assets. Average dollar-weighted maturity - the average length of time until the debt securities held by a Fund reach maturity. In general, the longer the average dollar-weighted maturity, the more a Fund's share price will fluctuate in response to changes in interest rates. Bank obligation - a money market instrument issued by a domestic or U.S. branch of a foreign bank, including certificates of deposit, time deposits and bankers' acceptances. Capital gain or loss - the difference between the purchase price of a security and its selling price. An investor realizes a capital gain when it sells a security for more than it paid for it. An investor realizes a capital loss when it sells a security for less than it paid for it. Cash equivalents - short-term, interest-bearing instruments which can easily be converted into cash, including U.S. government obligations, bank obligations, and certain asset-backed securities, foreign government securities and commercial paper issued by U.S. and foreign issuers which, at the time of investment, is rated at least Prime-2 by Moody's Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch). Collateralized mortgage obligation (CMO) - a type of mortgage-backed security. CMO payment obligations are covered by interest and/or principal payments from a pool of mortgages. In addition, the underlying assets of a CMO are typically separated into classes, called tranches, based on maturity. Each tranche pays a different rate of interest. CMOs are not generally issued by the U.S. government, its agencies or instrumentalities. Commercial paper - a short-term corporate obligation. Commercial paper is typically considered a money market instrument. Common stock - a security that represents part equity ownership in a company. Common stock typically allows an investor to vote at shareholder meetings and to share in the company's profits by receiving dividends. 37 Convertible debt - a debt security that can be exchanged for common stock (or another type of security) on a specified basis and date. Convertible security - a security that can be exchanged for common stock (or another type of security) at a specified rate. Convertible securities include convertible debt, rights and warrants. Crossing networks - an electronic system where anonymous parties can match buy and sell transactions. These transactions don't affect the market, and transaction costs are extremely low. Debt security - a security issued by a governmental body or company (the issuer) to help fund their operations or major projects. The issuer pays interest at a specified rate on a specified date or dates, and repays the principal when the security matures. Short-term debt securities include money market instruments such as treasury bills. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Depositary receipts - evidence of the deposit of a security with a custodian bank. American Depositary Receipts (ADRs), for example, are certificates traded in U.S. markets representing an interest of a foreign company. They were created to make it possible for foreign issuers to meet U.S. security registration requirements. Other examples include ADSs, GDRs and EDRs. Derivatives - A derivative is a financial contract whose value is based upon, or "derived" from, an underlying financial asset (such as a stock or a bond), a commodity (such as gold), a market index (such as the S&P 500) or a reference rate (such as the prime lending interest rate). Examples of derivative instruments include futures, options, index-, equity-, commodity- and currency-linked securities, warrants and swap contracts. For a detailed description of the derivatives described here, see the SAI. Diversified - A diversified fund, as defined by the 1940 Act, must have at least 75% of its total assets in cash and cash equivalents, government securities, securities of other investment companies, or other securities. For purposes of this calculation, the fund may not count securities of a single issuer that comprise more than 5% of the fund's assets. Dividend yield - rate of return of dividends paid on a common or preferred stock. It equals the amount of the annual dividend on a stock expressed as a percentage of the stock's current market value. Duration - a security's or portfolio's sensitivity to changes in interest rates. For example, if interest rates rise by one percentage point, the share price of a fund with a duration of five years would decline by about 5%. If interest rates fall by one percentage point, the fund's share price would rise by about 5%. Equity security - an investment that gives an investor an equity ownership right in a company. Equity securities (or "equities") include common and preferred stock, rights and warrants. 38 First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds and has the highest short-term rating from a nationally recognized statistical rating organization (NRSRO), or if unrated, is determined by the Fund's portfolio management team to be of comparable quality, or is a money market fund or a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Foreign security - a debt or equity security determined by a Fund's portfolio management team to be foreign based on an issuer's domicile, its principle place of business, the source of its revenues or other factors. Forward foreign currency contracts - a forward foreign currency contract includes an obligation to purchase or sell a foreign currency at a specified future date. Forward purchase agreement - a contract obligating one party to buy and another party to sell an equity security, commodity, currency or other financial instrument at a specific future date. Fundamental analysis - a method of securities analysis that tries to evaluate the intrinsic, or "true," value of a particular stock. It includes a study of the overall economy, industry conditions and the financial condition and management of a company. Futures contract - a contract to buy or sell underlying instruments at a specified price on a specified future date. The price is typically set through a futures exchange. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to NRSROs such as S&P and Moody's. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by a Fund's Board. Please see the SAI for more information about credit ratings. High yield debt security - debt securities that, at the time of purchase, are rated "BB" or below by S&P or "Ba" or below by Moody's, or that are unrated and determined by the portfolio management team to be of comparable quality. Interest rate swap - an agreement between two parties to exchange periodic interest payments based on a predetermined principal amount. Investment grade - a debt security that has been given a medium to high credit rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating by other NRSROs) based on the issuer's ability to pay interest and repay principal on time. The portfolio management team may consider an unrated debt security to be investment grade if the team believes it is of comparable quality. Please see the SAI for more information about credit ratings. 39 Lehman Aggregate Bond Index - an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government/Corporate Bond Index - an unmanaged index of U.S. government, U.S. Treasury and agency securities, and corporate and Yankee bonds. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Liquidity - a measurement of how easily a security can be bought or sold at a price that is close to its market value. Merrill Lynch 1-3 Year Treasury Index - an unmanaged index of U.S. Treasury bonds with maturities of 1 to 3 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Money market instrument - a short-term debt security that is considered to mature in 13 months or less. Money market instruments include U.S. Treasury obligations, U.S. government obligations, certificates of deposit, bankers' acceptances, commercial paper, repurchase agreements and certain municipal securities. Mortgage-backed security or Mortgage-related security - a debt security that gives you an interest in, and is backed by, a pool of residential mortgages issued by the U.S. government or by financial institutions. The underlying mortgages may be guaranteed by the U.S. government or one of its agencies, authorities or instrumentalities. Mortgage-backed securities typically make monthly payments, which are a combination of interest and a portion of the principal of the underlying mortgages. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public or private projects and services. "General obligations" are typically backed by the issuer's full taxing and revenue-raising powers. "Revenue securities" depend on the income earned by a specific project or authority, like road or bridge tolls, user fees for water or revenues from a utility. Interest income from municipal securities that pay for "public" projects and services is exempt from federal income taxes and is generally exempt from state taxes if an investor lives in the state that issued the security. If an investor lives in the municipality that issued the security, interest income may also be exempt from local taxes. Non-diversified - a fund that holds securities of fewer issuers than other kinds of funds. Non-diversified funds tend to have greater price swings than more diversified funds because events affecting one or more of its securities may have a disproportionately large effect on the fund. NRSRO - A nationally recognized statistical rating organization, such as S&P or Moody's. 40 Options - An option is the right to buy or sell a security based on an agreed upon price at a specified time. For example, an option may give the holder of a stock the right to sell the stock to another party, allowing the seller to profit if the price has fallen below the agreed price. Options may also be based on the movement of an index such as the S&P 500. Over-the-counter market - a market where dealers trade securities through a telephone or computer network rather than through a public stock exchange. Preferred stock - a type of equity security that gives you a limited ownership right in a company, with certain preferences or priority over common stock. Preferred stock generally pays a fixed annual dividend. If the company goes bankrupt, preferred shareholders generally receive their share of the company's remaining assets before common shareholders and after bondholders and other creditors. Ownership of preferred stock typically does not come with certain voting rights that come with common stock. Pre-refunded bond - a bond that is repaid before its maturity date. The repayment is generally financed by a new issue. Issuers generally pre-refund bonds during periods of lower interest rates to reduce their interest costs. Price-to-earnings ratio (P/E ratio) - the current price of a share divided by its actual or estimated earnings per share. The P/E ratio is one measure of the value of a company. Private placement - a private placement is the sale of stocks, bonds or other investments directly to a qualified investor without having to register the offering with the SEC or other comparable foreign regulatory authorities. Qualified investors are typically large institutional investors or high net worth individuals. Securities acquired through private placements generally may not be resold. Quantitative analysis - an analysis of financial information about a company or security to identify securities that have the potential for growth or are otherwise suitable for a fund to buy. Real Estate Investment Trust (REIT) - a portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls, and real-estate-related loans or interests. Repurchase agreement - a short-term (often overnight) investment arrangement. The investor agrees to buy certain securities from the borrower and the borrower promises to buy them back at a specified date and price. The difference between the purchase price paid by the investor and the repurchase price paid by the borrower represents the investor's return. Repurchase agreements are popular because they provide low-risk returns and can allow a fund to remain fully invested. Reverse repurchase agreement - a repurchase agreement in which an investor sells a security to another party, like a bank or dealer, in return for cash, and agrees to buy the security back at a specified date and price. Reverse repurchase agreements are, in effect, loans to a fund. 41 Right - a temporary privilege allowing investors who already own a common stock to buy additional shares directly from the company at a specified price or formula. S&P 500(1) - Standard & Poor's 500 Composite Stock Price Index, an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds, but is not a first-tier security. Senior security - a debt security that allows holders to receive their share of a company's remaining assets in a bankruptcy before other bondholders, creditors, and common and preferred shareholders. Settlement date - the date on which an order is settled either by payment or delivery of securities. Total return swap - an agreement between two parties to exchange periodic interest payments for the total return of an equity or fixed income instrument. Trade date - the effective date of a purchase, sale or exchange transaction, or other instructions sent to us. The trade date is determined by the day and time we receive the order or instructions in a form that's acceptable to us. U.S. government obligations - a wide range of debt securities issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities. U.S. Treasury obligation - a debt security issued by the U.S. Treasury. Warrant - a certificate that gives you the right to buy common shares at a specified price within a specified period of time. Zero-coupon bond - a bond that makes no periodic interest payments. Zero coupon bonds are sold at a deep discount to their face value and mature at face value. The difference between the face value at maturity and the purchase price represents the return. (1)S&P has not reviewed any stock included in the S&P 500 for its investment merit. S&P determines and calculates its index independently of the Portfolios and is not a sponsor or affiliate of the Portfolios. S&P gives no information and makes no statements about the suitability of investing in the Portfolios or the ability of its index to track stock market performance. S&P makes no guarantees about the index, any data included in it and the suitability of the index or its data for any purpose. "Standard and Poor's" and "S&P 500" are trademarks of The McGraw-Hill Companies, Inc. 42 [GRAPHIC] Where to find more information You'll find more information about Nations LifeGoal Portfolios in the following documents: Annual and semi-annual reports The annual and semi-annual reports contain information about Portfolio investments and performance, the financial statements and the independent accountants' reports. The annual report also includes a discussion about the market conditions and investment strategies that had a significant effect on each Portfolio's performance during the period covered. [GRAPHIC] Statement of Additional Information The SAI contains additional information about the Portfolios and their policies. The SAI is legally part of this prospectus (it's incorporated by reference). A copy has been filed with the SEC. You can obtain a free copy of these documents, request other information about the Portfolios and make shareholder inquiries by contacting Nations Funds: By telephone: 1.800.321.7854 By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nations-funds.com Information about the Portfolios can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. The reports and other information about the Portfolios are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. SEC file number: Nations Funds Trust, 811-09645 LGPROPA-8/01 [NATIONS FUNDS LOGO] [GRAPHIC] Prospectus Primary A Shares August 1, 2001 Government Bond Fund Nations Bond Fund Stock Funds Nations Value Fund Nations Marsico Focused Equities Fund Index Funds Nations LargeCap Index Fund Nations MidCap Index Fund Nations SmallCap Index Fund International Stock Fund Nations International Equity Fund The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. - ----------------- Not FDIC Insured - ----------------- May Lose Value - ----------------- No Bank Guarantee - ----------------- [NATIONS FUNDS LOGO] An overview of the Funds - -------------------------------------------------------------------------------- [GRAPHIC] Terms used in this prospectus In this prospectus, we, us and our refer to the Nations Funds family (Nations Funds or Nations Funds Family). Some other important terms we've used may be new to you. These are printed in italics where they first appear in a section and are described in Terms used in this prospectus. [GRAPHIC] You'll find Terms used in this prospectus on page 51. Your investment in these Funds is not a bank deposit and is not insured or guaranteed by Bank of America, N. A. (Bank of America), the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Your investment may lose money. Affiliates of Bank of America are paid for the services they provide to the Funds. This booklet, which is called a prospectus, tells you about some Nations Funds Government Bond, Stock, Index and International Stock Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. About the Funds Each type of Fund has a different investment focus: o Government Bond Funds focus on the potential to earn income by investing primarily in fixed income securities. o Stock Funds invest primarily in equity securities of U.S. companies. o Index Funds seek to match the industry and risk characteristics of a specific stock market index, like the S&P 500, by investing primarily in equity securities that are included in the index. o International Stock Funds invest primarily in equity securities of companies outside the U.S. The Funds also have different risk/return characteristics because they invest in different kinds of securities. Equity securities have the potential to provide you with higher returns than many other kinds of investments, but they also tend to have the highest risk. Foreign securities also involve special risks not associated with investing in the U.S. stock market, which you need to be aware of before you invest. Fixed income securities have the potential to increase in value because when interest rates fall, the value of these securities tends to rise. When interest rates rise, however, the value of these securities tends to fall. Other things can also affect the value of fixed income securities. In every case, there's a risk that you'll lose money or you may not earn as much as you expect. Choosing the right Funds for you Not every Fund is right for every investor. When you're choosing a Fund to invest in, you should consider things like your investment goals, how much risk you can accept and how long you're planning to hold your investment. The Stock, Index and International Stock Funds all focus on long-term growth. They may be suitable for you if: o you have longer-term investment goals o they're part of a balanced portfolio o you want to try to protect your portfolio against a loss of buying power that inflation can cause over time 2 They may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with equity securities, including foreign securities o you have short-term investment goals o you're looking for a regular stream of income The Government Bond Fund focuses on the potential to earn income. It may be suitable for you if: o you're looking for income o you have longer-term investment goals The Government Bond Fund may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with fixed income securities You'll find a discussion of each Fund's principal investments, strategies and risks in the Fund descriptions that start on page 5. For more information If you have any questions about the Funds, please call us at 1.800.321.7854 or contact your investment professional. You'll find more information about the Funds in the Statement of Additional Information (SAI). The SAI includes more detailed information about each Fund's investments, policies, performance and management, among other things. Please turn to the back cover to find out how you can get a copy. 3 What's inside - -------------------------------------------------------------------------------- [GRAPHIC] Banc of America Advisors, LLC Banc of America Advisors, LLC (BA Advisors) is the investment adviser to each of the Funds. BA Advisors is responsible for the overall management and supervision of the investment management of each Fund. BA Advisors and Nations Funds have engaged sub-advisers, which are responsible for the day-to-day investment decisions for each of the Funds. [GRAPHIC] You'll find more about BA Advisors and the sub-advisers starting on page 35. [GRAPHIC] About the Funds Nations Bond Fund 5 Sub-adviser: Banc of America Capital Management, LLC - ------------------------------------------------------------------- Nations Value Fund 10 Sub-adviser: Banc of America Capital Management, LLC - ------------------------------------------------------------------- Nations Marsico Focused Equities Fund 14 Sub-adviser: Marsico Capital Management, LLC - ------------------------------------------------------------------- Nations LargeCap Index Fund 18 Sub-adviser: Banc of America Capital Management, LLC - ------------------------------------------------------------------- Nations MidCap Index Fund 22 Sub-adviser: Banc of America Capital Management, LLC - ------------------------------------------------------------------- Nations SmallCap Index Fund 25 Sub-adviser: Banc of America Capital Management, LLC - ------------------------------------------------------------------- Nations International Equity Fund 29 Sub-advisers: Gartmore Global Partners, INVESCO Global Asset Management (N.A.), Inc. and Putnam Investment Management LLC - ------------------------------------------------------------------- Other important information 33 - ------------------------------------------------------------------- How the Funds are managed 35 [GRAPHIC] About your investment Information for investors Buying, selling and exchanging shares 40 Distributions and taxes 43 - ------------------------------------------------------------------- Financial highlights 46 - ------------------------------------------------------------------- Terms used in this prospectus 51 - ------------------------------------------------------------------- Where to find more information back cover 4 [GRAPHIC] About the sub-adviser Banc of America Capital Management, LLC (BACAP) is this Fund's sub-adviser. BACAP's Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 36. [GRAPHIC] More investment opportunities This Fund can invest in a wide range of fixed income securities. This allows the team to focus on securities that offer the potential for higher returns. Nations Bond Fund [GRAPHIC] Investment objective The Fund seeks total return by investing in investment grade fixed income securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in investment grade fixed income securities. The team may choose unrated securities if it believes they are of comparable quality to investment grade securities at the time of investment. The Fund may invest in: o corporate debt securities, including bonds, notes and debentures o U.S. government obligations o foreign debt securities denominated in U.S. dollars o mortgage-related securities issued by governments, their agencies or instrumentalities, or corporations o asset-backed securities o municipal securities The Fund may invest up to 10% of its total assets in high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may invest in private placements to seek to enhance its yield. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be 10 years or less and will never be more than 15 years. When selecting individual investments, the team: o looks at a fixed income security's potential to generate both income and price appreciation o allocates assets primarily among U.S. government obligations, including securities issued by government agencies, mortgage-backed securities and U.S. Treasury securities; and corporate securities, based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to manage risk by diversifying the Fund's investments in securities of many different issuers The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 5 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Bond Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund typically invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Mortgage-related risk - The value of the Fund's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Fund may have to reinvest this money in mortgage-backed or other securities that have lower yields. 6 o Investment in other Nations Funds - The Fund may pursue its high yield and foreign securities strategies by investing in High Yield Portfolio and International Bond Portfolio, respectively, rather than directly in high yield and foreign securities. High Yield Portfolio and International Bond Portfolio are registered investment companies in the Nations Funds Family whose interests are offered by private placements only. BA Advisors and its affiliates are entitled to receive fees from High Yield Portfolio and International Bond Portfolio for providing services in addition to the fees which they are entitled to receive from Nations Bond Fund for services provided directly. BA Advisors and its affiliates may waive fees which they are entitled to receive from either Portfolio. 7 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1993 1994 1995 1996 1997 1998 1999 2000 10.78% -3.32% 17.28% 2.12% 8.48% 7.16% -1.24% 10.10% *Year-to-date return as of June 30, 2001: 3.32% Best and worst quarterly returns during this period Best: 2nd quarter 1995: 5.95% Worst: 1st quarter 1994: -2.81% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Aggregate Bond Index, an index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. The indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. The indices are not available for investment. Since 1 year 5 years inception* Primary A Shares 10.10% 5.24% 6.29% Lehman Aggregate Bond Index 11.63% 6.46% 7.12% *The inception date of Primary A Shares is October 30, 1992. The return for the index shown is from that date. 8 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Other expenses 0.27% ---- Total annual Fund operating expenses 0.67% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $68 $214 $373 $835 9 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Value Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 36. [GRAPHIC] What is value investing? Value investing means looking for "undervalued" companies -- quality companies that may be currently out of favor and selling at a reduced price, but that have good potential to increase in value. The team uses fundamental and quantitative analysis to help decide whether the current stock price of a company may be lower than the company's true value, and then looks for things that could trigger a rise in price, like a new product line, new pricing or a change in management. This trigger is often called a "catalyst." Nations Value Fund [GRAPHIC] Investment objective The Fund seeks growth of capital by investing in companies that are believed to be undervalued. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in common stocks of U.S. companies. It generally invests in companies in a broad range of industries with market capitalizations of at least $1 billion and daily trading volumes of at least $3 million. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The management team uses fundamental and quantitative analysis to identify stocks of companies that it believes are undervalued and have the potential for price appreciation, looking at, among other things: o mature, fundamentally sound businesses that are believed to be attractively priced due to investor indifference or unpopularity o various measures of relative valuation, including expected cash flow return (based upon the company's expected earnings and dividends), price-to-earnings ratio, price-to-current book value ratio, dividend yield, and enterprise value-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio. The team believes that companies with lower relative valuations are generally more likely to provide better opportunities for capital appreciation o the stock's estimated intrinsic valuation per share, relative to its current stock price o a potential "catalyst" for improved stock valuation and stock price appreciation. This could take the form of anticipated earnings growth, company restructuring, changes in management, new product opportunities, business model changes, or other anticipated improvements in micro and macroeconomic factors The team may use various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: o may limit the number of buy and sell transactions it makes o will try to sell shares that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when its price reaches the target set by the team, there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, and for other reasons. 10 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Value Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes are undervalued, with the expectation that they will rise in value. There is a risk that the value of these investments will not rise as high as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. 11 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 25.86% 7.30% 16.36% -2.99% 36.09% 21.12% 26.66% 17.34% 1.25% 3.94% *Year-to-date return as of June 30, 2001: -5.14% Best and worst quarterly returns during this period Best: 4th quarter 1998: 19.69% Worst: 3rd quarter 1998: -12.48% [GRAPHIC] The returns shown for the indices do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500 and the S&P/BARRA Value Index. The S&P 500 is an unmanaged index of 500 widely held common stocks. The S&P/BARRA Value Index is an unmanaged index of a subset of stocks from the S&P 500 that have low price-to-book ratios relative to the S&P 500 as a whole. The indices are weighted by market capitalization and are not available for investment. Since 1 year 5 years 10 years inception* Primary A Shares 3.94% 13.63% 14.67% 13.32% S&P 500 -9.10% 18.33% 17.44% 15.25% S&P/BARRA Value Index 6.08% 16.81% 16.88% 14.14% * The inception date of Primary A Shares is September 19, 1989. The returns for the indices shown are from that date. 12 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.65% Other expenses 0.29% ---- Total annual Fund operating expenses 0.94% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $96 $300 $520 $1,155 13 [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Marsico Capital Management, LLC (Marsico Capital) is its sub-adviser. Thomas F. Marsico is its portfolio manager and makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about Marsico Capital and Mr. Marsico on page 37. [GRAPHIC] What is a focused fund? A focused fund invests in a small number of companies with earnings that are believed to have the potential to grow significantly. This Fund focuses on large, established and well-known U.S. companies. Because a focused fund holds fewer investments than other kinds of funds, it can have greater price swings than more diversified funds. It may earn relatively higher returns when one of its investments performs well, or relatively lower returns when an investment performs poorly. Nations Marsico Focused Equities Fund [GRAPHIC] Investment objective The Fund seeks long-term growth of capital. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations Marsico Focused Equities Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in common stocks of large companies. The Master Portfolio, which is non-diversified, generally holds a core position of 20 to 30 common stocks. It may invest up to 25% of its assets in foreign securities. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Marsico Capital uses an approach that combines "top-down" economic analysis with "bottom-up" stock selection. The "top-down" approach takes into consideration such macroeconomic factors as interest rates, inflation, the regulatory environment and the global competitive landscape. In addition, Marsico Capital also examines such factors as the most attractive global investment opportunities, industry consolidation and the sustainability of economic trends. As a result of the "top-down" analysis, Marsico Capital identifies sectors, industries and companies which it believes should benefit from the overall trends observed. Marsico Capital then looks for individual companies with earnings growth potential that may not be recognized by the market at large. In determining whether a particular company is suitable for investment, Marsico Capital focuses on a number of different attributes including the company's specific market expertise or dominance, its franchise durability and pricing power, solid fundamentals (strong balance sheet, improving returns on equity, ability to generate free cash flow), strong management and reasonable valuations in the context of projected growth rates. As part of this fundamental, "bottom-up" research, Marsico Capital may visit with various levels of a company's management as well as with its customers, suppliers and competitors. Marsico Capital also prepares detailed earnings and cash flow models of companies. These models permit it to project earnings growth and other important characteristics under different scenarios. Each model is customized to follow a particular company and is intended to replicate and describe a company's past, present and future performance. The models are comprised of quantitative information and detailed narratives that reflect updated interpretations of corporate data. Marsico Capital may sell a security when it believes there is a deterioration in the company's financial situation, the security is overvalued, when there is a negative development in the company's competitive, regulatory or economic environment, and for other reasons. 14 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Marsico Focused Equities Fund has the following risks: o Investment strategy risk - There is a risk that the value of the Master Portfolio's investments will not rise as high as Marsico Capital expects, or will fall. o Holding fewer investments - The Master Portfolio is considered to be non-diversified because it may hold fewer investments than other kinds of equity funds. This increases the risk that its value could go down significantly if even only one of its investments performs poorly. The value of the Master Portfolio will tend to have greater price swings than the value of more diversified equity funds. The Master Portfolio may become a diversified fund by limiting the investments in which more than 5% of its total assets are invested. o Stock market risk - The value of the stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Master Portfolio may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. o Foreign investment risk - Because the Master Portfolio may invest up to 25% of its assets in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Investing in the Master Portfolio - Other mutual funds an eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 15 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. For information about the performance of other stock funds managed by Thomas Marsico, see How the Funds are managed. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1998 1999 2000 49.64% 53.43% -17.09% *Year-to-date return as of June 30, 2001: -14.02% Best and worst quarterly returns during this period Best: 4th quarter 1999: 33.16% Worst: 4th quarter 2000: -12.77% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment. Since 1 year Inception* Primary A Shares -17.09% 23.94% S&P 500 -9.10% 12.26% *The inception date of Primary A Shares is December 31, 1997. The return for the index shown is from that date. 16 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets)(2) Management fees 0.75% Other expenses 0.34% ---- Total annual Fund operating expenses 1.09% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $111 $347 $601 $1,329 17 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Quantitative Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 36. [GRAPHIC] What is an index fund? Index funds use a "passive" or "indexing" investment approach, which attempts to duplicate the performance of a specific market index. Correlation measures how closely a fund's returns match those of an index. A perfect correlation of 1.0 means that the net asset value of the fund increases or decreases in exact proportion to changes in the index. Nations LargeCap Index Fund [GRAPHIC] Investment objective The Fund seeks investment results that (before fees and expenses) correspond to the total return of the Standard & Poor's 500 Composite Stock Price Index (S&P 500). [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in common stocks that are included in the S&P 500. The S&P 500 is an unmanaged index of 500 widely held common stocks, and is not available for investment. The Fund may buy stock index futures and financial futures as substitutes for the underlying securities in the S&P 500. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Different common stocks have different weightings in the S&P 500, depending on the amount of stock outstanding and the stock's current price. In trying to match the performance of the S&P 500, the team will try to allocate the Fund's portfolio among common stocks in approximately the same weightings as the S&P 500, beginning with the most heavily weighted stocks that make up a larger portion of the value of the S&P 500. The Fund may buy shares of Bank of America Corporation, which is currently included in the S&P 500, subject to certain restrictions. The Fund tries to achieve a correlation of 0.95 with the S&P 500 on an annual basis (before fees and expenses). The Fund's ability to track the S&P 500 is affected by transaction costs and other expenses, changes in the composition of the S&P 500, changes in the number of shares issued by the companies represented in the S&P 500, and by the timing and amount of shareholder purchases and redemptions, among other things. Equity mutual funds, like other investors in equity securities, incur transaction costs, such as brokerage costs, when they buy and sell securities. The team tries to minimize these costs for the Fund by using program trades and crossing networks. The team may sell a stock when its percentage weighting in the index is reduced, when the stock is removed from the index, and for other reasons. 18 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations LargeCap Index Fund has the following risks: o Investment strategy risk - This Fund tries to match (before fees and expenses) the returns of the S&P 500, and is not actively managed. There is no assurance that the returns of the Fund will match the returns of the S&P 500. The value of the Fund will rise and fall with the performance of the S&P 500. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Futures risk - This Fund may use futures contracts as a substitute for the securities included in the index. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. 19 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1994 1995 1996 1997 1998 1999 2000 0.99% 37.02% 22.63% 32.70% 28.39% 20.66% -9.37% *Year-to-date return as of June 30, 2001: -6.86% Best and worst quarterly returns during this period Best: 4th quarter 1998: 21.13% Worst: 3rd quarter 1998: -9.84% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment. Since 1 year 5 years inception* Primary A Shares -9.37% 17.97% 17.87% S&P 500 -9.10% 18.33% 18.21% *The inception date of Primary A Shares is December 15, 1993. The return for the index shown is from that date. 20 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Other expenses 0.28% ------ Total annual Fund operating expenses 0.68% Fee waivers and/or reimbursements (0.33)% ------ Total net expenses(2) 0.35% ====== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $36 $184 $346 $815 21 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Quantitative Strategies Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 36. [GRAPHIC] What is an index fund? Index funds use a "passive" or "indexing" investment approach, which attempts to duplicate the performance of a specific market index. Correlation measures how closely a fund's returns match those of an index. A perfect correlation of 1.0 means that the net asset value of the fund increases or decreases in exact proportion to changes in the index. Nations MidCap Index Fund [GRAPHIC] Investment objective The Fund seeks investment results that (before fees and expenses) correspond to the total return of the Standard & Poor's MidCap 400 Stock Price Index (S&P MidCap 400). [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in common stocks that are included in the S&P MidCap 400. The S&P MidCap 400 is an unmanaged index of 400 domestic stocks chosen for their market size, liquidity and industry representation. The index is not available for investment. The Fund may buy stock index futures and other financial futures as substitutes for the underlying securities in the S&P MidCap 400. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Different common stocks have different weightings in the S&P MidCap 400, depending on the amount of stock outstanding and the stock's current price. In trying to match the performance of the S&P MidCap 400, the team will try to allocate the Fund's portfolio among common stocks in approximately the same weightings as the S&P MidCap 400, beginning with the most heavily weighted stocks that make up a larger portion of the value of the S&P MidCap 400. The Fund tries to achieve a correlation of at least 0.95 with the return of the S&P MidCap 400 on an annual basis (before fees and expenses). The Fund's ability to track the S&P MidCap 400 may be adversely affected by transaction costs and other expenses, changes in the composition of the S&P MidCap 400, changes in the number of shares issued by the companies represented in the S&P MidCap 400, and by the timing and amount of shareholder purchases and redemptions, among other things. Equity mutual funds, like other investors in equity securities, incur transaction costs, such as brokerage costs, when they buy and sell securities. The team tries to minimize these costs for the Fund by using electronic trading systems such as crossing networks and other trading strategies. The team may sell a stock when its percentage weighting in the index is reduced, when the stock is removed from the index, when the team believes the stock is not liquid enough, and for other reasons. 22 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations MidCap Index Fund has the following risks: o Investment strategy risk - This Fund tries to match (before fees and expenses) the returns of the S&P MidCap 400, and is not actively managed. There is no assurance that the returns of the Fund will match the returns of the S&P MidCap 400. The value of the Fund will rise and fall with the performance of the S&P MidCap 400. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Futures risk - This Fund may use futures contracts as a substitute for the securities included in the index. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. 23 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees (Fees paid directly from your investment) Primary A Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Other expenses 0.35% ------ Total annual Fund operating expenses 0.75% Fee waivers and/or reimbursements (0.40)% ------ Total net expenses(2) 0.35% ====== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $36 $200 $377 $893 24 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Quantitative Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 36. [GRAPHIC] What is an index fund? Index funds use a "passive" or "indexing" investment approach, which attempts to duplicate the performance of a specific market index. Correlation measures how closely a fund's returns match those of an index. A perfect correlation of 1.0 means that the net asset value of the fund increases or decreases in exact proportion to changes in the index. Nations SmallCap Index Fund [GRAPHIC] Investment objective The Fund seeks investment results that (before fees and expenses) correspond to the total return of the Standard & Poor's SmallCap 600 Index (S&P SmallCap 600). [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in common stocks that are included in the S&P SmallCap 600. The S&P SmallCap 600 is an unmanaged market capitalization index consisting of 600 common stocks that capture the economic and industry characteristics of small company stock performance. It is not available for investment. The Fund may buy stock index futures and other financial futures as substitutes for the underlying securities in the S&P SmallCap 600. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Different common stocks have different weightings in the S&P SmallCap 600, depending on the amount of stock outstanding and the stock's current price. In trying to match the performance of the S&P SmallCap 600, the team will try to allocate the Fund's portfolio among common stocks in approximately the same weightings as the S&P SmallCap 600, beginning with the most heavily weighted stocks that make up a larger portion of the value of the S&P SmallCap 600. The Fund tries to achieve a correlation of at least 0.95 with the S&P SmallCap 600 on an annual basis (before fees and expenses). The Fund's ability to track the S&P SmallCap 600 is affected by transaction costs and other expenses, changes in the composition of the S&P SmallCap 600, changes in the number of shares issued by the companies represented in the S&P SmallCap 600, and by the timing and amount of shareholder purchases and redemptions, among other things. Equity mutual funds, like other investors in equity securities, incur transaction costs, such as brokerage costs, when they buy and sell securities. The team tries to minimize these costs for the Fund by using program trades and crossing networks. The team may sell a stock when its percentage weighting in the index is reduced, when the stock is removed from the index, and for other reasons. 25 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations SmallCap Index Fund has the following risks: o Investment strategy risk - This Fund tries to match (before fees and expenses) the returns of the S&P SmallCap 600, and is not actively managed. There is no assurance that the returns of the Fund will match the returns of the S&P SmallCap 600. The value of the Fund will rise and fall with the performance of the S&P SmallCap 600. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Small company risk - Stocks of smaller companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains but also carry more risk. o Futures risk - This Fund may use futures contracts as a substitute for the securities included in the index. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. 26 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Prior to May 12, 2000, the Fund had a different investment objective and principal investment strategies. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand of the risks investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1997 1998 1999 2000 27.97% -1.65% 5.47% 9.47% *Year-to-date return as of June 30, 2001: 5.96% Best and worst quarterly returns during this period Best: 2nd quarter 1997: 17.64% Worst: 3rd quarter 1998: -20.83% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P SmallCap 600, an unmanaged index of 600 common stocks, weighted by market capitalization. The S&P SmallCap 600 is not available for investment. Since 1 year inception* Primary A Shares 9.47% 10.09% S&P SmallCap 600 11.80% 12.44% *The inception date of Primary A Shares is October 15, 1996. The return for the index shown is from that date. 27 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Other expenses 0.39% ------ Total annual Fund operating expenses 0.79% Fee waivers and/or reimbursements (0.39)% ------ Total net expenses(2) 0.40% ====== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $41 $213 $400 $942 28 [GRAPHIC] About the sub-advisers The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser. The Master Portfolio is a "multi-manager" fund, which means that it's managed by more than one sub-adviser. Gartmore Global Partners (Gartmore), INVESCO Global Asset Management (N.A.), Inc. (INVESCO) and Putnam Investment Management LLC (Putnam) each manage approximately one-third of the assets of the Master Portfolio. Gartmore's Global Equities Portfolio Construction Team, INVESCO's International Equity Portfolio Management Team and Putnam's Core International Equity Group make the day-to-day investment decisions for their portion of the Master Portfolio. [GRAPHIC] You'll find more about Gartmore, INVESCO and Putnam on page 38. [GRAPHIC] Why invest in an international stock fund? International stock funds invest in a diversified portfolio of companies located in markets throughout the world. These companies can offer investment opportunities that are not available in the United States. Investing internationally also involves special risks not associated with investing in the U.S. stock market. Nations International Equity Fund [GRAPHIC] Investment objective The Fund seeks long-term capital growth by investing primarily in equity securities of non-United States companies in Europe, Australia, the Far East and other regions, including developing countries. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations International Equity Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in established companies located in at least three countries other than the United States. The investment managers select countries, including emerging market or developing countries, and companies they believe have the potential for growth. The Master Portfolio primarily invests in equity securities which may include equity interests in foreign investment funds or trusts, convertible securities, real estate investment trust securities and depositary receipts. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The Master Portfolio may invest in foreign currency exchange contracts to convert foreign currencies to and from the U.S. dollar, and to hedge against changes in foreign currency exchange rates. The Master Portfolio is a "multi-manager" fund. It has three different investment managers. Each is responsible for managing approximately one-third of the Master Portfolio's assets. The managers all have different, but complementary, investment styles: o Gartmore combines "top-down," allocation among regions around the world with a stock selection process that focuses on investing in securities when growth is likely to be higher, or sustained longer, than other investors expect. o INVESCO uses a "bottom-up" approach, and favors well-established companies with above average financial strength and sustainable growth. o Putnam is a "core manager," focusing on stable, long-term investments, rather than growth or value stocks. It combines "bottom-up" stock selection with "top-down" country allocation. The multi-manager strategy is based on the belief that having more than one manager may result in better performance and more stable returns over time. A manager may sell a security when its price reaches the target set by the manager, when the company's growth prospects are deteriorating, when the manager believes other investments are more attractive, and for other reasons. 29 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations International Equity Fund has the following risks: o Investment strategy risk - The managers choose stocks they believe have the potential for long-term growth. There is a risk that the value of these investments will not rise as high as expected, or will fall. There is also a risk that the Fund's multi-manager strategy may not result in better performance or more stable returns. o Foreign investment risk - Because the Master Portfolio invests primarily in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. If the Master Portfolio invests in emerging markets there may be other risks involved, such as those of immature economies and less developed and more thinly traded securities markets. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Stock market risk - The value of the stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Futures risk - This Master Portfolio may use futures contracts to convert currencies and to hedge against changes in foreign currency exchange rates. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 30 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Primary A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1992 1993 1994 1995 1996 1997 1998 1999 2000 -8.57% 27.21% 2.60% 8.45% 8.47% 1.27% 16.46% 39.49% -15.13% *Year-to-date return as of June 30, 2001: -13.75% Best and worst quarterly returns during this period Best: 4th quarter 1999: 28.59% Worst: 3rd quarter 1998: -13.94% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the MSCI EAFE Index (Morgan Stanley Capital International Europe, Australasia and Far East Index), an unmanaged, capitalization-weighted index consisting of securities listed on exchanges in European, Australasian and Far Eastern Markets. The index is not available for investment. Since 1 year 5 years inception* Primary A Shares -15.13% 8.66% 8.18% MSCI EAFE Index -14.17% 7.13% 8.35% *The inception date of Primary A Shares is December 2, 1991. The return for the index shown is from that date. 31 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Primary A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets)(2) Management fees 0.80% Other expenses 0.35% ---- Total annual Fund operating expenses 1.15% ==== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Primary A Shares $117 $365 $633 $1,398 32 [GRAPHIC] Other important information You'll find specific information about each Fund's principal investments, strategies and risks in the descriptions starting on page 5. The following are some other risks and information you should consider before you invest: o Changing investment objectives and policies - The investment objective and certain investment policies of any Fund can be changed without shareholder approval. Other investment policies may be changed only with shareholder approval. o Holding other kinds of investments - The Funds may hold investments that aren't part of their principal investment strategies. Please refer to the SAI for more information. The portfolio managers or management team can also choose not to invest in specific securities described in this prospectus and in the SAI. o Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest up to 25% of their assets in Nations Money Market Funds. BA Advisors and its affiliates are entitled to receive fees from the Nations Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Funds for services provided directly. BA Advisors may waive fees which it is entitled to receive from either the Nations Money Market Funds or the Funds. o Foreign investment risk - Funds that invest in foreign securities may be affected by changes in currency exchange rates and the costs of converting currencies; foreign government controls on foreign investment, repatriation of capital, and currency and exchange; foreign taxes; inadequate supervision and regulation of some foreign markets; difficulty selling some investments which may increase volatility; different settlement practices or delayed settlements in some markets; difficulty getting complete or accurate information about foreign companies; less strict accounting, auditing and financial reporting standards than those in the U.S.; political, economic or social instability; and difficulty enforcing legal rights outside the U.S. If a Fund invests in emerging markets there may be other risks involved, such as those of immature economies and less developed and more thinly traded securities markets. o Investing defensively - A Fund may temporarily hold investments that are not part of its investment objective or its principal investment strategies to try to protect it during a market or economic downturn or because of political or other conditions. A Fund may not achieve its investment objective while it is investing defensively. o Securities lending program - A Fund may lend portfolio securities to approved broker-dealers or other financial institutions on a fully collateralized basis in order to earn additional income. There may be delays in receiving additional collateral after the loan is made or in recovering the securities loaned. 33 o Bank of America and its affiliates - Bank of America and its affiliates currently provide services to some or all of the Funds, including investment advisory, investment sub-advisory, co-administration, sub-transfer agency and brokerage services, and are paid for providing these services. Bank of America and its affiliates also may, at times, provide other services and be compensated for them, including transfer agency, interfund lending and securities lending services, or make loans to the Funds. Finally, Bank of America or its affiliates may serve as counterparties in transactions with Nations Funds where permitted by law or regulation, and may receive compensation in that capacity. o Portfolio turnover - A Fund that replaces -- or turns over -- more than 100% of its investments in a year is considered to trade frequently. Frequent trading can result in larger distributions of short-term capital gains to shareholders. These gains are taxable at higher rates than long-term capital gains. Frequent trading can also mean higher brokerage and other transaction costs, which could reduce the Fund's returns. The Funds generally buy securities for capital appreciation, investment income, or both, and don't engage in short-term trading. You'll find the portfolio turnover rate for each Fund in Financial highlights. 34 [GRAPHIC] How the Funds are managed [GRAPHIC] Banc of America Advisors, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Investment adviser BA Advisors is the investment adviser to over 75 mutual fund portfolios in the Nations Funds Family, including the Funds described in this prospectus. BA Advisors is a registered investment adviser. It's a wholly-owned subsidiary of Bank of America, which is owned by Bank of America Corporation. Nations Funds pay BA Advisors an annual fee for its investment advisory services. The fee is calculated as a percentage of the average daily net assets of each Fund and is paid monthly. BA Advisors uses part of this money to pay the investment sub-adviser for the services it provides to each Fund. BA Advisors has agreed to waive fees and/or reimburse expenses for certain Funds until July 31, 2002. You'll find a discussion of any waiver and/or reimbursement in the Fund descriptions. There is no assurance that BA Advisors will continue to waive and/or reimburse any fees and/or expenses after this date. The following chart shows the maximum advisory fees BA Advisors can receive, along with the actual advisory fees it received during the Funds' last fiscal year, after waivers and/or reimbursements: Annual investment advisory fee, as a % of average daily net assets Maximum Actual fee advisory paid last fee fiscal year Nations Bond Fund 0.40% 0.40% Nations Value Fund 0.65% 0.65% Nations Marsico Focused Equities Fund1 0.75% 0.75% Nations LargeCap Index Fund 0.40% 0.07% Nations MidCap Index Fund 0.40% 0.10% Nations SmallCap Index Fund 0.40% 0.02% Nations International Equity Fund(1) 0.80% 0.80% (1)These funds don't have their own investment adviser because they invest in Nations Marsico Focused Equities Master Portfolio and Nations International Equity Master Portfolio, respectively. BA Advisors is the investment adviser to each Master Portfolio. 35 Investment sub-advisers Nations Funds and BA Advisors engage one or more investment sub-advisers for each Fund to make day-to-day investment decisions for the Fund. BA Advisors retains ultimate responsibility (subject to Board oversight) for overseeing the sub-advisers and evaluates the Funds' needs and available sub-advisers' skills and abilities on an ongoing basis. Based on its evaluations, BA Advisors may at times recommend to a Fund's Board that the Fund: o change, add or terminate one or more sub-advisers; o continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or o materially change a sub-advisory agreement with a sub-adviser. Applicable law requires a Fund to obtain shareholder approval in order to act on most of these types of recommendations, even if the Fund's Board has approved the proposed action and believes that the action is in shareholders' best interests. BA Advisors and the Funds have applied for relief from the SEC to permit the Funds to act on many of BA Advisors' recommendations with approval only by the Funds' Board and not by Fund shareholders. BA Advisors or a Fund would inform the Fund's shareholders of any actions taken in reliance on this relief. Until BA Advisors and the Funds obtain the relief, each Fund will continue to submit these matters to shareholders for their approval to the extent required by applicable law. [GRAPHIC] Banc of America Capital Management, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Banc of America Capital Management, LLC BACAP is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Its management expertise covers all major domestic asset classes, including equity and fixed income securities, and money market instruments. Currently managing more than $125 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 60 funds in the Nations Funds Family. BACAP takes a team approach to investment management. Each team has access to the latest technology and analytical resources. BACAP is the investment sub-adviser to the Funds shown in the table below. The table also tells you which internal BACAP asset management team is responsible for making the day-to-day investment decisions for each Fund. Fund BACAP Team Nations Bond Fund Fixed Income Management Team Nations Value Fund Value Strategies Team Nations LargeCap Index Fund Quantitative Strategies Team Nations MidCap Index Fund Quantitative Strategies Team Nations SmallCap Index Fund Quantitative Strategies Team 36 [GRAPHIC] Marsico Capital Management, LLC 1200 17th Street Suite 1300 Denver, Colorado 80202 Marsico Capital Management, LLC Marsico Capital is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Marsico Capital is a full service investment advisory firm founded by Thomas F. Marsico in September 1997. Marsico Capital currently has over $13 billion in assets under management. Marsico Capital is the investment sub-adviser to Nations Marsico Focused Equities Master Portfolio. Thomas F. Marsico, Chairman and Chief Executive Officer of Marsico Capital, is the portfolio manager responsible for making the day-to-day investment decisions for the Master Portfolio. Mr. Marsico was an executive vice president and portfolio manager at Janus Capital Corporation from 1988 until he formed Marsico Capital in September 1997. He has more than 20 years of experience as a securities analyst and portfolio manager. Performance of another stock fund managed by Thomas Marsico Nations Marsico Focused Equities Fund has been in operation since December 31, 1997, so it has a relatively short performance history. The table below is designed to show you how a similar stock fund managed by Thomas Marsico performed in the past. The Janus Twenty Fund has an investment objective, policies and strategies that are substantially similar to Nations Marsico Focused Equities Fund. Mr. Marsico managed the Janus Twenty Fund from January 31, 1988 through August 11, 1997. He had full discretionary authority for selecting investments for that fund, which had approximately $6 billion in net assets on August 11, 1997. The table below shows the returns for the Janus Twenty Fund compared with the S&P 500 for the periods ending August 7, 1997. The returns reflect deductions of fees and expenses, and assume all dividends and distributions have been reinvested. Average annual total returns as of August 7, 1997 Janus Twenty Fund (%) S&P 500 (%) one year 48.21 46.41 three years 32.07 30.63 five years 20.02 20.98 during the period of Mr. Marsico's management (January 31, 1988 to August 7, 1997) 23.38 18.20 This information is designed to show the historical track record of Mr. Marsico. It does not indicate how the Fund has performed or will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's expenses. 37 [GRAPHIC] Gartmore Global Partners Gartmore House 8 Fenchurch Place London EC3M 4PH, England Gartmore Global Partners Gartmore is a global asset manager dedicated to serving the needs of U.S. based investors. Gartmore was formed in 1995 as a registered investment adviser and manages more than $991 million in assets. Gartmore is a general partnership which is an indirect wholly-owned subsidiary of Nationwide Mutual Insurance Company. Gartmore generally follows a growth philosophy, which is reflected in its active management of market allocation and stock selection. Gartmore is one of three investment sub-advisers to Nations International Equity Master Portfolio. Gartmore's Global Equities Portfolio Construction Team is responsible for the day-to-day investment decisions for its portion of the Master Portfolio. Christopher Palmer has been responsible since August 1999 for investments in developing countries, and has been the principal portfolio manager of Nations Emerging Markets Fund since that time. He joined Gartmore in 1995 and is a senior investment manager on the Gartmore Emerging Markets Team. Before he joined Gartmore, Mr. Palmer worked for Unifund, S.A., a private investment bank, in its Mexico City and Hong Kong offices, and managed global derivatives, credit and counterparty credit risk as vice president in the Institutional Credit Department of Bear Stearns & Co. He graduated from Colgate University in 1986 with a BA Honors degree in History and completed an MBA in Finance at New York University in 1988. Mr. Palmer was awarded the CFA designation by the Association of Investment Management and Research in 1993. [GRAPHIC] INVESCO Global Asset Management (N.A), Inc. 1360 Peachtree Street, N.E. Atlanta, Georgia 30309 INVESCO Global Asset Management (N.A.), Inc. INVESCO Global is a division of AMVESCAP PLC, a publicly traded UK financial holding company located in London. INVESCO Global is one of the three investment sub-advisers to Nations International Equity Master Portfolio. INVESCO's International Equity Portfolio Management Team is responsible for making the day-to-day investment decisions for its portion of the Master Portfolio. [GRAPHIC] Putnam Investment Management LLC One Post Office Square Boston, Massachusetts 02109 Putnam Investment Management LLC Putnam is a wholly-owned subsidiary of Putnam Investments, Inc., which, except for shares held by employees, is owned by Marsh & McLennan Companies. Putnam is one of three investment sub-advisers to Nations International Equity Master Portfolio. Putnam's Core International Equity Group is responsible for making the day-to-day investment decisions for its portion of the Master Portfolio. 38 [GRAPHIC] Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 The financial institution or intermediary that buys shares for you is also referred to as a selling or servicing agent. Selling and servicing agents include banks, brokerage firms, mutual fund dealers and other financial institutions, including affiliates of Bank of America. Other service providers The Funds are distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. BA Advisors is also co-administrator of the Funds, and assists in overseeing the administrative operations of the Funds. The Funds pay BA Advisors and Stephens a combined fee for their services, plus certain out-of-pocket expenses. The fee is calculated as an annual percentage of the average daily net assets of the Funds and is paid monthly, as follows: Government Bond Fund 0.22% Stock Funds 0.23% Index Funds 0.23% International Stock Fund 0.22% BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. [GRAPHIC] PFPC Inc. 400 Bellevue Parkway Wilmington, Delaware 19809 PFPC Inc. (PFPC) is the transfer agent for the Funds' shares. Its responsibilities include processing purchases, sales and exchanges, calculating and paying distributions, keeping shareholder records, preparing account statements and providing customer service. 39 About your investment - -------------------------------------------------------------------------------- [GRAPHIC] When you sell shares of a mutual fund, the fund is effectively "buying" them back from you. This is called a redemption. [GRAPHIC] Buying, selling and exchanging shares This prospectus offers Primary A Shares of the Funds. Here are some general rules about this class of shares: o Primary A Shares are available to certain financial institutions and intermediaries for their own accounts, and for certain client accounts for which they act as a fiduciary, agent or custodian. These include: o Bank of America and certain of its affiliates o certain other financial institutions and intermediaries, including financial planners and investment advisers o institutional investors o charitable foundations o endowments o other Funds in Nations Funds Family o The minimum initial investment is $250,000. Financial institutions or intermediaries can total the investments they make on behalf of their clients to meet the minimum initial investment amount. Client accounts for which the financial institution or intermediary no longer acts as fiduciary, agent or custodian may no longer be eligible to purchase or hold Primary A Shares. o There is no minimum amount for additional investments. o There are no sales charges for buying, selling or exchanging these shares. You'll find more information about buying, selling and exchanging Primary A Shares on the pages that follow. You should also ask your financial institution or intermediary about its limits, fees and policies for buying, selling and exchanging shares, which may be different from those described here, and about its related programs or services. The Funds also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. Please contact your investment professional, or call us at 1.800.321.7854 if you have any questions or you need help placing an order. 40 [GRAPHIC] A business day is any day that the New York Stock Exchange (NYSE) is open. A business day ends at the close of regular trading on the NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes early, the business day ends as of the time the NYSE closes. The NYSE is closed on weekends and on the following national holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. How shares are priced All transactions are based on the price of a Fund's shares -- or its net asset value per share. We calculate net asset value per share for each class of each Fund at the end of each business day. First, we calculate the net asset value for each class of a Fund by determining the value of the Fund's assets in the class and then subtracting its liabilities. Next, we divide this amount by the number of shares that investors are holding in the class. Valuing securities in a Fund The value of a Fund's assets is based on the total market value of all of the securities it holds. The prices reported on stock exchanges and securities markets around the world are usually used to value securities in a Fund. If prices aren't readily available, or the value of a security has been materially affected by events occurring after a foreign exchange closes, we'll base the price of a security on its fair market value. When a Fund uses fair value to price securities it may value those securities higher or lower than another fund that uses market quotations to price the same securities. We use the amortized cost method, which approximates market value, to value short-term investments maturing in 60 days or less. International markets may be open on days when U.S. markets are closed. The value of foreign securities owned by a Fund could change on days when Fund shares may not be bought or sold. How orders are processed Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents before the end of a business day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive that day's net asset value per share. Orders received after the end of a business day will receive the next business day's net asset value per share. The business day that applies to your order is also called the trade date. We may refuse any order to buy or exchange shares. If this happens, we'll return any money we've received. [GRAPHIC] The net asset value per share is the price of a share calculated by a Fund every business day. [GRAPHIC] Buying shares Here are some general rules for buying shares: o You buy Primary A Shares at net asset value per share. o If we don't receive payment within three business days of receiving an order, we'll refuse the order. We'll return any payment received for orders that we refuse. o Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. o Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. o Financial institutions and intermediaries are responsible for recording the beneficial ownership of the shares of their clients, and for reporting this ownership on account statements they send to their clients. 41 [GRAPHIC] Selling shares Here are some general rules for selling shares: o We normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. o If you paid for your shares with a check that wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared, whichever is later. o Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. o Under certain circumstances allowed under the Investment Company Act of 1940 (1940 Act), we can pay you in securities or other property when you sell your shares. o We can delay payment of the sale proceeds for up to seven days. o Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. We may sell your shares: o if the value of your account falls below $500. We'll give you 60 days notice in writing if we're going to do this o if a financial institution or intermediary tells us to sell your shares under arrangements made with you o under certain other circumstances allowed under the 1940 Act [GRAPHIC] You should make sure you understand the investment objective and principal investment strategies of the Fund you're exchanging into. Please read its prospectus carefully. [GRAPHIC] Exchanging shares You can sell shares of a Fund to buy shares of another Nations Fund. This is called an exchange. You might want to do this if your investment goals or tolerance for risk change. Here's how exchanges work: o You can exchange Primary A Shares of a Fund for Primary A Shares of any other Nations Fund. In some cases, the only Money Market Fund option is Trust Class Shares of Nations Reserves Money Market Funds. o The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. o You may only make exchanges into a Fund that is legally sold in your state of residence. o You generally may only make an exchange into a Fund that is accepting investments. o We may limit the number of exchanges you can make within a specified period of time. o We may change or cancel your right to make an exchange by giving the amount of notice required by regulatory authorities (generally 60 days for a material change or cancellation). 42 [GRAPHIC] Distributions and taxes [GRAPHIC] The power of compounding Reinvesting your distributions buys you more shares of a Fund -- which lets you take advantage of the potential for compound growth. Putting the money you earn back into your investment means it, in turn, may earn even more money. Over time, the power of compounding has the potential to significantly increase the value of your investment. There is no assurance, however, that you'll earn more money if you reinvest your distributions. About distributions A mutual fund can make money two ways: o It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. o A fund can also have capital gain if the value of its investments increases. If a fund sells an investment at a gain, the gain is realized. If a fund continues to hold the investment, any gain is unrealized. A mutual fund is not subject to federal income tax as long as it distributes its net investment income and realized capital gain to its shareholders. The Funds intend to pay out a sufficient amount of their income and capital gain to their shareholders so the Funds won't have to pay any federal income tax. When a Fund makes this kind of a payment, it's split among all shares, and is called a distribution. All of the Funds distribute any net realized capital gain at least once a year. The frequency of distributions of net investment income varies by Fund: Frequency of Fund income distributions Nations Bond Fund monthly Nations Value Fund monthly Nations Marsico Focused Equities Fund quarterly Nations LargeCap Index Fund quarterly Nations MidCap Index Fund quarterly Nations SmallCap Index Fund quarterly Nations International Equity Fund quarterly Any distribution you receive is based on the number of shares you hold on the record date, which is usually the day the distribution is declared (daily dividend Funds) or the day before the distribution is declared (all other Funds). Shares are eligible to receive net investment income distributions from the settlement date (daily dividend Funds), trade date (all other Funds) or realized capital gain from the trade date of the purchase up to and including the day before the shares are sold. Different share classes of a Fund usually pay different net investment income distribution amounts, because each class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. We'll automatically reinvest distributions in additional shares of the same Fund unless you tell us you want to receive your distributions in cash. You can do this by writing to us at the address on the back cover, or by calling us at 1.800.321.7854. 43 We generally pay cash distributions within five business days after the end of the month, quarter or year in which the distribution was made. If you sell all of your shares, we'll normally pay any distribution that applies to those shares in cash within five business days after the sale was made. If you buy shares of a Fund shortly before it makes a distribution, you will, in effect, receive part of your purchase back in the distribution, which is subject to tax. Similarly, if you buy shares of a Fund that holds securities with unrealized capital gain, you will, in effect, receive part of your purchase back if and when the Fund sells those securities and realizes and distributes the gain. This distribution is also subject to tax. The Funds have built up, or have the potential to build up, high levels of unrealized capital gain. [GRAPHIC] This information is a summary of how federal income taxes may affect your investment in the Funds. It is not intended as a substitute for careful tax planning. You should consult with your own tax adviser about your situation, including any foreign, state and local taxes that may apply. [GRAPHIC] For more information about taxes, please see the SAI. How taxes affect your investment Distributions that come from net investment income, net short-term capital gain and certain other items generally are taxable to you as ordinary income. A portion of such distributions to corporate shareholders may qualify for the dividends-received deduction. Distributions that come from net long-term capital gain generally are taxable to you as long-term capital gain. In general, all distributions are taxable to you when paid, whether they are paid in cash or automatically reinvested in additional shares of the Fund. However, any distributions declared to shareholders of record in October, November or December of one year and distributed in January of the following year will be taxable as if they had been paid to you on December 31 of the first year. We'll send you a notice every year that tells you how much you've received in distributions during the year and their federal tax status. Foreign, state and local taxes may also apply to these distributions. Foreign taxes Mutual funds that maintain most of their portfolio in foreign securities -- like the International Stock Fund -- have special tax considerations. You'll generally be required to: o include in your gross income your proportional amount of foreign taxes paid by the fund o treat this amount as foreign taxes you paid directly o either deduct this amount when calculating your income, or subject to certain conditions and limitations, claim this amount as a foreign tax credit against your federal income tax liability In general, if you are an individual, each year you can claim up to $300 ($600 if you're filing jointly) of foreign taxes paid (or deemed paid) by you as a foreign tax credit against your federal income tax liability. 44 U.S. government obligations If you invest in U.S. government obligations directly, interest on those obligations is free from state and local and individual income taxes. Distributions you receive that come from interest each Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. Withholding tax We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts to be paid for in securities or other property and exchanges) if: o you haven't given us a correct Taxpayer Identification Number (TIN) and haven't certified that the TIN is correct and withholding doesn't apply o the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records o the IRS informs us that you are otherwise subject to backup withholding The IRS may also impose penalties against you if you don't give us a correct TIN. Amounts we withhold are applied to your federal income tax liability. You may receive a refund from the IRS if the withholding tax results in an overpayment of taxes. We're also normally required by federal law to withhold tax on distributions (other than capital gain distributions) paid to foreign shareholders. Taxation of redemptions and exchanges Your redemptions (including redemptions paid in securities) and exchanges of Fund shares will usually result in a taxable capital gain or loss to you, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. 45 [GRAPHIC] Financial highlights The financial highlights table is designed to help you understand how the Funds have performed for the past five years or, if shorter, the period of the Fund's operations. Certain information reflects financial results for a single Fund share. The total investment return line indicates how much an investment in the Fund would have earned, assuming all dividends and distributions had been reinvested. This information has been audited by PricewaterhouseCoopers LLP. The independent accountants' report and Nations Funds financial statements are incorporated by reference into the SAI. Please see the back cover to find out how you can get a copy. 46
Nations Bond Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01 03/31/00 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 9.37 $ 9.93 $ 10.03 $ 9.62 $ 9.93 Net investment income/(loss) 0.62 0.59 0.59 0.58 0.58 Net realized and unrealized gain/(loss) on investments 0.41 (0.52) (0.04) 0.41 (0.20) Net increase in net asset value from operations 1.03 0.07 0.55 0.99 0.38 Distributions: Dividends from net investment income (0.62) (0.59) (0.59) (0.58) (0.58) Distributions from net realized capital gains -- (0.04) (0.06) -- (0.11) Distributions from capital -- -- -- -- (0.00)## Total dividends and distributions (0.62) (0.63) (0.65) (0.58) (0.69) Net asset value, end of year $ 9.78 $ 9.37 $ 9.93 $ 10.03 $ 9.62 Total return++ 11.39% 0.97% 5.61% 10.53% 3.90% ======================================================= ======== ========== ======== ========= ======== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $2,333,703 $1,793,913 $1,798,155 $1,681,990 $947,277 Ratio of operating expenses to average net assets 0.67%(a) 0.67% 0.68%(a) 0.72%(a)(b) 0.71%(a) Ratio of net investment income to average net assets 6.53% 6.20% 5.86% 5.86% 5.98% Portfolio turnover rate 120% 63% 107% 244% 368% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.67%(a) 0.69% 0.78%(a) 0.83%(a) 0.81%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01. (a) The effect of the custodial expense offset 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%.
Nations Value Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01 03/31/00# 03/31/99# 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 16.24 $ 18.16 $ 19.92 $ 17.87 $ 16.60 Net investment income/(loss) 0.17 0.11 0.13 0.20 0.26 Net realized and unrealized gain/(loss) on investments (0.42) (0.06) 0.64 5.98 2.69 Net increase/(decrease) in net asset value from operations (0.25) 0.05 0.77 6.18 2.95 Distributions: Dividends from net investment income (0.18) (0.11) (0.14) (0.19) (0.26) Distributions from net realized capital gains (3.42) (1.86) (2.39) (3.94) (1.42) Total dividends and distributions (3.60) (1.97) (2.53) (4.13) (1.68) Net asset value, end of year $ 12.39 $ 16.24 $ 18.16 $ 19.92 $ 17.87 Total return++ (1.97)% (0.16)% 4.15% 38.53% 18.07% ==================================================== ======= ========= ========= ======== ======== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $844,432 $1,290,572 $1,939,704 $2,248,460 $1,200,853 Ratio of operating expenses to average net assets 0.94%(a)(b) 0.93%(a)(b) 0.94%(a)(b) 0.95%(a) 0.97%(a) Ratio of net investment income to average net assets 1.28% 0.65% 0.76% 1.04% 1.51% Portfolio turnover rate 181% 95% 38% 79% 47% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.94%(a) 0.93%(a) 0.94%(a) 0.95%(a) 0.97%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 47
Nations Marsico Focused Equities Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Primary A Shares 03/31/01 03/31/00# 03/31/99# 03/31/98*# Operating performance: Net asset value, beginning of period $ 22.59 $ 16.69 $ 12.13 $ 10.00 Net investment income/(loss) (0.01) (0.01) (0.01) (0.01) Net realized and unrealized gain/(loss) on investments (7.13) 6.14 4.58 2.14 Net increase/(decrease) in net asset value from operations (7.14) 6.13 4.57 2.13 Distributions: Distributions from net realized capital gains (0.08) (0.23) (0.01) -- Total dividends and distributions (0.08) (0.23) (0.01) -- Net asset value, end of period $ 15.37 $ 22.59 $ 16.69 $ 12.13 Total return++ (31.67)% 37.13% 37.73% 21.30% =================================================== ======== ======= ======= ======= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $354,798 $326,745 $105,458 $8,808 Ratio of operating expenses to average net assets 1.09% 1.16%(a) 1.06%(a) 1.52%+(a) Ratio of net investment income/(loss) to average net assets (0.05)% (0.35)% 0.05% (0.30)%+ Portfolio turnover rate -- 53%(b) 177% 25% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.09% 1.16%(a) 1.06%(a) 1.52%+(a)
* Marsico Focused Equities Fund Primary A Shares commenced operations on December 31, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charge. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure.
Nations LargeCap Index Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01# 03/31/00# 03/31/99 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 28.90 $ 25.06 $ 22.41 $ 15.89 $ 13.58 Net investment income 0.24 0.26 0.26 0.27 0.26 Net realized and unrealized gain/(loss) on investments (6.55) 4.09 3.63 7.11 2.36 Net increase/(decrease) in net asset value from operations (6.31) 4.35 3.89 7.38 2.62 Distributions: Dividends from net investment income (0.24) (0.25) (0.25) (0.27) (0.26) Distributions from net realized capital gains --## (0.26) (0.99) (0.59) (0.05) Total dividends and distributions (0.24) (0.51) (1.24) (0.86) (0.31) Net asset value, end of year $ 22.35 $ 28.90 $ 25.06 $ 22.41 $ 15.89 Total return++ (21.94)% 17.58% 18.26% 47.38% 19.41% ==================================================== ========= ========= ======== ======== ======== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $2,021,690 $2,826,486 $933,313 $656,523 $567,039 Ratio of operating expenses to average net assets 0.35%(a)(b) 0.35%(a)(b) 0.35%(a) 0.35%(a) 0.35%(a) Ratio of operating expenses to average net assets including interest expense -- -- -- 0.36% -- Ratio of net investment income/(loss) to average net assets 0.88% 0.96% 1.17% 1.39% 1.91% Portfolio turnover rate 8% 7% 4% 26% 5% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.68%(a) 0.71%(a) 0.71%(a) 0.66%(a) 0.70%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset 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%. 48
Nations MidCap Index Fund For a Share outstanding throughout the period Period ended Primary A Shares 03/31/01* Operating performance: Net asset value, beginning of period $ 10.00 Net investment income 0.08 Net realized and unrealized (loss) on investments (0.72) Net (decrease) in net asset value from operations (0.64) Distributions: Dividends from net investment income (0.08) Distributions from net realized capital gains (0.89) Total dividends and distributions (0.97) Net asset value, end of period $ 8.39 Total return++ ( 7.27)% =================================================== ======= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $342,503 Ratio of operating expenses to average net assets 0.35%(a) Ratio of net operating expenses to average net assets including interest expense 0.36%(a) Ratio of net investment income to average net assets 0.82% Portfolio turnover rate 69% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.75%(a)
* MidCap Index Fund Primary A Shares commenced operations on March 31, 2000. ++ 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. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%.
For a Share outstanding throughout each period Nations SmallCap Index Fund Year ended Year ended Year ended Year ended Period ended Primary A Shares 03/31/01# 03/31/00# 03/31/99# 03/31/98 03/31/97* Operating performance: Net asset value, beginning of period $ 13.53 $ 11.04 $ 14.10 $ 9.83 $ 10.00 Net investment income 0.08 0.04 0.06 0.06 0.03 Net realized and unrealized gain/(loss) on investments (0.31) 2.49 (2.92) 4.58 (0.17) Net increase/(decrease) in net asset value from operations (0.23) 2.53 (2.86) 4.64 (0.14) Distributions: Dividends from net investment income (0.06) (0.04) (0.06) (0.06) (0.03) Distributions from net realized capital gains -- -- (0.14) (0.31) -- Total dividends and distributions (0.06) (0.04) (0.20) (0.37) (0.03) Net asset value, end of period $ 13.24 $ 13.53 $ 11.04 $ 14.10 $ 9.83 Total return++ ( 1.74)% 22.97% (20.50)% 47.71% (1.37)% ================================================ ======= ======== ======== ======= ======= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $256,465 $196,593 $189,379 $102,437 $40,851 Ratio of operating expenses to average net assets 0.41%(a)(b) 0.50%(a) 0.50%(a)(b) 0.50%(a)(b) 0.50%+ Ratio of net operating expenses to average net assets including interest expense -- 0.51%(a) -- -- -- Ratio of net investment income to average net assets 0.56% 0.35% 0.52% 0.52% 1.05%+ Portfolio turnover rate 65% 53% 65% 62% 18% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.79%(a) 0.77%(a) 0.82%(a) 1.02%(a) 1.21%+
* SmallCap Index Fund Primary A Shares commenced operations on October 15, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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% 49
Nations International Equity Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Primary A Shares 03/31/01# 03/31/00# 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $ 16.74 $ 14.12 $ 14.81 $ 13.13 $ 13.50 Net investment income 0.12 0.10 0.11 0.11 0.08 Net realized and unrealized gain/(loss) on investments (4.47) 4.91 0.39 1.95 0.11 Net increase/(decrease) in net asset value from operations (4.35) 5.01 0.50 2.06 0.19 Distributions: Dividends from net investment income (0.11) (0.06) (0.12) (0.17) (0.11) Distributions in excess of net investment income -- -- -- (0.05) (0.00)(a) Distributions from net realized capital gains (1.01) (2.33) (1.07) (0.16) (0.42) Distributions in excess of net realized capital gains (0.15) -- -- -- (0.03) Total dividends and distributions (1.27) (2.39) (1.19) (0.38) (0.56) Net asset value, end of year $ 11.12 $ 16.74 $ 14.12 $ 14.81 $ 13.13 Total return++ (27.40)% 39.85% 3.68% 16.06% 1.32% ================================================== ======== ======= ======== ======== ======== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $724,572 $866,731 $743,861 $885,329 $976,855 Ratio of operating expenses to average net assets 1.15% 1.14% 1.13% 1.14% 1.16% Ratio of net investment income to average net assets 0.89% 0.69% 0.79% 0.76% 0.62% Portfolio turnover rate -- 129%(b) 146% 64% 36% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.16% 1.18% 1.13% 1.14% 1.16%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income/(loss) has been calculated using the monthly average shares method. (a) Amount represents less than $0.01 per share. (b) Amount represents results prior to conversion to a master-feeder structure. 50 [GRAPHIC] This glossary includes explanations of the important terms that may be used in this prospectus. Some of the terms explained may apply to Nations Funds not included in this prospectus. [GRAPHIC] Terms used in this prospectus Amortized cost method - under Rule 2a-7 of the 1940 Act, the method of calculating an investment company's net asset value whereby portfolio securities are valued at the Fund's acquisition cost as adjusted for amortization of premium or accretion of discount rather than at their current market value. Asset-backed security - a debt security that gives an investor an interest in a pool of assets that is collateralized or "backed" by one or more kinds of assets, including automobile loans or credit card receivables, generally issued by banks, credit card companies or other lenders. Asset-backed securities typically make periodic payments, which may be interest or a combination of interest and a portion of the principal of the underlying assets. Average dollar-weighted maturity - the average length of time until the debt securities held by a Fund reach maturity. In general, the longer the average dollar-weighted maturity, the more a Fund's share price will fluctuate in response to changes in interest rates. Bank obligation - a money market instrument issued by a domestic or U.S. branch of a foreign bank, including certificates of deposit, time deposits and bankers' acceptances. Capital gain or loss - the difference between the purchase price of a security and its selling price. An investor realizes a capital gain when it sells a security for more than it paid for it. An investor realizes a capital loss when it sells a security for less than it paid for it. Cash equivalents - short-term, interest-bearing instruments which can easily be converted into cash, including U.S. government obligations, bank obligations, and certain asset-backed securities, foreign government securities and commercial paper issued by U.S. and foreign issuers which, at the time of investment, is rated at least Prime-2 by Moody's Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch). Collateralized mortgage obligation (CMO) - a type of mortgage-backed security. CMO payment obligations are covered by interest and/or principal payments from a pool of mortgages. In addition, the underlying assets of a CMO are typically separated into classes, called tranches, based on maturity. Each tranche pays a different rate of interest. CMOs are not generally issued by the U.S. government, its agencies or instrumentalities. Commercial paper - a short-term corporate obligation. Commercial paper is typically considered a money market instrument. Common stock - a security that represents part equity ownership in a company. Common stock typically allows an investor to vote at shareholder meetings and to share in the company's profits by receiving dividends. 51 Convertible debt - a debt security that can be exchanged for common stock (or another type of security) on a specified basis and date. Convertible security - a security that can be exchanged for common stock (or another type of security) at a specified rate. Convertible securities include convertible debt, rights and warrants. Crossing networks - an electronic system where anonymous parties can match buy and sell transactions. These transactions don't affect the market, and transaction costs are extremely low. CSFB Convertible Securities Index - 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. CSFB Global High Yield Index - the Credit Suisse First Boston Global High Yield Index is an unmanaged, trader priced portfolio constructed to mirror the high yield debt market. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Debt security - a security issued by a governmental body or company (the issuer) to help fund their operations or major projects. The issuer pays interest at a specified rate on a specified date or dates, and repays the principal when the security matures. Short-term debt securities include money market instruments such as treasury bills. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Depositary receipts - evidence of the deposit of a security with a custodian bank. American Depositary Receipts (ADRs), for example, are certificates traded in U.S. markets representing an interest of a foreign company. They were created to make it possible for foreign issuers to meet U.S. security registration requirements. Other examples include ADSs, GDRs and EDRs. Derivatives - A derivative is a financial contract whose value is based upon, or "derived" from, an underlying financial asset (such as a stock or a bond), a commodity (such as gold), a market index (such as the S&P 500) or a reference rate (such as the prime lending interest rate). Examples of derivative instruments include futures, options, index-, equity-, commodity- and currency-linked securities, warrants and swap contracts. For a detailed description of the derivatives described here, see the SAI. Diversified - A diversified fund, as defined by the 1940 Act, must have at least 75% of its total assets in cash and cash equivalents, government securities, securities of other investment companies, or other securities. For purposes of this calculation, the fund may not count securities of a single issuer that comprise more than 5% of the fund's assets. 52 Dividend yield - rate of return of dividends paid on a common or preferred stock. It equals the amount of the annual dividend on a stock expressed as a percentage of the stock's current market value. Duration - a security's or portfolio's sensitivity to changes in interest rates. For example, if interest rates rise by one percentage point, the share price of a fund with a duration of five years would decline by about 5%. If interest rates fall by one percentage point, the fund's share price would rise by about 5%. Equity security - an investment that gives an investor an equity ownership right in a company. Equity securities (or "equities") include common and preferred stock, rights and warrants. First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds and has the highest short-term rating from a nationally recognized statistical rating organization (NRSRO), or if unrated, is determined by the Fund's portfolio management team to be of comparable quality, or is a money market fund or a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Foreign security - a debt or equity security determined by a Fund's portfolio management team to be foreign based on an issuer's domicile, its principle place of business, the source of its revenues or other factors. Forward foreign currency contracts - a forward foreign currency contract includes an obligation to purchase or sell a foreign currency at a specified future date. Forward purchase agreement - a contract obligating one party to buy and another party to sell an equity security, commodity, currency or other financial instrument at a specific future date. Fundamental analysis - a method of securities analysis that tries to evaluate the intrinsic, or "true," value of a particular stock. It includes a study of the overall economy, industry conditions and the financial condition and management of a company. Futures contract - a contract to buy or sell underlying instruments at a specified price on a specified future date. The price is typically set through a futures exchange. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to NRSROs such as S&P and Moody's. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by a Fund's Board. Please see the SAI for more information about credit ratings. 53 High yield debt security - debt securities that, at the time of purchase, are rated "BB" or below by S&P or "Ba" or below by Moody's, or that are unrated and determined by the portfolio management team to be of comparable quality. Interest rate swap - an agreement between two parties to exchange periodic interest payments based on a predetermined principal amount. Investment grade - a debt security that has been given a medium to high credit rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating by other NRSROs) based on the issuer's ability to pay interest and repay principal on time. The portfolio management team may consider an unrated debt security to be investment grade if the team believes it is of comparable quality. Please see the SAI for more information about credit ratings. Lehman 3-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of two to three years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman 7-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Aggregate Bond Index - an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government Bond Index - an unmanaged index of government bonds with an average maturity of approximately nine years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government/Corporate Bond Index - an unmanaged index of U.S. government, U.S. Treasury and agency securities, and corporate and Yankee bonds. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Intermediate Government Bond Index - an unmanaged index of U.S. government agency and U.S. Treasury securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 54 Lehman Intermediate Government/Corporate Bond Index - an unmanaged index of all publicly issued investment grade corporate, U.S. Treasury, and U.S. government and agency securities with maturities of 1 to 10 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Municipal Bond Index - a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Liquidity - a measurement of how easily a security can be bought or sold at a price that is close to its market value. Merrill Lynch 1-3 Year Treasury Index - an unmanaged index of U.S. Treasury bonds with maturities of 1 to 3 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Money market instrument - a short-term debt security that is considered to mature in 13 months or less. Money market instruments include U.S. Treasury obligations, U.S. government obligations, certificates of deposit, bankers' acceptances, commercial paper, repurchase agreements and certain municipal securities. Mortgage-backed security or Mortgage-related security - a debt security that gives you an interest in, and is backed by, a pool of residential mortgages issued by the U.S. government or by financial institutions. The underlying mortgages may be guaranteed by the U.S. government or one of its agencies, authorities or instrumentalities. Mortgage-backed securities typically make monthly payments, which are a combination of interest and a portion of the principal of the underlying mortgages. MSCI EAFE Index - Morgan Stanley Capital International Europe, Australasia and Far East Index is an unmanaged, capitalization-weighted index. The index reflects the relative size of each market consisting of securities listed on exchanges in European, Australasian and Far Eastern markets and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investment. It is not available for investment. MSCI World Index - Morgan Stanley Capital International World Index is an unmanaged index consisting of securities listed on exchanges in the major European and Asian countries, Australia and the U.S. and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investing. It is not available for investment. 55 Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public or private projects and services. "General obligations" are typically backed by the issuer's full taxing and revenue-raising powers. "Revenue securities" depend on the income earned by a specific project or authority, like road or bridge tolls, user fees for water or revenues from a utility. Interest income from municipal securities that pay for "public" projects and services is exempt from federal income taxes and is generally exempt from state taxes if an investor lives in the state that issued the security. If an investor lives in the municipality that issued the security, interest income may also be exempt from local taxes. Non-diversified - a fund that holds securities of fewer issuers than other kinds of funds. Non-diversified funds tend to have greater price swings than more diversified funds because events affecting one or more of its securities may have a disproportionately large effect on the fund. NRSRO - A nationally recognized statistical rating organization, such as S&P or Moody's. Options - An option is the right to buy or sell a security based on an agreed upon price at a specified time. For example, an option may give the holder of a stock the right to sell the stock to another party, allowing the seller to profit if the price has fallen below the agreed price. Options may also be based on the movement of an index such as the S&P 500. Over-the-counter market - a market where dealers trade securities through a telephone or computer network rather than through a public stock exchange. Preferred stock - a type of equity security that gives you a limited ownership right in a company, with certain preferences or priority over common stock. Preferred stock generally pays a fixed annual dividend. If the company goes bankrupt, preferred shareholders generally receive their share of the company's remaining assets before common shareholders and after bondholders and other creditors. Ownership of preferred stock typically does not come with certain voting rights that come with common stock. Pre-refunded bond - a bond that is repaid before its maturity date. The repayment is generally financed by a new issue. Issuers generally pre-refund bonds during periods of lower interest rates to reduce their interest costs. Price-to-earnings ratio (P/E ratio) - the current price of a share divided by its actual or estimated earnings per share. The P/E ratio is one measure of the value of a company. Private placement - a private placement is the sale of stocks, bonds or other investments directly to a qualified investor without having to register the offering with the SEC or other comparable foreign regulatory authorities. Qualified investors are typically large institutional investors or high net worth individuals. Securities acquired through private placements generally may not be resold. 56 Quantitative analysis - an analysis of financial information about a company or security to identify securities that have the potential for growth or are otherwise suitable for a fund to buy. Real Estate Investment Trust (REIT) - a portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls, and real-estate-related loans or interests. Repurchase agreement - a short-term (often overnight) investment arrangement. The investor agrees to buy certain securities from the borrower and the borrower promises to buy them back at a specified date and price. The difference between the purchase price paid by the investor and the repurchase price paid by the borrower represents the investor's return. Repurchase agreements are popular because they provide low-risk returns and can allow a fund to remain fully invested. Reverse repurchase agreement - a repurchase agreement in which an investor sells a security to another party, like a bank or dealer, in return for cash, and agrees to buy the security back at a specified date and price. Reverse repurchase agreements are, in effect, loans to a fund. Right - a temporary privilege allowing investors who already own a common stock to buy additional shares directly from the company at a specified price or formula. Russell 1000 Index - 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. The Russell 3000 Index is a listing of 3000 corporations by the Frank Russell Company that is intended to be representative of the U.S. economy. The Russell 1000 is considered a "large cap" index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 2000 Index - 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. 57 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. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 3000 Growth Index - an unmanaged index comprised of securities in the Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies based on total market capitalization, with a greater than average growth orientation. Companies in the Russell 3000 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. S&P 500(1) - Standard & Poor's 500 Composite Stock Price Index, an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P/BARRA Value Index(1) - an unmanaged index of a subset of stocks from the S&P 500 that have low price-to-book ratios relative to the S&P 500 as a whole. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P/IFC Investables Index - an unmanaged index that tracks more than 1,400 stocks in 25 emerging markets in Asia, Latin America, Eastern Europe, Africa and the Middle East. The index is weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P MidCap 400(1) - an unmanaged index of 400 domestic stocks chosen for market size, liquidity and industry representation. The index is weighted by market value, and is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SmallCap 600(1) - Standard & Poor's SmallCap 600 Index, an unmanaged index of 600 common stocks, weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SuperComposite 1500(1) - an unmanaged index created by Standard & Poors combining the companies represented in three other indices -- the S&P 500, MidCap 400, and SmallCap 600. The index represents 87% of the total capitalization of U.S. equity markets. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds, but is not a first-tier security. 58 Senior security - a debt security that allows holders to receive their share of a company's remaining assets in a bankruptcy before other bondholders, creditors, and common and preferred shareholders. Settlement date - the date on which an order is settled either by payment or delivery of securities. Total return swap - an agreement between two parties to exchange periodic interest payments for the total return of an equity or fixed income instrument. Trade date - the effective date of a purchase, sale or exchange transaction, or other instructions sent to us. The trade date is determined by the day and time we receive the order or instructions in a form that's acceptable to us. U.S. government obligations - a wide range of debt securities issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities. U.S. Treasury obligation - a debt security issued by the U.S. Treasury. Warrant - a certificate that gives you the right to buy common shares at a specified price within a specified period of time. Zero-coupon bond - a bond that makes no periodic interest payments. Zero coupon bonds are sold at a deep discount to their face value and mature at face value. The difference between the face value at maturity and the purchase price represents the return. (1)S&P and BARRA have not reviewed any stock included in the S&P SuperComposite 1500, S&P 500, S&P SmallCap 600, S&P MidCap 400 Index or BARRA Value Index for its investment merit. S&P and BARRA determine and calculate their indices independently of the Funds and are not a sponsor or affiliate of the Funds. S&P and BARRA give no information and make no statements about the suitability of investing in the Funds or the ability of their indices to track stock market performance. S&P and BARRA make no guarantees about the indices, any data included in them and the suitability of the indices or their data for any purpose. "Standard and Poor's," "S&P 500" and "S&P 600" are trademarks of The McGraw-Hill Companies, Inc. 59 [GRAPHIC] Where to find more information You'll find more information about Nations Funds Government Bond, Stock, Index and International Stock Funds in the following documents: Annual and semi-annual reports The annual and semi-annual reports contain information about Fund investments and performance, the financial statements and the independent accountants' reports. The annual report also includes a discussion about the market conditions and investment strategies that had a significant effect on each Fund's performance during the period covered. [GRAPHIC] Statement of Additional Information The SAI contains additional information about the Funds and their policies. The SAI is legally part of this prospectus (it's incorporated by reference). A copy has been filed with the SEC. You can obtain a free copy of these documents, request other information about the Funds and make shareholder inquiries by contacting Nations Funds: By telephone: 1.800.321.7854 By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nations-funds.com Information about the Funds can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. The reports and other information about the Funds are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. SEC file numbers: Nations Fund Trust, 811-04305 Nations Reserves, 811-6030 Nations Funds Trust, 811-09645 BANKPROPA-8/01 [NATIONS FUNDS LOGO] [GRAPHIC] Nations LifeGoal Portfolios Prospectus -- Primary B Shares August 1, 2001 Nations LifeGoal Growth Portfolio Nations LifeGoal Balanced Growth Portfolio Nations LifeGoal Income and Growth Portfolio The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. - ----------------- Not FDIC Insured - ----------------- May Lose Value - ----------------- No Bank Guarantee - ----------------- [NATIONS FUNDS LOGO] An overview of the Portfolios - -------------------------------------------------------------------------------- [GRAPHIC] Terms used in this prospectus In this prospectus, we, us and our refer to the Nations Funds family (Nations Funds or Nations Funds Family). Some other important terms we've used may be new to you. These are printed in italics where they first appear in a section and are described in Terms used in this prospectus. [GRAPHIC] You'll find Terms used in this prospectus on page 37. Your investment in a Portfolio is not a bank deposit and is not insured or guaranteed by Bank of America, N. A. (Bank of America), the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Your investment may lose money. Affiliates of Bank of America are paid for the services they provide to the Portfolios and the underlying Funds. This booklet, which is called a prospectus, tells you about Nations LifeGoal Portfolios. Please read it carefully because it contains information that's designed to help you make informed investment decisions. Unlike traditional mutual funds, which invest in individual securities, the Portfolios invest in a mix of Nations Funds Stock, International/Global Stock, Government & Corporate Bond and Money Market Funds using an asset allocation approach. These kinds of mutual funds are sometimes called "funds of funds." About asset allocation Asset allocation is the process of creating a diversified portfolio by investing in different asset classes -- for example, equity securities, fixed income securities and money market instruments -- in varying proportions. The mix of asset classes and how much is invested in each may be the most important factor in how a Portfolio performs and the amount of risk involved. Each asset class, and market segments within a class, like large, mid- and small-capitalization stocks, has different return and risk characteristics, and reacts in different ways to changes in the economy. An investment approach that combines asset classes and market segments may help to reduce overall Portfolio volatility. About the Portfolios Each Portfolio has its own asset allocation strategy, which gives it distinctive risk/return characteristics. The performance of each Portfolio depends on many factors, including its allocation strategy and the performance of the Nations Funds it invests in. In general, the more a Nations LifeGoal Portfolio allocates to Stock and International/Global Stock Funds, the greater the potential return and the greater the risk of a decline in share price. The more a Nations LifeGoal Portfolio allocates to Government & Corporate Bond Funds, the greater the potential for price stability and the lower the potential return. There's always a risk, however, that you'll lose money or you may not earn as much as you expect. Nations LifeGoal Growth Portfolio focuses on long-term growth by normally allocating all of its assets to a mix of Funds that invest primarily in equity securities. Equities have the potential to provide higher returns than many other kinds of investments, but they also tend to have the highest risk. Nations LifeGoal Balanced Growth Portfolio focuses on long-term growth by normally allocating its assets to a balanced mix of Funds that invest in equity and fixed income securities. Fixed income securities have the potential to increase in value, because, when interest rates fall, the value of these securities tends to rise. When interest rates rise, however, the value of these securities tends to fall. Other things can also affect the value of fixed income securities. 2 Nations LifeGoal Income and Growth Portfolio focuses on current income and modest growth. It normally allocates most of its assets to Funds that invest in fixed income securities, but may also allocate some assets to Funds that invest in equity securities. Over time, the return on this Portfolio may be lower than the return on the other Portfolios. Is LifeGoal right for you? When you're choosing a Portfolio to invest in, you should consider things like your investment goals, how much risk you can accept and how long you're planning to hold your investment. Nations LifeGoal Portfolios may be suitable for you if: o you have longer-term investment goals o they're part of a balanced portfolio They may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with equity and fixed income securities o you have short-term investment goals o you're looking for a regular stream of income You'll find a discussion of each Portfolio's principal investments, strategies and risks in the Portfolio descriptions that start on page 5. For more information If you have any questions about the Portfolios, please call us at 1.800.321.7854 or contact your investment professional. You'll find more information about the Portfolios in the Statement of Additional Information (SAI). The SAI includes more detailed information about each Portfolio's investments, policies, performance and management, among other things. Please turn to the back cover to find out how you can get a copy. 3 What's inside - -------------------------------------------------------------------------------- [GRAPHIC] Banc of America Advisors, LLC Banc of America Advisors, LLC (BA Advisors) is the investment adviser to each of the Portfolios. BA Advisors is responsible for the overall management and supervision of the investment management of each Portfolio. BA Advisors and Nations Funds have engaged a sub-adviser -- Banc of America Capital Management, LLC (BACAP), which is responsible for the day-to-day investment decisions for each of the Portfolios. [GRAPHIC] You'll find more about BA Advisors and BACAP starting on page 24. [GRAPHIC] About the Portfolios Nations LifeGoal Growth Portfolio 5 Sub-adviser: BACAP - ----------------------------------------------------------- Nations LifeGoal Balanced Growth Portfolio 9 Sub-adviser: BACAP - ----------------------------------------------------------- Nations LifeGoal Income and Growth Portfolio 14 Sub-adviser: BACAP - ----------------------------------------------------------- About the Nations Funds 19 - ----------------------------------------------------------- Other important information 22 - ----------------------------------------------------------- How the Portfolios are managed 24 [GRAPHIC] About your investment Information for investors Buying, selling and exchanging shares 29 How selling and servicing agents are paid 32 Distributions and taxes 33 - ----------------------------------------------------------- Financial highlights 35 - ----------------------------------------------------------- Terms used in this prospectus 37 - ----------------------------------------------------------- Where to find more information back cover 4 [GRAPHIC] About the sub-adviser BACAP is this Portfolio's sub-adviser. BACAP's Investment Strategies Team makes the day-to-day investment decisions for the Portfolio. [GRAPHIC] You'll find more about BACAP on page 25. [GRAPHIC] About the underlying Nations Funds You'll find more information about the Funds in which the Portfolio invests, including their objectives and strategies, in About the Nations Funds and in the SAI. Nations LifeGoal Growth Portfolio [GRAPHIC] Investment objective The Portfolio seeks capital appreciation through exposure to a variety of equity market segments. [GRAPHIC] Investment strategies The Portfolio normally invests most of its assets in Primary A Shares of Nations Funds Stock and International/Global Stock Funds. The team uses asset allocation as its principal investment approach. It: o allocates assets among Fund categories, within the target allocations set for the Portfolio. It bases its allocations on the Portfolio's investment objective, historical returns for each asset class and on its outlook for the economy o chooses individual Funds within each category and the amount it will allocate to each, looking at each Fund's historical returns, as well as the expected performance of the mix of Funds o reviews the allocations to Fund categories and individual Funds at least monthly, and may change these allocations when it believes it's appropriate to do so The actual amount in each Fund or category of Funds may vary from the allocations set by the team, depending on how the Funds perform, and for other reasons. The team may use various strategies to try to manage how much the actual amount varies, and for how long. For example: o if there are more assets in a Fund category than in the target allocation, the team may allocate money coming into the Portfolio to the other Fund categories o if there are fewer assets in a Fund category than in the target allocation, it may allocate money coming into the Portfolio to that Fund category The Portfolio normally sells a proportionate amount of the shares it owns in each Nations Fund to meet its redemption requests. Nations LifeGoal Growth Portfolio Target allocation for each can invest in: Fund category: Large-capitalization stock funds 30-70% Nations Value Fund Nations Blue Chip Fund Nations Strategic Growth Fund Nations Marsico Focused Equities Fund Mid-capitalization stock fund 10-30% Nations MidCap Growth Fund Small-capitalization stock fund 10-30% Nations Small Company Fund International/Global stock funds 10-30% Nations International Value Fund Nations International Equity Fund Emerging markets stock fund 0-5% Nations Emerging Markets Fund The team can substitute or add other Funds to this list at any time, including Funds introduced after the date of this prospectus. 5 [GRAPHIC] You'll find detailed information about each Fund's investment strategies and risks in its prospectus, and in its SAI. Please call us at 1.800.321.7854 for a copy. [GRAPHIC] You'll find more about other risks of investing in this Portfolio in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations LifeGoal Growth Portfolio has the following risks: o Investment strategy risk - The team uses an asset allocation strategy to try to achieve the highest total return. There is a risk that the mix of investments will not produce the returns they expect, or that the Portfolio will fall in value. There is also the risk that the Funds the Portfolio invests in will not produce the returns the team expects, or will fall in value. o Stock market risk - The Portfolio allocates assets to Funds that invest in stocks. The value of the stocks a Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Small company risk - The Portfolio allocates assets to Funds that may invest in smaller companies. Stocks of smaller companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains, but also carry more risk. o Foreign investment risk - The Portfolio allocates assets to Funds that invest in foreign securities. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, may also apply to some foreign investments. o Emerging markets risk - The Portfolio allocates assets to Funds that invest in securities of companies in emerging markets. Securities issued by companies in developing or emerging market countries, like those in Eastern Europe, the Middle East, Asia or Africa, may be more sensitive to the risks of foreign investing. In particular, these countries may experience instability resulting from rapid social, political and economic development. Many of these countries are dependent on international trade, which makes them sensitive to world commodity prices and economic downturns in other countries. Some emerging countries have a higher risk of currency devaluation, and some countries may experience long periods of high inflation or rapid changes in inflation rates. o Technology and technology-related risk - The Portfolio allocates assets to Funds that may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. o Rebalancing policy - The actual amount in each Fund or category of Funds may vary from the allocations set by the team. This could continue for some time. 6 [GRAPHIC] Many things affect a Portfolio's performance, including market conditions, the composition of the Portfolio's holdings and Portfolio expenses. [GRAPHIC] A look at the Portfolio's performance The following bar chart and table show you how the Portfolio has performed in the past, and can help you understand the risks of investing in the Portfolio. A Portfolio's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Portfolio's Primary B Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1998 1999 2000 10.17% 25.31% 4.34% *Year-to-date return as of June 30, 2001: -9.21% Best and worst quarterly returns during this period Best: 4th quarter 1998: 23.37% Worst: 3rd quarter 1998: -16.68% [GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Portfolio's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment. Since 1 year inception* Primary B Shares 4.34% 10.77% S&P 500 -9.10% 12.24% *The inception date of Primary B Shares is September 19, 1997. The return for the index shown is from that date. 7 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a portfolio's assets and from the assets of the Nations Funds the Portfolio invests in. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Portfolio This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio. Shareholder fees (Fees paid directly from your investment) Primary B Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Portfolio operating expenses(1) (Expenses that are deducted from the Portfolio's assets) Management fees 0.25% Shareholder administration fees 0.60% ------ Total annual Portfolio operating expenses 0.85% Fee waivers and/or reimbursements (0.10)% ------ Total net expenses(2) 0.75% ====== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. This is no guarantee that these waivers and/or reimbursements will continue after this date. Indirect Expenses The Portfolio's annual operating expenses include a portion of the annual Fund operating expenses of the Nations Funds in which the Portfolio invests. This portion is estimated to be between 0.99% and 1.17% (expressed as a weighted average, including any fee waiver and/or reimbursement commitments that will expire July 31, 2002), and is based on: o the amount the Portfolio expects to invest in each Fund, based on the target allocation o each Fund's annualized expense ratio for the period ended March 31, 2001, adjusted as necessary to reflect current service provider fees [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Portfolio's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Portfolio with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary B Shares of the Portfolio for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Portfolio o your investment has a 5% return each year o the Portfolio's operating expenses remain the same as shown in the table above o the Portfolio's indirect expenses remain at the average of the range as shown above for the 1 year example, excluding any fee waivers and/or reimbursements for the 3, 5 and 10 year examples o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Primary B Shares $186 $599 $1,037 $2,255 8 [GRAPHIC] About the sub-adviser BACAP is this Portfolio's sub-adviser. BACAP's Investment Strategies Team makes the day-to-day investment decisions for the Portfolio. [GRAPHIC] You'll find more about BACAP on page 25. [GRAPHIC] About the underlying Nations Funds You'll find more information about the Funds in which the Portfolio invests, including their objectives and strategies, in About the Nations Funds and in the SAI. Nations LifeGoal Balanced Growth Portfolio [GRAPHIC] Investment objective The Portfolio seeks total return through a balanced portfolio of equity and fixed income securities. [GRAPHIC] Investment strategies The Portfolio normally invests all of its assets in Primary A Shares of a balanced mix of Nations Funds Stock and International/Global Stock and Government & Corporate Bond Funds. The team uses asset allocation as its principal investment approach. It: o allocates assets among Fund categories, within the target allocations set for the Portfolio. It bases its allocations on the Portfolio's investment objective, historical returns for each asset class and on its outlook for the economy o chooses individual Funds within each category and the amount it will allocate to each, looking at each Fund's historical returns, as well as the expected performance of the mix of Funds o reviews the allocations to Fund categories and individual Funds at least monthly, and may change these allocations when it believes it's appropriate to do so The actual amount in each Fund or category of Funds may vary from the allocations set by the team, depending on how the Funds perform, and for other reasons. The team may use various strategies to try to manage how much the actual amount varies, and for how long. For example: o if there are more assets in a Fund category than in the target allocation, the team may allocate money coming into the Portfolio to the other Fund categories o if there are fewer assets in a Fund category than in the target allocation, it may allocate money coming into the Portfolio to that Fund category The Portfolio normally sells a proportionate amount of the shares it owns in each Nations Fund to meet its redemption requests. 9 Nations LifeGoal Balanced Growth Portfolio Target allocation for each can invest in: Fund category: Large-capitalization stock funds 15-40% Nations Value Fund Nations Blue Chip Fund Nations Strategic Growth Fund Nations Marsico Focused Equities Fund Mid-capitalization stock fund 5-15% Nations MidCap Growth Fund Small-capitalization stock fund 5-15% Nations Small Company Fund International/Global stock funds 5-15% Nations International Value Fund Nations International Equity Fund Government & corporate bond funds 35-60% Nations Bond Fund International Bond Portfolio High yield bond fund 0-10% Nations High Yield Bond Fund The team can substitute or add other Funds to this list at any time, including Funds introduced after the date of this prospectus. [GRAPHIC] You'll find detailed information about each Fund's investment strategies and risks in its prospectus, and in its SAI. Please call us at 1.800.321.7854 for a copy. [GRAPHIC] You'll find more about other risks of investing in this Portfolio in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations LifeGoal Balanced Growth Portfolio has the following risks: o Investment strategy risk - The team uses an asset allocation strategy to try to achieve the highest total return. There is a risk that the mix of investments will not produce the returns they expect, or that the Portfolio will fall in value. There is also the risk that the Funds the Portfolio invests in will not produce the returns the team expects, or will fall in value. o Stock market risk - The Portfolio allocates assets to Funds that invest in stocks. The value of the stocks a Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Small company risk - The Portfolio allocates assets to Funds that may invest in smaller companies. Stocks of smaller companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains, but also carry more risk. 10 o Foreign investment risk - The Portfolio allocates assets to Funds that invest in foreign securities. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, may also apply to some foreign investments. Funds that invest in securities of companies in emerging markets have high growth potential, but can be more volatile than securities in more developed markets. o Interest rate risk - The Portfolio allocates assets to Funds that may invest in fixed income securities. The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - A Fund that invests in fixed income securities could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but generally is not a factor for U.S. government obligations. The Portfolio allocates assets to Funds that typically invest in securities that are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Technology and technology-related risk - The Portfolio allocates assets to Funds that may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. o Derivatives risk - The Portfolio allocates assets to Funds that may use derivative instruments. The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Rebalancing policy - The actual amount in each Fund or category of Funds may vary from the allocations set by the team. This could continue for some time. 11 [GRAPHIC] Many things affect a Portfolio's performance, including market conditions, the composition of the Portfolio's holdings and Portfolio expenses. [GRAPHIC] The returns shown for the indices do not reflect fees, brokerage commissions or other expenses of investing. [GRAPHIC] A look at the Portfolio's performance The following bar chart and table show you how the Portfolio has performed in the past, and can help you understand the risks of investing in the Portfolio. A Portfolio's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Portfolio's Primary B Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1998 1999 2000 11.27% 14.03% 6.69% *Year-to-date return as of June 30, 2001: -2.88% Best and worst quarterly returns during this period Best: 4th quarter 1998: 12.22% Worst: 3rd quarter 1998: -9.02% Average annual total return as of December 31, 2000 The table shows the Portfolio's average annual total return for each period, compared with the S&P 500 and the Lehman Aggregate Bond Index. The S&P 500 is an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The Lehman Aggregate Bond Index is an index of fixed income securities issued by the U.S. government and its agencies, and by corporations. The indices are not available for investment. Since 1 year inception* Primary B Shares 6.69% 9.75% S&P 500 -9.10% 11.47% Lehman Aggregate Bond Index 11.63% 6.65% *The inception date of Primary B Shares is August 4, 1997. The returns for the indices shown are from that date. 12 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a portfolio's assets and from the assets of the Nations Funds the Portfolio invests in. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Portfolio This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio. Shareholder fees (Fees paid directly from your investment) Primary B Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Portfolio operating expenses(1) (Expenses that are deducted from the Portfolio's assets) Management fees 0.25% Shareholder administration fees 0.60% ------ Total annual Portfolio operating expenses 0.85% Fee waivers and/or reimbursements (0.10)% ------ Total net expenses(2) 0.75% ====== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. This is no guarantee that these waivers and/or reimbursements will continue after this date. Indirect Expenses The Portfolio's annual operating expenses include a portion of the annual Fund operating expenses of the Nations Funds in which the Portfolio invests. This portion is estimated to be between 0.46% and 0.97% (expressed as a weighted average, including any fee waiver and/or reimbursement commitments that will expire in July 31, 2002), and is based on: o the amount the Portfolio expects to invest in each Fund, based on the target allocation o each Fund's annualized expense ratio for the period ended March 31, 2001, adjusted as necessary to reflect current service provider fees [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Portfolio's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Portfolio with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary B Shares of the Portfolio for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Portfolio o your investment has a 5% return each year o the Portfolio's operating expenses remain the same as shown in the table above o the Portfolio's indirect expenses remain at the average of the range as shown above for the 1 year example, excluding any fee waivers and/or reimbursements for the 3, 5 and 10 year examples o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Primary B Shares $149 $489 $853 $1,878 13 [GRAPHIC] About the sub-adviser BACAP is this Portfolio's sub-adviser. BACAP's Investment Strategies Team makes the day-to-day investment decisions for the Portfolio. [GRAPHIC] You'll find more about BACAP on page 25. [GRAPHIC] About the underlying Nations Funds You'll find more information about the Funds in which the Portfolio invests, including their objectives and strategies, in About the Nations Funds and in the SAI. Nations LifeGoal Income and Growth Portfolio [GRAPHIC] Investment objective The Portfolio seeks current income and modest growth to protect against inflation and to preserve purchasing power. [GRAPHIC] Investment strategies The Portfolio normally invests most of its assets in Primary A Shares of Nations Funds Government & Corporate Bond Funds, but may also invest in Nations Funds Stock and International/Global Stock Funds, and Nations Money Market Funds. The team uses asset allocation as its principal investment approach. It: o allocates assets among Fund categories, within the target allocations set for the Portfolio. It bases its allocations on the Portfolio's investment objective, historical returns for each asset class and on its outlook for the economy o chooses individual Funds within each category and the amount it will allocate to each, looking at each Fund's historical returns, as well as the expected performance of the mix of Funds o reviews the allocations to Fund categories and individual Funds at least monthly, and may change these allocations when it believes it's appropriate to do so The actual amount in each Fund or category of Funds may vary from the allocations set by the team, depending on how the Funds perform, and for other reasons. The team may use various strategies to try to manage how much the actual amount varies, and for how long. For example: o if there are more assets in a Fund category than in the target allocation, the team may allocate money coming into the Portfolio to the other Fund categories o if there are fewer assets in a Fund category than in the target allocation, it may allocate money coming into the Portfolio to that Fund category The Portfolio normally sells a proportionate amount of the shares it owns in each Nations Fund to meet its redemption requests. 14 Nations LifeGoal Income and Growth Portfolio Target allocation for each can invest in: Fund category: Large-capitalization stock funds 10-30% Nations Value Fund Nations Blue Chip Fund Nations Strategic Growth Fund Nations Marsico Focused Equities Fund Small-capitalization stock fund 0-10% Nations Small Company Fund International/Global stock funds 0-10% Nations International Value Fund Nations International Equity Fund Government & corporate bond funds 50-90% Nations Short-Term Income Fund Nations Bond Fund International Bond Portfolio High yield bond fund 0-10% Nations High Yield Bond Fund Money market fund 0-20% Nations Prime Fund Nations LifeGoal Income and Growth Portfolio's target allocation for total investments in stock and international/global stock funds is 30%. The team can substitute or add other Funds to this list at any time, including Funds introduced after the date of this prospectus. [GRAPHIC] You'll find detailed information about each Fund's investment strategies and risks in its prospectus, and in its SAI. Please call us at 1.800.321.7854 for a copy. [GRAPHIC] You'll find more about other risks of investing in this Portfolio in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations LifeGoal Income and Growth Portfolio has the following risks: o Investment strategy risk - The team uses an asset allocation strategy to try to achieve the highest total return. There is a risk that the mix of investments will not produce the returns they expect, or that the Portfolio will fall in value. There is also the risk that the Funds the Portfolio invests in will not produce the returns the team expects, or will fall in value. o Stock market risk - The Portfolio allocates assets to Funds that invest in stocks. The value of the stocks a Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Small company risk - The Portfolio allocates assets to Funds that may invest in smaller companies. Stocks of smaller companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains, but also carry more risk. 15 o Foreign investment risk - The Portfolio allocates assets to Funds that invest in foreign securities. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, may also apply to some foreign investments. Funds that invest in securities of companies in emerging markets have high growth potential, but can be more volatile than securities in more developed markets. o Interest rate risk - The Portfolio allocates assets to Funds that may invest in fixed income securities. The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - A Fund that invests in fixed income securities could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but generally is not a factor for U.S. government obligations. The Portfolio allocates assets to Funds that typically invest in securities that are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The Portfolio allocates assets to Funds that may use derivative instruments. The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Rebalancing policy - The actual amount in each Fund or category of Funds may vary from the allocations set by the team. This could continue for some time. 16 [GRAPHIC] Many things affect a Portfolio's performance, including market conditions, the composition of the Portfolio's holdings and Portfolio expenses. The returns shown are for a class not offered in this prospectus that has similar annual returns because the shares are invested in the same portfolio of securities. The annual returns differ only to the extent that the classes do not have the same expenses. [GRAPHIC] A look at the Portfolio's performance The following bar chart and table show you how the Portfolio has performed in the past, and can help you understand the risks of investing in the Portfolio. A Portfolio's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Portfolio's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1997 1998 1999 2000 8.50% 10.25% 6.15% 5.72% *Year-to-date return as of June 30, 2001: 1.03% Best and worst quarterly returns during this period Best: 4th quarter 1998: 6.25% Worst: 3rd quarter 1998: -2.38% [GRAPHIC] The returns shown for the indices do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Portfolio's average annual total return for each period, compared with the S&P 500 and the Lehman Aggregate Bond Index. The S&P 500 is an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The Lehman Aggregate Bond Index is an index of fixed income securities issued by the U.S. government and its agencies, and by corporations. The indices are not available for investment. Since 1 year inception* Investor A Shares 5.72% 7.73% S&P 500 -9.10% 17.94% Lehman Aggregate Bond Index 11.63% 7.08% *The inception date of Investor A Shares is October 15, 1996. The returns for the indices shown are from that date. 17 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a portfolio's assets and from the assets of the Nations Funds the Portfolio invests in. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Portfolio This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio. Shareholder fees (Fees paid directly from your investment) Primary B Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Portfolio operating expenses(1) (Expenses that are deducted from the Portfolio's assets) Management fees 0.25% Shareholder administration fees 0.60% ------ Total annual Portfolio operating expenses 0.85% Fee waivers and/or reimbursements (0.10)% ------ Total net expenses(2) 0.75% ====== (1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. This is no guarantee that these waivers and/or reimbursements will continue after this date. Indirect Expenses The Portfolio's annual operating expenses include a portion of the annual Fund operating expenses of the Nations Funds in which the Portfolio invests. This portion is estimated to be between 0.18% and 0.90% (expressed as a weighted average, including any fee waiver and/or reimbursement commitments that will expire July 31, 2002), and is based on: o the amount the Portfolio expects to invest in each Fund, based on the target allocation o each Fund's annualized expense ratio for the period ended March 31, 2001, adjusted as necessary to reflect current service provider fees [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Portfolio's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Portfolio with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Primary B Shares of the Portfolio for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Portfolio o your investment has a 5% return each year o the Portfolio's operating expenses remain the same as shown in the table above o the Portfolio's indirect expenses remain at the average of the range as shown above for the 1 year example, excluding any fee waivers and/or reimbursements for the 3, 5 and 10 year examples o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Primary B Shares $131 $434 $760 $1,680 18 About the Nations Funds The table starting on the next page is a brief overview of the objectives and principal investments of the underlying Nations Funds in which the Nations LifeGoal Portfolios invest. Each Portfolio invests in a different mix of Nations Funds. You'll find the mix of Nations Funds and target allocations for each Portfolio starting on page 5. The team can substitute or add other Funds to this table at any time, including Funds introduced after the date of this prospectus. For more information You'll find more detailed information about each Fund's investment strategies and risks in its prospectus and in its SAI. Please call us at 1.800.321.7854 for copies. 19
The Fund's/Portfolio's investment objective What the Fund/Portfolio invests in ------------------------------------------------ --------------------------------------------------- Stock Funds Nations Value Fund Growth of capital by investing in companies o at least 65% of its assets in common stocks of that are believed to be undervalued. U.S. companies. The Fund generally invests in companies in a broad range of industries with market capitalizations of at least $1 billion and daily trading volumes of at least $3 million - ------------------------------- ------------------------------------------------ --------------------------------------------------- Nations Blue Chip Fund Long-term capital appreciation through Nations Blue Chip Master Portfolio. The Master investments in blue chip stocks. Portfolio invests: o at least 65% of its assets in blue chip stocks o primarily in blue chip stocks that are included in the S&P 500 - ------------------------------- ------------------------------------------------ --------------------------------------------------- Nations Strategic Growth Fund Long-term, after-tax returns by investing in a At least 65% of its assets in common stocks of diversified portfolio of common stocks. companies selected from most major industry sectors - ------------------------------- ------------------------------------------------ --------------------------------------------------- Nations Marsico Focused Long-term growth of capital. Nations Marsico Focused Equities Master Portfolio. Equities Fund The Master Portfolio invests: o at least 65% of its assets in common stocks of large companies. The Master Portfolio, which is non-diversified, generally holds a core position of 20 to 30 common stocks o up to 25% of its assets in foreign securities - ------------------------------- ------------------------------------------------ --------------------------------------------------- Nations MidCap Growth Fund Capital appreciation by investing in o at least 65% of its assets in companies chosen emerging growth companies that are from a universe of medium capitalization companies. believed to have superior long-term The Fund generally holds securities of between 60 earnings growth prospects. 100 issuers, which include common stocks, preferred and stocks and convertible securities like warrants, rights and convertible debt - ------------------------------- ------------------------------------------------ --------------------------------------------------- Nations Small Company Fund Long-term capital growth by investing o at least 65% of its assets in companies with a primarily in equity securities. market capitalization of $2 billion or less. The Fund usually holds 75 to 130 equity securities - ------------------------------- ------------------------------------------------ --------------------------------------------------- International/Global Stock Funds Nations International Value Long-term capital appreciation by investing Nations International Value Master Portfolio. The Fund primarily in equity securities of foreign Master Portfolio invests: issuers, including emerging markets o at least 65% of its assets in foreign companies countries. anywhere in the world that have a market capitalization of more than $1 billion at the time of investment. The Master Portfolio typically invests in at least three countries other than the United States at any one time o primarily in common stocks, preferred stocks, convertible securities, either directly or indirectly through closed-end investment companies and depositary receipts - ------------------------------- ------------------------------------------------ --------------------------------------------------- Nations International Equity Long-term capital growth by investing Nations International Equity Master Portfolio. The Fund primarily in equity securities of non-U.S. Master Portfolio invests: companies in Europe, Australia, the Far East o at least 65% of its assets in established and other regions, including developing companies located in at least three countries other countries. than the United States. The investment managers select countries, including emerging market or developing countries, that they believe have the potential for growth o primarily in equity securities, which may include equity interests in foreign investment funds or trusts, convertible securities, real estate investment trust securities and depositary receipts - ------------------------------- ------------------------------------------------ ---------------------------------------------------
20
The Fund's/Portfolio's investment objective What the Fund/Portfolio invests in ----------------------------------------------- ---------------------------------------------------- Emerging Markets Stock Fund Nations Emerging Markets Long-term capital growth by investing o at least 65% of its assets in companies in Fund primarily in equity securities of companies emerging markets or developing countries. The Fund in emerging market countries, such as those typically invests in securities of companies in at in Latin America, Eastern Europe, the Pacific least three emerging markets countries at any one Basin, the Far East and India. time o may invest in foreign currency exchange contracts to convert foreign currencies to and from the U.S. dollar, and to hedge against changes in foreign currency exchange rates - ------------------------------- ----------------------------------------------- ---------------------------------------------------- Government & Corporate Bond Funds Nations Short-Term Income High current income consistent with o at least 65% of its total assets in investment Fund minimal fluctuations of principal. grade fixed income securities. The team may choose unrated securities if it believes they are of to investment grade securities at the time of comparable quality investment o corporate debt securities, including bonds, notes and debentures, mortgage-related securities issued by governments, asset-backed securities or U.S. government obligations - ------------------------------- ----------------------------------------------- ---------------------------------------------------- Nations Bond Fund Total return by investing in investment o at least 65% of its assets in investment grade grade fixed income securities. fixed income securities. The portfolio management team may choose unrated securities if it believes they are of comparable quality to investment grade securities at the time of investment o corporate debt securities, including bonds, notes and debentures, U.S. government obligations, foreign debt securities denominated in U.S. dollars, mortgage-related securities, asset-backed securities or municipal securities - ------------------------------- ----------------------------------------------- ---------------------------------------------------- International Bond Portfolio Maximize total return by investing in a o at least 80% of its assets in foreign bonds (which diversified portfolio of bonds of primarily may be collateralized with U.S. cash equivalents) non-U.S. issuers. o non-U.S. government and agency securities; investment grade foreign debt securities; foreign high yield securities rated at least "B" by at least one NRSRO - ------------------------------- ----------------------------------------------- ---------------------------------------------------- High Yield Bond Fund Nations High Yield Bond Fund Maximum income by investing in a Nations High Yield Bond Master Portfolio. The Master diversified portfolio of high yield debt Portfolio invests: securities. o at least 65% of its assets in domestic and foreign corporate high yield debt securities which are not rated investment grade but generally will be rated "Ba" or "B" by Moody's Investor Services, Inc. or "BB" or "B" by Standard & Poor's Corporation o primarily in U.S. government obligations, zero-coupon bonds, as well as domestic corporate high yield debt securities and U.S. dollar-denominated foreign corporate high yield debt securities, both of which include private placements o up to 25% of its assets in equity securities which may include convertible securities - ------------------------------- ----------------------------------------------- ---------------------------------------------------- Money Market Fund Nations Prime Fund Maximization of current income to the o money market instruments, including commercial extent consistent with the preservation of paper, bank obligations, short-term debt securities, capital and the maintenance of liquidity. guaranteed investment contracts, short-term taxable municipal securities, repurchase agreements secured by first-tier securities or U.S. government obligations - ------------------------------- ----------------------------------------------- ----------------------------------------------------
21 [GRAPHIC] You'll find specific information about each Portfolio's principal investments, strategies and risks in the descriptions starting on page 5. [GRAPHIC] Other important information The following are some other risks and information you should consider before you invest: o Changing investment objectives and policies - The investment objective and certain investment policies of any Portfolio or Fund can be changed without shareholder approval. Other investment policies may be changed only with shareholder approval. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. Each Portfolio may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If a Portfolio becomes a feeder fund, it will have the additional risks of investing in a master portfolio. o Holding other kinds of investments - The Portfolios or any Fund may hold investments that aren't part of their principal investment strategies. Please refer to the SAI for more information. The management team can also choose not to invest in specific securities described in this prospectus and in the SAI. o Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds and the Portfolios may invest up to 25% of their assets in Nations Money Market Funds. BA Advisors and its affiliates are entitled to receive fees from the Nations Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Funds and the Portfolios for services provided directly. BA Advisors may waive fees which it is entitled to receive from either the Nations Money Market Funds or the Funds. 22 o Foreign investment risk - Funds that invest in foreign securities may be affected by changes in currency exchange rates and the costs of converting currencies; foreign government controls on foreign investment, repatriation of capital, and currency and exchange; foreign taxes; inadequate supervision and regulation of some foreign markets; difficulties selling some investments, which may increase volatility; different settlement practices or delayed settlements in some markets; difficulty getting complete or accurate information about foreign companies; less strict accounting, auditing and financial reporting standards than those in the U.S.; political, economic or social instability; and difficulty enforcing legal rights outside the U.S. If a Fund invests in emerging markets there may be other risks involved, such as those of immature economies and less developed and more thinly traded securities markets. o Investing defensively - A Portfolio may temporarily hold up to 100% of its assets in Nations Prime Fund, a money market fund, to try to protect it during a market or economic downturn or because of political or other conditions. A Portfolio may not achieve its investment objective while it is investing defensively. o Securities lending program - A Fund may lend portfolio securities to approved broker-dealers or other financial institutions on a fully collateralized basis in order to earn additional income. There may be delays in receiving additional collateral after the loan is made or in recovering the securities loaned. o Bank of America and its affiliates - Bank of America and its affiliates currently provide services to some or all of the Portfolios and the Funds, including investment advisory, investment sub-advisory, co-administration, sub-transfer agency and brokerage services, and are paid for providing these services. Bank of America and its affiliates also may, at times, provide other services and be compensated for them, including transfer agency, interfund lending and securities lending services, or make loans to the Portfolios and the Funds. Finally, Bank of America or its affiliates may serve as counterparties in transactions with Nations Funds where permitted by law or regulation, and may receive compensation in that capacity. o Portfolio turnover - A Portfolio or Fund that replaces -- or turns over -- more than 100% of its investments in a year is considered to trade frequently. Frequent trading can result in larger distributions of short-term capital gains to shareholders. These gains are taxable at higher rates than long-term capital gains. Frequent trading can also mean higher brokerage and other transaction costs, which could reduce the Portfolio's returns. The Portfolios generally buy securities for capital appreciation, investment income, or both, and don't engage in short-term trading. You'll find the portfolio turnover rate for each Portfolio in Financial highlights. 23 [GRAPHIC] How the Portfolios are managed [GRAPHIC] Banc of America Advisors, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Investment adviser BA Advisors is the investment adviser to over 75 mutual fund portfolios in the Nations Funds Family, including the Portfolios described in this prospectus. BA Advisors is a registered investment adviser. It's a wholly-owned subsidiary of Bank of America, which is owned by Bank of America Corporation. Nations Funds pays BA Advisors an annual fee for its investment advisory services. The fee is calculated as a percentage of the average daily net assets of each Portfolio and is paid monthly. BA Advisors uses part of this money to pay the investment sub-adviser for the services it provides to each Portfolio. BA Advisors has also agreed to pay all other Portfolio expenses, except taxes, brokerage fees and commissions, extraordinary expenses, and any distribution (12b-1), shareholder servicing or shareholder administration fees. BA Advisors has agreed to waive fees and/or reimburse expenses for certain portfolios until July 31, 2002. You'll find a discussion of any waiver and/or reimbursement in the portfolio descriptions. There is no assurance that BA Advisors will continue to waive and/or reimburse any fees and/or expenses after this date. The following chart shows the maximum advisory fees BA Advisors can receive, along with the actual advisory fees it received during the Portfolios' last fiscal year: Annual investment advisory fee, as a % of average daily net assets Maximum Actual fee advisory paid last fee fiscal year Nations LifeGoal Growth Portfolio 0.25% 0.25% Nations LifeGoal Balanced Growth Portfolio 0.25% 0.25% Nations LifeGoal Income and Growth Portfolio 0.25% 0.25% 24 Investment sub-advisers Nations Funds and BA Advisors engage one or more investment sub-advisers for each Portfolio to make day-to-day investment decisions for the Portfolio. BA Advisors retains ultimate responsibility (subject to Board oversight) for overseeing the sub-advisers and evaluates the Portfolios' needs and available sub-advisers' skills and abilities on an ongoing basis. Based on its evaluations, BA Advisors may at times recommend to the Portfolio's Board that the Portfolio: o change, add or terminate one or more sub-advisers; o continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or o materially change a sub-advisory agreement with a sub-adviser. Applicable law requires a Portfolio to obtain shareholder approval in order to act on most of these types of recommendations, even if the Portfolio's Board has approved the proposed action and believes that the action is in shareholders' best interests. BA Advisors and Nations Funds have applied for relief from the SEC to permit the Portfolios to act on many of BA Advisors' recommendations with approval only by the Portfolios' Board and not by Portfolio shareholders. BA Advisors or a Portfolio would inform the Portfolio's shareholders of any actions taken in reliance on this relief. Until BA Advisors and the Portfolios obtain the relief, each Portfolio will continue to submit these matters to shareholders for their approval to the extent required by applicable law. [GRAPHIC] Banc of America Capital Management, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Banc of America Capital Management, LLC BACAP is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Its management expertise covers all major domestic asset classes, including equity and fixed income securities, and money market instruments. Currently managing more than $125 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 60 funds in the Nations Funds Family. BACAP generally takes a team approach to investment management. Each team or individual portfolio manager has access to the latest technology and analytical resources. BACAP is the investment sub-adviser to all of the LifeGoal Portfolios. BACAP's Investment Strategies Team is responsible for making the day-to-day investment decisions for each Portfolio. BACAP is also the investment sub-adviser to the Nations Funds that appear in the table below. The table tells you which internal BACAP asset management team is responsible for making the day-to-day investment decisions for each Fund. Fund BACAP Team Nations Value Fund Value Strategies Team Nations Small Company Fund SmallCap Strategies Team Nations Short-Term Income Fund Fixed Income Management Team Nations Bond Fund Fixed Income Management Team International Bond Portfolio International Team Nations Prime Fund Taxable Money Market Management Team Nations Strategic Growth Fund Growth Strategies Team Nations MidCap Growth Fund Growth Strategies Team 25 Nations Funds and BA Advisors have engaged investment sub-advisers to provide day-to-day portfolio management for the underlying Nations Funds in which the Portfolios invest. These sub-advisers function under the supervision of BA Advisors and the Boards of Nations Funds. [GRAPHIC] Marsico Capital Management, LLC 1200 17th Street Suite 1300 Denver, Colorado 80202 Marsico Capital Management, LLC Marsico Capital is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Marsico Capital is a full service investment advisory firm founded by Thomas F. Marsico in September 1977. Marsico Capital currently has over $13 billion in assets under management. Marsico Capital is the investment sub-adviser to Nations Marsico Focused Equities Master Portfolio. Thomas F. Marsico, Chairman and Chief Executive Officer of Marsico Capital, is the portfolio manager responsible for making the day-to-day investment decisions for Nations Marsico Focused Equities Master Portfolio. Mr. Marsico was an executive vice president and portfolio manager at Janus Capital Corporation from 1988 until he formed Marsico Capital in September 1997. He has more than 20 years of experience as a securities analyst and portfolio manager. [GRAPHIC] Brandes Investment Partners, L.P. 11988 El Camino Real Suite 500 San Diego, California 92130 Brandes Investment Partners, L.P. Founded in 1974, Brandes is an investment advisory firm with 56 investment professionals who manage more than $50 billion in assets. Brandes uses a value-oriented approach to managing international investments, seeking to build wealth by buying high quality, undervalued stocks. Brandes is the investment sub-adviser to Nations International Value Master Portfolio. Brandes' Large Cap Investment Committee is responsible for making the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] Chicago Equity Partners, LLC 180 North LaSalle Suite 3800 Chicago, Illinois 60601 Chicago Equity Partners, LLC Chicago Equity is a registered investment adviser and is owned by the firm's senior management. Chicago Equity is the investment sub-adviser to Nations Blue Chip Master Portfolio. Chicago Equity's Equity Management Team is responsible for making the day-to-day investment decisions for Nations Blue Chip Master Portfolio. 26 [GRAPHIC] Gartmore Global Partners Gartmore House 8 Fenchurch Place London EC3M 4PH, England Gartmore Global Partners Gartmore is a global asset manager dedicated to serving the needs of U.S. based investors. Gartmore was formed in 1995 as a registered investment adviser and manages more than $991 million in assets. Gartmore is a general partnership which is an indirect wholly-owned subsidiary of Nationwide Mutual Insurance Company. Gartmore generally follows a growth philosophy, which is reflected in its active management of market allocation and stock selection. Gartmore is co-investment sub-adviser to: o Nations International Equity Master Portfolio Gartmore is the investment sub-adviser to: o Nations Emerging Markets Fund Gartmore's Global Equities Portfolio Construction Team is responsible for the day-to-day investment decisions for its portion of the Master Portfolio. Christopher Palmer has been responsible since August 1999 for investments in developing countries, and has been the principal portfolio manager of Nations International Equity Fund since that time. He joined Gartmore in 1995 and is a senior investment manager on the Gartmore Emerging Markets Team. Before he joined Gartmore, Mr. Palmer worked for Unifund, S.A., a private investment bank, in its Mexico City and Hong Kong offices, and managed global derivatives, credit and counterparty credit risk as vice president in the Institutional Credit Department of Bear Stearns & Co. He graduated from Colgate University in 1986 with a BA Honors degree in History and completed an MBA in Finance at New York University in 1988. Mr. Palmer was awarded the CFA designation by the Association of Investment Management and Research in 1993. [GRAPHIC] INVESCO Global Asset Management (N.A), Inc. 1360 Peachtree Street, N.E. Atlanta, Georgia 30309 INVESCO Global Asset Management (N.A.), Inc. INVESCO Global is a division of AMVESCAP PLC, a publicly traded UK financial holding company located in London. INVESCO Global is one of the three investment sub-advisers to Nations International Equity Master Portfolio. INVESCO's International Equity Portfolio Management Team is responsible for making the day-to-day investment decisions for its portion of the Master Portfolio. 27 [GRAPHIC] Putnam Investment Management LLC One Post Office Square Boston, Massachusetts 02109 Putnam Investment Management LLC Putnam is a wholly-owned subsidiary of Putnam Investments, Inc., which, except for shares held by employees, is owned by Marsh & McLennan Companies. Putnam is one of three investment sub-advisers to Nations International Equity Master Portfolio. Putnam's Core International Equity Group is responsible for making the day-to-day investment decisions for its portion of the Master Portfolio. [GRAPHIC] MacKay Shields LLC 9 West 57th Street New York, New York 10019 MacKay Shields LLC Founded in 1938, MacKay Shields is an independently-managed, wholly-owned subsidiary of New York Life Insurance Company. The firm's 63 investment professionals manage more than $30 billion in assets, including over $6 billion in high yield assets. MacKay Shields' High Yield Portfolio Management Team is responsible for making the day-to-day decisions for Nations High Yield Bond Master Portfolio. [GRAPHIC] Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 Other service providers The Portfolios are distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. Stephens does not receive any fees for the administrative services it provides to the Portfolios. The Portfolios pay shareholder administration fees to BA Advisors or financial institutions for providing services to investors. BA Advisors is also co-administrator of the Portfolios, and assists in overseeing the administrative operations of the Funds. [GRAPHIC] PFPC Inc. 400 Bellevue Parkway Wilmington, Delaware 19809 PFPC Inc. (PFPC) is also the transfer agent for the Portfolios' shares. Its responsibilities include processing purchases, sales and exchanges, calculating and paying distributions, keeping shareholder records, preparing account statements and providing customer service. 28 About your investment - -------------------------------------------------------------------------------- [GRAPHIC] When you sell shares of a mutual fund, the fund is effectively "buying" them back from you. This is called a redemption. [GRAPHIC] A business day is any day that the New York Stock Exchange (NYSE) is open. A business day ends at the close of regular trading on the NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes early, the business day ends as of the time the NYSE closes. The NYSE is closed on weekends and on the following national holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. [GRAPHIC] Buying, selling and exchanging shares This prospectus offers Primary B Shares of the Portfolios. Here are some general rules about this class of shares: o Primary B Shares are generally available only to financial institutions and intermediaries that sign an account with us or Stephens. These include: o Bank of America and certain of its affiliates o brokerage firms o other financial institutions o The minimum initial investment is $1,000. o There is no minimum amount for additional investments. o There are no sales charges for buying, selling or exchanging these shares. You'll find more information about buying, selling and exchanging Primary B Shares on the pages that follow. You should also ask your financial institution or intermediary about its limits, fees and policies for buying, selling and exchanging shares, which may be different from those described here, and about its related programs or services. The Portfolios also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. Please contact your investment professional, or call us at 1.800.321.7854 if you have any questions or you need help placing an order. How shares are priced All transactions are based on the price of a Portfolio's shares -- or its net asset value per share. We calculate net asset value per share for each class of each Portfolio at the end of each business day. The net asset value per share of a Portfolio is based on the net asset value per share of the Nations Funds the Portfolio invests in. We calculate the net asset value for each class of a Fund by determining the value of the Fund's assets in the class and then subtracting its liabilities. Next, we divide this amount by the number of shares that investors are holding in the class. 29 Valuing securities in an underlying Fund The value of a Fund's assets is based on the total market value of all of the securities it holds. The prices reported on stock exchanges and securities markets around the world are usually used to value securities in a Fund. If prices aren't readily available, or the value of a security has been materially affected by events occurring after a foreign exchange closes, we'll base the price of a security on its fair value. When a Fund uses fair value to price securities it may value those securities higher or lower than another fund that uses market quotations to price the same securities. We use the amortized cost method, which approximates market value, to value short-term investments maturing in 60 days or less. International markets may be open on days when U.S. markets are closed. The value of foreign securities owned by a Fund could change on days when Fund shares may not be bought or sold. How orders are processed Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents before the end of a business day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive that day's net asset value per share. Orders received after the end of a business day will receive the next business day's net asset value per share. The business day that applies to your order is also called the trade date. We may refuse any order to buy or exchange shares. If this happens, we'll return any money we've received. [GRAPHIC] The net asset value per share is the price of a share calculated by a Portfolio every business day. [GRAPHIC] Buying shares Here are some general rules for buying shares: o You buy Primary B Shares at net asset value per share. o If we don't receive payment within three business days of receiving an order, we'll refuse the order. We'll return any payment received for orders that we refuse. o Financial institutions and intermediaries are responsible for sending orders to us and for ensuring that we receive your money on time. o Shares purchased are recorded on the books of the Portfolio. We generally don't issue certificates. o Financial institutions and intermediaries are responsible for recording the beneficial ownership of the shares of their clients, and for reporting this ownership on account statements they send to their clients. [GRAPHIC] Selling shares Here are some general rules for selling shares: o We normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. o If you paid for your shares with a check that wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared, whichever is later. 30 o Financial institutions and intermediaries are responsible for sending orders to us and for depositing the sale proceeds to your account on time. o Under certain circumstances allowed under the Investment Company Act of 1940 (1940 Act), we can pay you in securities or other property when you sell shares. o We can delay payment of the sale proceeds for up to seven days. o Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. We may sell your shares: o if the value of your account falls below $500. We'll give you 60 days notice in writing if we're going to do this o if a financial institution or intermediary tells us to sell your shares under arrangements made with you o under certain other circumstances allowed under the 1940 Act [GRAPHIC] You should make sure you understand the investment objective and principal investment strategies of the Portfolio or Fund you're exchanging into. Please read its prospectus carefully. [GRAPHIC] Exchanging shares You can sell shares of a Portfolio to buy shares of another Portfolio or Nations Fund. This is called an exchange. You might want to do this if your investment goals or tolerance for risk change. Here's how exchanges work: o You can exchange Primary B Shares of a Portfolio for Primary B Shares of any other Portfolio or Nations Fund. o The rules for buying shares of a Portfolio or Fund, including any minimum investment requirements, apply to exchanges into that Portfolio or Fund. o You may only make exchanges into a Portfolio or Fund that is legally sold in your state of residence. o You generally may only make an exchange into a Portfolio or Fund that is accepting investments. o We may limit the number of exchanges you can make within a specified period of time. o We may change or cancel your right to make an exchange by giving the amount of notice required by regulatory authorities (generally 60 days for a material change or cancellation). 31 [GRAPHIC] How selling and servicing agents are paid [GRAPHIC] The financial institution or intermediary that buys shares for you is also sometimes referred to as a selling or servicing agent. Selling and servicing agents include banks, brokerage firms, mutual fund dealers and other financial institutions, including affiliates of Bank of America. The selling agent may charge other fees for services provided to your account. Selling and servicing agents usually receive compensation when you invest in the Portfolios. The kind and amount of the compensation depends on the share class in which you invest. Selling agents typically pay a portion of the compensation they receive to their investment professionals. Shareholder administration fees BA Advisors, its affiliates and/or other financial institutions and intermediaries may receive a maximum annual shareholder administration fee of up to 0.60% of the average daily net assets of Primary B Shares of the Portfolios under a shareholder administration plan. Fees are calculated daily and paid monthly. Because these fees are paid out of the Portfolios' assets on an ongoing basis they will increase the cost of your investment over time, and may cost you more than any sales charge you may pay. The Portfolios pay these fees to eligible financial institutions for as long as the plan continues. We may reduce or discontinue payments at any time. Other compensation Selling and servicing agents may also receive non-cash compensation like trips to sales seminars or vacation destinations, tickets to sporting events, theater or other entertainment, opportunities to participate in golf or other outings and gift certificates for meals or merchandise. This compensation, which is not paid by the Portfolios, is discretionary and may be available only to selected selling and servicing agents. For example, Stephens sometimes sponsors promotions involving Banc of America Investments, Inc., an affiliate of BA Advisors, and certain other selling or servicing agents. Selected selling and servicing agents may also receive compensation for opening a minimum number of accounts. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. 32 [GRAPHIC] Distributions and taxes [GRAPHIC] The power of compounding Reinvesting your distributions buys you more shares of a Portfolio -- which lets you take advantage of the potential for compound growth. Putting the money you earn back into your investment means it, in turn, may earn even more money. Over time, the power of compounding has the potential to significantly increase the value of your investment. There is no assurance, however, that you'll earn more money if you reinvest your distributions. About distributions A mutual fund can make money two ways: o It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. o A fund can also have capital gain if the value of its investments increases. If a fund sells an investment at a gain, the gain is realized. If a fund continues to hold the investment, any gain is unrealized. A mutual fund is not subject to federal income tax as long as it distributes its net investment income and realized capital gain to its shareholders. The Portfolios intend to pay out a sufficient amount of their income and capital gain to their shareholders so the Portfolios won't have to pay any federal income tax. When a Portfolio makes this kind of a payment, it's split among all shares, and is called a distribution. All of the Portfolios distribute net investment income quarterly, and any net realized capital gain at least once a year. Any distribution you receive is paid based on the number of shares you hold on the record date, which is usually the day the distribution is declared (daily dividend Funds) or the day before the distribution is declared (all other Funds). Shares are eligible to receive net investment income distributions from the settlement date (daily dividend Funds) trade date (all other Funds) or realized capital gain from the trade date of the purchase up to and including the day before the shares are sold. Different share classes of a Portfolio usually pay different net investment income distribution amounts, because each class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. We'll automatically reinvest distributions in additional shares of the same Portfolio unless you tell us you want to receive your distributions in cash. You can do this by writing to us at the address on the back cover or by calling us at 1.800.321.7854. We generally pay cash distributions within five business days after the end of the month, quarter or year in which the distribution was made. If you sell all of your shares, we'll normally pay any distribution that applies to those shares in cash within five business days after the sale was made. If you buy shares of a Portfolio shortly before it makes a distribution, you will, in effect, receive part of your purchase back in the distribution, which is subject to tax. Similarly, if you buy shares of a Portfolio that holds securities with unrealized capital gain, you will, in effect, receive part of your purchase back if and when the Portfolio sells those securities and distributes the gain. This distribution is also subject to tax. The Portfolios have built up, or have the potential to build up, high levels of unrealized capital gain. 33 [GRAPHIC] This information is a summary of how federal income taxes may affect your investment in the Portfolios. It is not intended as a substitute for careful tax planning. You should consult with your own tax adviser about your situation, including any foreign, state and local taxes that may apply. [GRAPHIC] For more information about taxes, please see the SAI. How taxes affect your investment Distributions that come from net investment income, any net short-term capital gain and certain other items generally are taxable to you as ordinary income. A portion of such distributions to corporate shareholders may qualify for the dividends-received deduction. Distributions that come from net long-term capital gain generally are taxable to you as net long-term capital gain. In general, all distributions are taxable to you when paid, whether they are paid in cash or automatically reinvested in additional shares of the Portfolio. However, any distributions declared to shareholders of record in October, November or December of one year and distributed in January of the following year will be taxable as if they had been paid to you on December 31 of the first year. We'll send you a notice every year that tells you how much you've received in distributions during the year and their federal tax status. Foreign, state and local taxes may also apply to these distributions. U.S. government obligations If you invest in U.S. government obligations directly, interest on those obligations is free from state and local and individual income taxes. Distributions you receive that come from interest each Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. Withholding tax We're required by federal law to withhold tax of 31% on any distributions and redemption proceeds paid to you (including amounts to be paid for in securities or other property and exchanges) if: o you haven't given us a correct Taxpayer Identification Number (TIN) and haven't certified that the TIN is correct and withholding doesn't apply o the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records o the IRS informs us that you are otherwise subject to backup withholding The IRS may also impose penalties against you if you don't give us a correct TIN. Amounts we withhold are applied to your federal income tax liability. You may receive a refund from the IRS if the withholding tax results in an overpayment of taxes. We're also normally required by federal law to withhold tax on distributions (other than capital gain distributions) paid to foreign shareholders. Taxation of redemptions and exchanges Your redemptions (including redemptions paid in securities) and exchanges of Portfolio or Fund shares will usually result in a taxable capital gain or loss to you, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. 34 [GRAPHIC] Financial highlights The financial highlights table is designed to help you understand how the Portfolios have performed for the past five years or, if shorter, the period of the Portfolio's operations. Certain information reflects financial results for a single Portfolio share. The total investment return line indicates how much an investment in the Portfolio would have earned, assuming all dividends and distributions had been reinvested. Financial highlights for Primary B Shares of Nations LifeGoal Income and Growth Portfolio are not provided because this class of shares had not yet commenced operations during the period indicated. This information has been audited by PricewaterhouseCoopers LLP. The independent accountants' report and Nations Funds financial statements are incorporated by reference into the SAI. Please see the back cover to find out how you can get a copy. 35
Nations LifeGoal Growth Portfolio For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Primary B Shares 03/31/01 03/31/00# 03/31/99 03/31/98*# Operating performance: Net asset value, beginning of period $ 15.43 $ 12.14 $ 12.49 $ 12.25 Net investment income/(loss) 0.11 (0.02) 0.00 0.01 Net realized and unrealized gain/(loss) on investments (2.31) 3.86 0.30 0.70 Net increase/(decrease) in net assets resulting from investment operations (2.20) 3.84 0.30 0.71 Distributions: Dividends from net investment income (0.02) -- -- (0.01) Distributions in excess of net investment income -- (0.16) (0.05) (0.25) Distributions from net realized capital gains (2.85) (0.39) (0.60) (0.21) Total dividends and distributions (2.87) (0.55) (0.65) (0.47) Net asset value, end of period $ 10.36 $ 15.43 $ 12.14 $ 12.49 Total return++ (16.64)% 32.40% 2.58% 6.24% ===================================================== ======== ======= ======= ======= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $ 7 $ 9 $ 7 $ 6 Ratio of operating expenses to average net assets+++ 0.75% 0.75% 0.75% 0.75%+ Ratio of net investment income/(loss) to average net assets 0.31% (0.16)% (0.04)% 0.15%+ Portfolio turnover rate 58% 161% 159% 69% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements+++ 0.85% -- -- --
* Nations LifeGoal Growth Portfolio Primary B Shares commenced investment operations on September 19, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated and does not reflect the deduction of any applicable sales charges. +++ The Portfolio's expenses do not include the expenses of the underlying Funds. # Per share net investment income has been calculated using the monthly average shares method.
Nations LifeGoal Balanced Growth Portfolio For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Primary B Shares 03/31/01 03/31/00# 03/31/99 03/31/98*# Operating performance: Net asset value, beginning of period $ 11.99 $ 10.82 $ 10.94 $ 10.95 Net investment income 0.37 0.32 0.23 0.16 Net realized and unrealized gain/(loss) on investments ( 0.70) 1.52 0.20 0.77 Net increase/(decrease) in net assets resulting from investment operations ( 0.33) 1.84 0.43 0.93 Distributions: Dividends from net investment income ( 0.37) ( 0.34) ( 0.22) ( 0.20) Distributions in excess of net investment income -- ( 0.04) -- ( 0.24) Distributions from net realized capital gains ( 0.95) ( 0.29) ( 0.33) ( 0.50) Total dividends and distributions ( 1.32) ( 0.67) ( 0.55) ( 0.94) Net asset value, end of period $ 10.34 $ 11.99 $ 10.82 $ 10.94 Total return++ ( 2.85)% 17.73% 4.15% 9.24% ===================================================== ======= ======= ======= ======= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $ 326 $ 322 $ 276 $ 26 Ratio of operating expenses to average net assets+++ 0.75% 0.75% 0.75% 0.75%+ Ratio of net investment income to average net assets 3.19% 2.87% 2.27% 2.37%+ Portfolio turnover rate 106% 124% 121% 94% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements+++ 0.85% -- -- --
* Nations LifeGoal Balanced Growth Portfolio Primary B Shares commenced investment operations on August 4, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated and does not reflect the deduction of any applicable sales charges. +++ The Portfolio's expenses do not include the expenses of the underlying Funds. # Per share net investment income has been calculated using the monthly average shares method. 36 [GRAPHIC] This glossary includes explanations of the important terms that may be used in this prospectus. Some of the terms explained may apply to Nations Funds not included in this prospectus. [GRAPHIC] Terms used in this prospectus Amortized cost method - under Rule 2a-7 of the 1940 Act, the method of calculating an investment company's net asset value whereby portfolio securities are valued at the Fund's acquisition cost as adjusted for amortization of premium or accretion of discount rather than at their current market value. Asset-backed security - a debt security that gives an investor an interest in a pool of assets that is collateralized or "backed" by one or more kinds of assets, including automobile loans or credit card receivables, generally issued by banks, credit card companies or other lenders. Asset-backed securities typically make periodic payments, which may be interest or a combination of interest and a portion of the principal of the underlying assets. Average dollar-weighted maturity - the average length of time until the debt securities held by a Fund reach maturity. In general, the longer the average dollar-weighted maturity, the more a Fund's share price will fluctuate in response to changes in interest rates. Bank obligation - a money market instrument issued by a domestic or U.S. branch of a foreign bank, including certificates of deposit, time deposits and bankers' acceptances. Capital gain or loss - the difference between the purchase price of a security and its selling price. An investor realizes a capital gain when it sells a security for more than it paid for it. An investor realizes a capital loss when it sells a security for less than it paid for it. Cash equivalents - short-term, interest-bearing instruments which can easily be converted into cash, including U.S. government obligations, bank obligations, and certain asset-backed securities, foreign government securities and commercial paper issued by U.S. and foreign issuers which, at the time of investment, is rated at least Prime-2 by Moody's Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch). Collateralized mortgage obligation (CMO) - a type of mortgage-backed security. CMO payment obligations are covered by interest and/or principal payments from a pool of mortgages. In addition, the underlying assets of a CMO are typically separated into classes, called tranches, based on maturity. Each tranche pays a different rate of interest. CMOs are not generally issued by the U.S. government, its agencies or instrumentalities. Commercial paper - a short-term corporate obligation. Commercial paper is typically considered a money market instrument. Common stock - a security that represents part equity ownership in a company. Common stock typically allows an investor to vote at shareholder meetings and to share in the company's profits by receiving dividends. 37 Convertible debt - a debt security that can be exchanged for common stock (or another type of security) on a specified basis and date. Convertible security - a security that can be exchanged for common stock (or another type of security) at a specified rate. Convertible securities include convertible debt, rights and warrants. Crossing networks - an electronic system where anonymous parties can match buy and sell transactions. These transactions don't affect the market, and transaction costs are extremely low. Debt security - a security issued by a governmental body or company (the issuer) to help fund their operations or major projects. The issuer pays interest at a specified rate on a specified date or dates, and repays the principal when the security matures. Short-term debt securities include money market instruments such as treasury bills. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Depositary receipts - evidence of the deposit of a security with a custodian bank. American Depositary Receipts (ADRs), for example, are certificates traded in U.S. markets representing an interest of a foreign company. They were created to make it possible for foreign issuers to meet U.S. security registration requirements. Other examples include ADSs, GDRs and EDRs. Derivatives - A derivative is a financial contract whose value is based upon, or "derived" from, an underlying financial asset (such as a stock or a bond), a commodity (such as gold), a market index (such as the S&P 500) or a reference rate (such as the prime lending interest rate). Examples of derivative instruments include futures, options, index-, equity-, commodity- and currency-linked securities, warrants and swap contracts. For a detailed description of the derivatives described here, see the SAI. Diversified - A diversified fund, as defined by the 1940 Act, must have at least 75% of its total assets in cash and cash equivalents, government securities, securities of other investment companies, or other securities. For purposes of this calculation, the fund may not count securities of a single issuer that comprise more than 5% of the fund's assets. Dividend yield - rate of return of dividends paid on a common or preferred stock. It equals the amount of the annual dividend on a stock expressed as a percentage of the stock's current market value. Duration - a security's or portfolio's sensitivity to changes in interest rates. For example, if interest rates rise by one percentage point, the share price of a fund with a duration of five years would decline by about 5%. If interest rates fall by one percentage point, the fund's share price would rise by about 5%. Equity security - an investment that gives an investor an equity ownership right in a company. Equity securities (or "equities") include common and preferred stock, rights and warrants. 38 First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds and has the highest short-term rating from a nationally recognized statistical rating organization (NRSRO), or if unrated, is determined by the Fund's portfolio management team to be of comparable quality, or is a money market fund or a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Foreign security - a debt or equity security determined by a Fund's portfolio management team to be foreign based on an issuer's domicile, its principle place of business, the source of its revenues or other factors. Forward foreign currency contracts - a forward foreign currency contract includes an obligation to purchase or sell a foreign currency at a specified future date. Forward purchase agreement - a contract obligating one party to buy and another party to sell an equity security, commodity, currency or other financial instrument at a specific future date. Fundamental analysis - a method of securities analysis that tries to evaluate the intrinsic, or "true," value of a particular stock. It includes a study of the overall economy, industry conditions and the financial condition and management of a company. Futures contract - a contract to buy or sell underlying instruments at a specified price on a specified future date. The price is typically set through a futures exchange. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to NRSROs such as S&P and Moody's. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by a Fund's Board. Please see the SAI for more information about credit ratings. High yield debt security - debt securities that, at the time of purchase, are rated "BB" or below by S&P or "Ba" or below by Moody's, or that are unrated and determined by the portfolio management team to be of comparable quality. Interest rate swap - an agreement between two parties to exchange periodic interest payments based on a predetermined principal amount. Investment grade - a debt security that has been given a medium to high credit rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating by other NRSROs) based on the issuer's ability to pay interest and repay principal on time. The portfolio management team may consider an unrated debt security to be investment grade if the team believes it is of comparable quality. Please see the SAI for more information about credit ratings. 39 Lehman Aggregate Bond Index - an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government/Corporate Bond Index - an unmanaged index of U.S. government, U.S. Treasury and agency securities, and corporate and Yankee bonds. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Liquidity - a measurement of how easily a security can be bought or sold at a price that is close to its market value. Merrill Lynch 1-3 Year Treasury Index - an unmanaged index of U.S. Treasury bonds with maturities of 1 to 3 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Money market instrument - a short-term debt security that is considered to mature in 13 months or less. Money market instruments include U.S. Treasury obligations, U.S. government obligations, certificates of deposit, bankers' acceptances, commercial paper, repurchase agreements and certain municipal securities. Mortgage-backed security or Mortgage-related security - a debt security that gives you an interest in, and is backed by, a pool of residential mortgages issued by the U.S. government or by financial institutions. The underlying mortgages may be guaranteed by the U.S. government or one of its agencies, authorities or instrumentalities. Mortgage-backed securities typically make monthly payments, which are a combination of interest and a portion of the principal of the underlying mortgages. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public or private projects and services. "General obligations" are typically backed by the issuer's full taxing and revenue-raising powers. "Revenue securities" depend on the income earned by a specific project or authority, like road or bridge tolls, user fees for water or revenues from a utility. Interest income from municipal securities that pay for "public" projects and services is exempt from federal income taxes and is generally exempt from state taxes if an investor lives in the state that issued the security. If an investor lives in the municipality that issued the security, interest income may also be exempt from local taxes. Non-diversified - a fund that holds securities of fewer issuers than other kinds of funds. Non-diversified funds tend to have greater price swings than more diversified funds because events affecting one or more of its securities may have a disproportionately large effect on the fund. NRSRO - A nationally recognized statistical rating organization, such as S&P or Moody's. 40 Options - An option is the right to buy or sell a security based on an agreed upon price at a specified time. For example, an option may give the holder of a stock the right to sell the stock to another party, allowing the seller to profit if the price has fallen below the agreed price. Options may also be based on the movement of an index such as the S&P 500. Over-the-counter market - a market where dealers trade securities through a telephone or computer network rather than through a public stock exchange. Preferred stock - a type of equity security that gives you a limited ownership right in a company, with certain preferences or priority over common stock. Preferred stock generally pays a fixed annual dividend. If the company goes bankrupt, preferred shareholders generally receive their share of the company's remaining assets before common shareholders and after bondholders and other creditors. Ownership of preferred stock typically does not come with certain voting rights that come with common stock. Pre-refunded bond - a bond that is repaid before its maturity date. The repayment is generally financed by a new issue. Issuers generally pre-refund bonds during periods of lower interest rates to reduce their interest costs. Price-to-earnings ratio (P/E ratio) - the current price of a share divided by its actual or estimated earnings per share. The P/E ratio is one measure of the value of a company. Private placement - a private placement is the sale of stocks, bonds or other investments directly to a qualified investor without having to register the offering with the SEC or other comparable foreign regulatory authorities. Qualified investors are typically large institutional investors or high net worth individuals. Securities acquired through private placements generally may not be resold. Quantitative analysis - an analysis of financial information about a company or security to identify securities that have the potential for growth or are otherwise suitable for a fund to buy. Real Estate Investment Trust (REIT) - a portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls, and real-estate-related loans or interests. Repurchase agreement - a short-term (often overnight) investment arrangement. The investor agrees to buy certain securities from the borrower and the borrower promises to buy them back at a specified date and price. The difference between the purchase price paid by the investor and the repurchase price paid by the borrower represents the investor's return. Repurchase agreements are popular because they provide low-risk returns and can allow a fund to remain fully invested. Reverse repurchase agreement - a repurchase agreement in which an investor sells a security to another party, like a bank or dealer, in return for cash, and agrees to buy the security back at a specified date and price. Reverse repurchase agreements are, in effect, loans to a fund. 41 Right - a temporary privilege allowing investors who already own a common stock to buy additional shares directly from the company at a specified price or formula. S&P 500(1) - Standard & Poor's 500 Composite Stock Price Index, an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds, but is not a first-tier security. Senior security - a debt security that allows holders to receive their share of a company's remaining assets in a bankruptcy before other bondholders, creditors, and common and preferred shareholders. Settlement date - the date on which an order is settled either by payment or delivery of securities. Total return swap - an agreement between two parties to exchange periodic interest payments for the total return of an equity or fixed income instrument. Trade date - the effective date of a purchase, sale or exchange transaction, or other instructions sent to us. The trade date is determined by the day and time we receive the order or instructions in a form that's acceptable to us. U.S. government obligations - a wide range of debt securities issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities. U.S. Treasury obligation - a debt security issued by the U.S. Treasury. Warrant - a certificate that gives you the right to buy common shares at a specified price within a specified period of time. Zero-coupon bond - a bond that makes no periodic interest payments. Zero coupon bonds are sold at a deep discount to their face value and mature at face value. The difference between the face value at maturity and the purchase price represents the return. (1)S&P has not reviewed any stock included in the S&P 500 for its investment merit. S&P determines and calculates its index independently of the Portfolios and is not a sponsor or affiliate of the Portfolios. S&P gives no information and makes no statements about the suitability of investing in the Portfolios or the ability of its index to track stock market performance. S&P makes no guarantees about the index, any data included in it and the suitability of the index or its data for any purpose. "Standard and Poor's" and "S&P 500" are trademarks of The McGraw-Hill Companies, Inc. 42 (THIS PAGE INTENTIONALLY LEFT BLANK) [GRAPHIC] Where to find more information You'll find more information about Nations LifeGoal Portfolios in the following documents: Annual and semi-annual reports The annual and semi-annual reports contain information about Portfolio investments and performance, the financial statements and the independent accountants' reports. The annual report also includes a discussion about the market conditions and investment strategies that had a significant effect on each Portfolio's performance during the period covered. [GRAPHIC] Statement of Additional Information The SAI contains additional information about the Portfolios and their policies. The SAI is legally part of this prospectus (it's incorporated by reference). A copy has been filed with the SEC. You can obtain a free copy of these documents, request other information about the Portfolios and make shareholder inquiries by contacting Nations Funds: By telephone: 1.800.321.7854 By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nations-funds.com Information about the Portfolios can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. The reports and other information about the Portfolios are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. SEC file number: Nations Funds Trust, 811-09645 LGPROPB-8/01 [NATIONS FUNDS LOGO] [GRAPHIC OMITTED] Prospectus Investor A, B and C Shares August 1, 2001 Stock Funds Nations Convertible Securities Fund Nations Asset Allocation Fund Nations Equity Income Fund Nations Classic Value Fund Nations Value Fund Nations Blue Chip Fund Nations Strategic Growth Fund Nations Marsico Growth & Income Fund Nations Capital Growth Fund Nations Aggressive Growth Fund Nations Marsico Focused Equities Fund Nations MidCap Growth Fund Nations Marsico 21st Century Fund Nations Small Company Fund Nations Financial Services Fund International/Global Stock Funds Nations Global Value Fund Nations International Value Fund Nations International Equity Fund Nations Marisco International Opportunities Fund Nations Emerging Markets Fund Index Funds Nations LargeCap Index Fund Nations MidCap Index Fund Nations SmallCap Index Fund Nations Managed Index Fund Government & Corporate Bond Funds Nations Short-Term Income Fund Nations Short-Intermediate Government Fund Nations Government Securities Fund Nations Intermediate Bond Fund Nations Bond Fund Nations Strategic Income Fund Nations High Yield Bond Fund Municipal Bond Funds Nations Short-Term Municipal Income Fund Nations Intermediate Municipal Bond Fund Nations Municipal Income Fund The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. - ------------------- Not FDIC Insured - ------------------- May Lose Value - ------------------- No Bank Guarantee - ------------------- [NATIONS FUNDS LOGO] An overview of the Funds - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] Terms used in this prospectus In this prospectus, we, us and our refer to the Nations Funds family (Nations Funds or Nations Funds Family). Some other important terms we've used may be new to you. These are printed in italics where they first appear in a section and are described in Terms used in this prospectus. [GRAPHIC OMITTED] You'll find Terms used in this prospectus on page 260. Your investment in these Funds is not a bank deposit and is not insured or guaranteed by Bank of America, N.A. (Bank of America), the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Your investment may lose money. Affiliates of Bank of America are paid for the services they provide to the Funds. This booklet, which is called a prospectus, tells you about five types of Nations Funds -- Stock, International/Global Stock, Index, Government & Corporate Bond and Municipal Bond Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. About the Funds Each type of Fund has a different investment focus: o Stock Funds invest primarily in equity securities of U.S. companies. Within the Stock Funds category is Nations Asset Allocation Fund. This Fund invests in a mix of equity and fixed income securities, as well as money market instruments. o International Stock Funds invest primarily in equity securities of companies outside the U.S. o The Global Stock Fund invests primarily in equity securities of U.S. and non-U.S. companies. o Index Funds focus on long-term growth. Except for Nations Managed Index Fund, they all seek to match the industry and risk characteristics of a specific stock market index, like the S&P 500, by investing primarily in the equity securities that are included in the index. While maintaining the characteristics of the index, Nations Managed Index Fund varies the number, type and weighting of its holdings from those of the index to try to provide higher returns. o Government & Corporate Bond Funds focus on the potential to earn income by investing primarily in fixed income securities. o Municipal Bond Funds focus on the potential to earn income that is generally free from federal income tax by investing primarily in municipal securities. The Funds also have different risk/return characteristics because they invest in different kinds of securities. Equity securities have the potential to provide you with higher returns than many other kinds of investments, but they also tend to have the highest risk. Foreign securities also involve special risks not associated with investing in the U.S. stock market, which you need to be aware of before you invest. Fixed income securities and municipal securities have the potential to increase in value because when interest rates fall, the value of these securities tends to rise. When interest rates rise, however, the value of these securities tends to fall. Other things can also affect the value of fixed income securities and municipal securities. In every case, there's a risk that you'll lose money or you may not earn as much as you expect. 2 Choosing the right Funds for you Not every Fund is right for every investor. When you're choosing a Fund to invest in, you should consider things like your investment goals, how much risk you can accept and how long you're planning to hold your investment. The Stock, International/Global Stock and Index Funds all focus on long-term growth. They may be suitable for you if: o you have longer-term investment goals o they're part of a balanced portfolio o you want to try to protect your portfolio against a loss of buying power that inflation can cause over time They may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with equity securities, including foreign securities o you have short-term investment goals o you're looking for a regular stream of income The Government & Corporate Bond and Municipal Bond Funds focus on the potential to earn income. They may be suitable for you if: o you're looking for income o you have longer-term investment goals The Municipal Bond Funds may be suitable if you also want to reduce taxes on your investment income. The Government & Corporate Bond and Municipal Bond Funds may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with fixed income securities You'll find a discussion of each Fund's principal investments, strategies and risks in the Fund descriptions that start on page 7. For more information If you have any questions about the Funds, please call us at 1.800.321.7854 or contact your investment professional. You'll find more information about the Funds in the Statement of Additional Information (SAI). The SAI includes more detailed information about each Fund's investments, policies, performance and management, among other things. Please turn to the back cover to find out how you can get a copy. 3 What's inside - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] Banc of America Advisors, LLC Banc of America Advisors, LLC (BA Advisors) is the investment adviser to each of the Funds. BA Advisors is responsible for the overall management and supervision of the investment management of each Fund. BA Advisors and Nations Funds have engaged sub-advisers, which are responsible for the day-to-day investment decisions for each of the Funds. [GRAPHIC OMITTED] You'll find more about BA Advisors and the sub-advisers starting on page 173. [GRAPHIC OMITTED] About the Funds Nations Convertible Securities Fund 7 Sub-adviser: Banc of America Capital Management, LLC - ---------------------------------------------------------- Nations Asset Allocation Fund 12 Sub-advisers: Banc of America Capital Management, LLC and Chicago Equity Partners, LLC - ---------------------------------------------------------- Nations Equity Income Fund 18 Sub-adviser: Banc of America Capital Management, LLC - ---------------------------------------------------------- Nations Classic Value Fund 23 Sub-adviser: Brandes Investment Partners, L.P. - ---------------------------------------------------------- Nations Value Fund 27 Sub-adviser: Banc of America Capital Management, LLC - ---------------------------------------------------------- Nations Blue Chip Fund 32 Sub-adviser: Chicago Equity Partners, LLC - ---------------------------------------------------------- Nations Strategic Growth Fund 37 Sub-adviser: Banc of America Capital Management, LLC - ---------------------------------------------------------- Nations Marsico Growth & Income Fund 42 Sub-adviser: Marsico Capital Management, LLC - ---------------------------------------------------------- Nations Capital Growth Fund 47 Sub-adviser: Banc of America Capital Management, LLC - ---------------------------------------------------------- Nations Aggressive Growth Fund 52 Sub-adviser: Banc of America Capital Management, LLC - ---------------------------------------------------------- Nations Marsico Focused Equities Fund 57 Sub-adviser: Marsico Capital Management, LLC - ---------------------------------------------------------- Nations MidCap Growth Fund 62 Sub-adviser: Banc of America Capital Management, LLC - ---------------------------------------------------------- Nations Marsico 21st Century Fund 67 Sub-adviser: Marsico Capital Management, LLC - ---------------------------------------------------------- Nations Small Company Fund 71 Sub-adviser: Banc of America Capital Management, LLC - ---------------------------------------------------------- Nations Financial Services Fund 77 Sub-adviser: Banc of America Capital Management, LLC - ----------------------------------------------------------
4 Nations Global Value Fund Sub-adviser: Brandes Investment Partners, L.P. 81 - -------------------------------------------------------------- Nations International Value Fund 85 Sub-adviser: Brandes Investment Partners, L.P. - -------------------------------------------------------------- Nations International Equity Fund 90 Sub-advisers: Gartmore Global Partners, INVESCO Global Asset Management (N.A.), Inc. and Putnam Investment Management LLC - -------------------------------------------------------------- Nations Marsico International Opportunities Fund 95 Sub-adviser: Marsico Capital Management, LLC - -------------------------------------------------------------- Nations Emerging Markets Fund 99 Sub-adviser: Gartmore Global Partners - -------------------------------------------------------------- Nations LargeCap Index Fund 104 Sub-adviser: Banc of America Capital Management, LLC - -------------------------------------------------------------- Nations MidCap Index Fund 108 Sub-adviser: Banc of America Capital Management, LLC - -------------------------------------------------------------- Nations SmallCap Index Fund 111 Sub-adviser: Banc of America Capital Management, LLC - -------------------------------------------------------------- Nations Managed Index Fund 115 Sub-adviser: Banc of America Capital Management, LLC - -------------------------------------------------------------- Nations Short-Term Income Fund 119 Sub-adviser: Banc of America Capital Management, LLC - -------------------------------------------------------------- Nations Short-Intermediate Government Fund 124 Sub-adviser: Banc of America Capital Management, LLC - -------------------------------------------------------------- Nations Government Securities Fund 129 Sub-adviser: Banc of America Capital Management, LLC - -------------------------------------------------------------- Nations Intermediate Bond Fund 135 Sub-adviser: Banc of America Capital Management, LLC - -------------------------------------------------------------- Nations Bond Fund 141 Sub-adviser: Banc of America Capital Management, LLC - -------------------------------------------------------------- Nations Strategic Income Fund 146 Sub-adviser: Banc of America Capital Management, LLC - -------------------------------------------------------------- Nations High Yield Bond Fund 152 Sub-adviser: MacKay Shields LLC - --------------------------------------------------------------
5 Nations Short-Term Municipal Income Fund 156 Sub-adviser: Banc of America Capital Management, LLC - ------------------------------------------------------ Nations Intermediate Municipal Bond Fund 161 Sub-adviser: Banc of America Capital Management, LLC - ------------------------------------------------------ Nations Municipal Income Fund 166 Sub-adviser: Banc of America Capital Management, LLC - ------------------------------------------------------ Other important information 171 - ------------------------------------------------------ --- How the Funds are managed 173
[GRAPHIC OMITTED] About your investment Information for investors Choosing a share class 187 About Investor A Shares 189 Front-end sales charge 189 Contingent deferred sales charge 191 About Investor B Shares 191 Contingent deferred sales charge 191 About Investor C Shares 195 Contingent deferred sales charge 195 When you might not have to pay a sales charge 195 Buying, selling and exchanging shares 199 How orders are processed 201 How selling and servicing agents are paid 207 Distributions and taxes 209 - --------------------------------------------------- Financial highlights 213 - --------------------------------------------------- Terms used in this prospectus 260 - --------------------------------------------------- Where to find more information back cover
6 [GRAPHIC OMITTED] About the sub-adviser Banc of America Capital Management, LLC (BACAP) is this Fund's sub-adviser. BACAP's Income Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] What are convertible securities? Convertible securities, which include convertible bonds and convertible preferred stocks, can be exchanged for common stock at a specified rate. The common stock it converts to is called the "underlying" common stock. Convertible securities typically: o have higher income potential than the underlying common stock o are affected less by changes in the stock market than the underlying common stock o have the potential to increase in value if the value of the underlying common stock increases Nations Convertible Securities Fund [GRAPHIC OMITTED] 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. [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 65% of its assets in convertible securities mostly issued by U.S. issuers. The Fund may invest up to 15% of its assets in Eurodollar convertible securities. Most convertible securities are not investment grade. The team generally chooses convertible securities that are rated at least "B" by a nationally recognized statistical rating organization (NRSRO). The team may choose unrated securities if it believes they are of comparable quality at the time of investment. The Fund may invest directly in equity securities. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team looks for opportunities to participate in the growth potential of the underlying common stocks, while earning income that is generally higher than the income these stocks earn. When identifying individual investments, the team evaluates a number of factors, including: o the issuer's financial strength and revenue outlook o earnings trends, including changes in earnings estimates o the security's conversion feature and other characteristics The team tries to limit conversion costs and generally sells securities when they take on the trading characteristics of the underlying common stock. The team also may convert securities to common shares when it believes it's appropriate to do so. 7 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Convertible Securities Fund has the following risks: o Investment strategy risk - The team chooses convertible securities that it believes have the potential for long-term growth. There is a risk that the value of these investments will not rise as high as the team expects, or will fall. The issuer of a convertible security may have the option to redeem it at a specified price. If a convertible security is redeemed, the Fund may accept the redemption, convert the convertible security to common stock, or sell the convertible security to a third party. Any of these transactions could affect the Fund's ability to meet its objective. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Interest rate risk - The prices of the Fund's fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Fixed income securities with the lowest investment grade rating or that aren't investment grade are more speculative in nature than securities with higher ratings, and they tend to be more sensitive to credit risk, particularly during a downturn in the economy. 8 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 38.24% 21.34% 22.71% -5.85% 24.11% 19.45% ------ ------ ------ ------ ------ ------ 1991 1992 1993 1994 1995 1996 21.96% 6.58% 26.76% 14.86% ------ ----- ------ ------ 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -5.31% Best and worst quarterly returns during this period Best: 1st quarter 1991: 17.59% Worst: 3rd quarter 1998: -9.41%
[GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the CSFB Convertible Securities Index, a widely-used unmanaged index that measures the performance of convertible securities. The index is not available for investment.
Since 1 year 5 years 10 years inception* Investor A Shares 8.23% 16.33% 17.75% 15.71% Investor B Shares 9.62% -- -- 14.48% Investor C Shares 13.22% -- -- 16.58% CSFB Convertible Securities -7.83% 13.21% 14.72% 10.73% Index
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are September 25, 1987, July 15, 1998 and October 21, 1996, respectively. The return for the index shown is from inception of Investor A Shares. 9 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.65% 0.65% 0.65% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.35% 0.35% 0.35% ----- ----- ------ Total annual Fund operating expenses 1.25% 2.00% 2.00% ===== ===== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 10 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $695 $949 $1,223 $2,002 Investor B Shares $703 $927 $1,278 $2,134 Investor C Shares $303 $627 $1,078 $2,327
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $203 $627 $1,078 $2,134 Investor C Shares $203 $627 $1,078 $2,327
11 [GRAPHIC OMITTED] About the sub-advisers This Fund is managed by two sub-advisers: BACAP and Chicago Equity Partners, LLC (Chicago Equity). Chicago Equity's Equity Management Team makes the day-to-day investment decisions for the equity portion of the Fund. BACAP's Fixed Income Management Team makes the day-to-day investment decisions for the fixed income and money market portions of the Fund. [GRAPHIC OMITTED] You'll find more about BACAP and Chicago Equity, starting on page 176. [GRAPHIC OMITTED] What is an asset allocation fund? This asset allocation fund invests in a mix of equity and fixed income securities, and cash equivalents. Each of these "asset classes" has different risk/return characteristics. The portfolio management team changes the mix based on its assessment of the expected risks and returns of each class. Asset allocation funds like this one can provide a diversified asset mix for you in a single investment. Nations Asset Allocation Fund [GRAPHIC OMITTED] Investment objective The Fund seeks to obtain long-term growth from capital appreciation, and dividend and interest income. [GRAPHIC OMITTED] Principal investment strategies The Fund invests in a mix of equity and fixed income securities, as well as cash equivalents, including U.S. government obligations, commercial paper and other short-term, interest-bearing instruments. The equity securities the Fund invests in are primarily common stock of blue chip companies. These companies are well established, nationally known companies that have a long record of profitability and a reputation for quality management, products and services. The fixed income securities the Fund invests in are primarily investment grade bonds and notes; however, the Fund may invest up to 10% of its total assets in high yield debt securities. The Fund normally invests at least 25% of its assets in senior securities. The Fund may also invest up to 35% of its assets in mortgage-backed and asset-backed securities. In the fixed income portion of its portfolio, the Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options, and other derivative instruments to seek to enhance returns, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in an underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team uses asset allocation as its principal investment approach. The team actively allocates assets among the three asset classes based on its assessment of the expected risks and returns of each class. For the equity portion of the Fund, the team uses quantitative analysis to analyze fundamental information about securities and identify value. Starting with a universe of approximately 2000 common stocks, the team uses a multi-factor computer model to rank securities, based on the following criteria, among others: o changes in actual and expected earnings o unexpected changes in earnings o price-to-earnings ratio o dividend discount model o price-to-cash flow The team tries to manage risk by matching the market capitalization, style and industry weighting characteristics of the S&P SuperComposite 1500. The team focuses on selecting individual stocks to try to provide higher returns than the S&P 500 while maintaining a level of risk similar to the index. The team may sell a security when the Fund's asset allocation changes, there is a deterioration in the issuer's financial situation, when the team believes other investments are more attractive, and for other reasons. 12 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Asset Allocation Fund has the following risks: o Investment strategy risk - The team uses an asset allocation strategy to try to achieve the highest total return. There is a risk that the mix of investments will not produce the returns the team expects, or will fall in value. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Interest rate risk - The prices of the Fund's fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Mortgage-related risk - The value of the Fund's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Fund may have to reinvest this money in mortgage-backed or other securities that have lower yields. 13 o Asset-backed securities risk - Payment of interest and repayment of principal may be impacted by the cash flows generated by the assets backing these securities. The value of the Fund's asset-backed securities may also be affected by changes in interest rates, the availability of information concerning the interests in and structure of the pools of purchase contracts, financing leases or sales agreements that are represented by these securities, the creditworthiness of the servicing agent for the pool, the originator of the loans or receivables, or the entities that provide any supporting letters of credit, surety bonds, or other credit enhancements. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 14 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. The information about the performance for the period prior to June 8, 2001, reflects performance information for a predecessor fund which was reorganized into the Fund on June 8, 2001. The predecessor fund had an identical investment objective and principal investment strategies. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 26.90% 15.66% 21.38% 21.09% 11.11% -0.75% ------ ------ ------ ------ ------ ------ 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -3.93% Best and worst quarterly returns during this period Best: 4th quarter 1998: 12.77% Worst: 3rd quarter 1998: -4.34%
[GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the indices do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500 and the Lehman Aggregate Bond Index. The S&P 500 is an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The Lehman Aggregate Bond Index is an index made up of the Lehman Government/Corporate Bond Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. The indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. The indices are not available for investment.
Since 1 year 5 years inception* Investor A Shares -6.47% 12.05% 12.10% Investor B Shares -6.09% -- 4.40% Investor C Shares -2.39% -- 11.97% S&P 500 -9.10% 18.33% 17.91% Lehman Aggregate Bond Index 11.63% 6.46% 6.56%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are January 18, 1994, July 15, 1998 and November 11, 1996, respectively. The returns for the indices shown are from inception of Investor A Shares. 15 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.65% 0.65% 0.65% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.35% 0.35% 0.35% ----- ----- ------ Total annual Fund operating expenses 1.25% 2.00% 2.00% ===== ===== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 16 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $695 $949 $1,223 $2,002 Investor B Shares $703 $927 $1,278 $2,134 Investor C Shares $303 $627 $1,078 $2,327
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $203 $627 $1,078 $2,134 Investor C Shares $203 $627 $1,078 $2,327
17 [GRAPHIC OMITTED] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Income Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] Why invest in an equity income fund? Equity income funds are generally considered to be a more conservative equity investment because they invest in large, well-established companies that pay regular dividends. These companies tend to be less volatile than other kinds of companies. Nations Equity Income Fund [GRAPHIC OMITTED] Investment objective The Fund seeks current income and growth of capital by investing in companies with above-average dividend yields. [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests in 60 to 85 companies with an average market capitalization of at least $3 billion. The Fund seeks to provide a higher yield than the S&P 500. The Fund generally invests at least 65% of its assets in common stocks that pay dividends and that are listed on a national exchange or are traded on an established over-the-counter market. The Fund may invest up to 20% of its assets in convertible securities, including registered investment companies that invest in convertible securities. The Fund may also invest up to 5% of its assets in real estate investment trusts. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team evaluates the overall economy, industry conditions and the financial conditions and management of each company, using a process called fundamental analysis, to identify stocks of attractive companies. When selecting investments, the team looks at, among other things: o value characteristics like earnings yield and cash flow o growth potential for a company's stock price and earnings o current income yield and the potential for growth in income The team may use various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: o may limit the number of buy and sell transactions it makes o will try to sell shares that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when its price reaches the target set by the team, when there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, and for other reasons. 18 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Equity Income Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have the potential for dividend growth and capital appreciation. There is a risk that dividend payments and the value of these investments will not rise as high as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Real estate investment trust risk - Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry. o Convertible securities risk - The issuer of a convertible security may have the option to redeem it at a specified price. If a convertible security is redeemed, the Fund may accept the redemption, convert the convertible security to common stock, or sell the convertible security to a third party. Any of these transactions could affect the Fund's ability to meet its objective. o Investment in other Nations Funds - The Fund may pursue its convertible securities strategy by investing in Nations Convertible Securities Fund, rather than directly in convertible securities. BA Advisors and its affiliates are entitled to receive fees from Nations Convertible Securities Fund for providing advisory and other services, in addition to the fees which they are entitled to receive from Nations Equity Income Fund for services provided directly. BA Advisors and its affiliates may waive fees which they are entitled to receive from either Fund. 19 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 9.77% 12.47 -1.29% 27.35% 19.61% 25.72% 3.25% 2.63% -10.76% ----- ----- ------ ------ ------ ------ ----- ----- ------- 1992 1993 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -6.26% Best and worst quarterly returns during this period Best: 4th quarter 1998: 14.21% Worst: 3rd quarter 1998: -14.55%
[GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment.
Since 1 year 5 years inception* Investor A Shares -15.92% 6.08% 9.32% Investor B Shares -15.70% 6.37% 8.31% Investor C Shares -12.28% 6.79% 9.05% S&P 500 -9.10% 18.33% 16.42%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are April 16, 1991, June 7, 1993 and June 17, 1992, respectively. The return for the index shown is from inception of Investor A Shares 20 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.65% 0.65% 0.65% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.31% 0.31% 0.31% ----- ----- ------ Total annual Fund operating expenses 1.21% 1.96% 1.96% ===== ===== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 21 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $691 $938 $1,203 $1,960 Investor B Shares $699 $915 $1,257 $2,091 Investor C Shares $299 $615 $1,057 $2,285
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $199 $615 $1,057 $2,091 Investor C Shares $199 $615 $1,057 $2,285
22 [GRAPHIC OMITTED] About the sub-adviser Brandes Investment Partners, L.P. (Brandes) is this Fund's sub-adviser. Brandes' Large Cap Investment Committee makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about Brandes on page 179. [GRAPHIC OMITTED] What is the Graham and Dodd approach to investing? Benjamin Graham is widely regarded as the founder of this classic value approach to investing and a pioneer in modern security analysis. In his 1934 book, Security Analysis, co-written by David Dodd, Graham introduced the idea that stocks should be chosen by identifying the "true" long-term -- or intrinsic -- value of a company based on measurable data. Benjamin Graham and David Dodd have never had any affiliation with the Fund. The management team follows this approach, looking at each stock as though it's a business that's for sale. By buying stocks at what it believes are favorable prices, the team looks for the potential for appreciation over the business cycle, and for a margin of safety against price declines. Nations Classic Value Fund [GRAPHIC OMITTED] Investment objective The Fund seeks growth of capital by investing in companies believed to be undervalued. [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 80% of its assets in equity securities of U.S. companies that are believed to be undervalued. The Fund focuses its investments in large and medium-sized companies. The Fund generally holds 40 to 75 equity securities. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The management team uses the "Graham and Dodd" value approach to selecting securities and managing the Fund. The team invests in a company when its current price appears to be below its "true" long-term -- or intrinsic -- value. The team uses fundamental analysis to determine intrinsic value, and will look at a company's earnings, book value, cash flow, capital structure, and management record, as well as its industry and its position in the industry. This analysis includes a review of company reports, filings with the SEC, computer databases, industry publications, general and business publications, brokerage firm research reports and other information sources, as well as interviews with company management. The team may sell a security when its price reaches the target set by the team, when there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, and for other reasons. 23 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Limits on investments To help manage risk, the Fund has certain limits on its investments. These limits apply at the time an investment is made: o The Fund will normally invest no more than 5% of its assets in a single security. o It may not invest more than the greater of: o 20% of its assets in a single industry, or o 150% of the weighting of a single industry in the S&P 500 (limited to less than 25% of its assets in a single industry, other than U.S. government securities). [GRAPHIC OMITTED] Risks and other things to consider Nations Classic Value Fund has the following risks: o Investment strategy risk - The team chooses stocks it believes are undervalued or out of favor with the expectation that these stocks will eventually rise in value. There is a risk that the value of these investments will not rise as high or as quickly as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. [GRAPHIC OMITTED] For information about the performance of other stock accounts managed by Brandes, see How the Funds are managed. [GRAPHIC OMITTED] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. 24 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses (Expenses that are deducted from the Fund's assets) Management fees 0.65% 0.65% 0.65% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses(4) 0.48% 0.48% 0.48% ----- ------ ------ Total annual Fund operating expenses(5) 1.38% 2.13% 2.13% ===== ====== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)Other expenses are based on estimates for the current fiscal year. (5)The Fund's investment adviser and/or some of its other service providers have agreed to limit total annual operating expenses to the levels shown above until July 31, 2002. There is no guarantee that these limitations will continue after this date. The investment adviser is entitled to reimbursement from the Fund of any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this agreement if such reimbursements do not cause the Fund's expenses to exceed the existing expense limitations. 25 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years Investor A Shares $708 $988 Investor B Shares $716 $967 Investor C Shares $316 $667
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years Investor B Shares $216 $667 Investor C Shares $216 $667
26 [GRAPHIC OMITTED] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Value Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] What is value investing? Value investing means looking for "undervalued" companies -- quality companies that may be currently out of favor and selling at a reduced price, but that have good potential to increase in value. The team uses fundamental and quantitative analysis to help decide whether the current stock price of a company may be lower than the company's true value, and then looks for things that could trigger a rise in price, like a new product line, new pricing or a change in management. This trigger is often called a "catalyst." Nations Value Fund [GRAPHIC OMITTED] Investment objective The Fund seeks growth of capital by investing in companies that are believed to be undervalued. [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 65% of its assets in common stocks of U.S. companies. It generally invests in companies in a broad range of industries with market capitalizations of at least $1 billion and daily trading volumes of at least $3 million. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The management team uses fundamental and quantitative analysis to identify stocks of companies that it believes are undervalued and have the potential for price appreciation, looking at, among other things: o mature, fundamentally sound businesses that are believed to be attractively priced due to investor indifference or unpopularity o various measures of relative valuation, including expected cash flow return (based upon the company's expected earnings and dividends), price-to-earnings ratio, price-to-current book value ratio, dividend yield, and enterprise value-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio. The team believes that companies with lower relative valuations are generally more likely to provide better opportunities for capital appreciation o the stock's estimated intrinsic valuation per share, relative to its current stock price o a potential "catalyst" for improved stock valuation and stock price appreciation. This could take the form of anticipated earnings growth, company restructuring, changes in management, new product opportunities, business model changes, or other anticipated improvements in micro and macroeconomic factors The team may use various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: o may limit the number of buy and sell transactions it makes o will try to sell shares that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when its price reaches the target set by the team, there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, and for other reasons. 27 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Value Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes are undervalued, with the expectation that they will rise in value. There is a risk that the value of these investments will not rise as high as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. 28 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH FOLLOWING PLOT POINTS] 25.86% 7.12% 16.06% -3.08% 35.78% 20.85% 26.30% 17.14% 0.99% 3.66% ------ ----- ------ ------ ------ ------ ------ ------ ----- ----- 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
*Year-to-date return as of June 30, 2001: -5.39% Best and worst quarterly returns during this period Best: 4th quarter 1998: 19.39% Worst: 3rd quarter 1998: -12.32%
[GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the indices do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500 and the S&P/BARRA Value Index. The S&P 500 is an unmanaged index of 500 widely held common stocks. The S&P/BARRA Value Index is an unmanaged index of a subset of stocks from the S&P 500 that have low price-to-book ratios relative to the S&P 500 as a whole. The indices are weighted by market capitalization and are not available for investment.
Since 1 year 5 years 10 years inception* Investor A Shares -2.29% 12.02% 13.77% 12.75% Investor B Shares -1.15% 12.37% -- 13.36% Investor C Shares 2.07% 12.77% -- 13.48% S&P 500 -9.10% 18.33% 17.44% 15.53% S&P/BARRA Value Index 6.08% 16.81% 16.88% 14.61%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are December 6, 1989, June 7, 1993 and June 17, 1992, respectively. The returns for the indices shown are from inception of Investor A Shares 29 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.65% 0.65% 0.6% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.29% 0.29% 0.29% ----- ------ ----- Total annual Fund operating expenses 1.19% 1.94% 1.94% ===== ====== =====
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 30 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $689 $932 $1,193 $1,938 Investor B Shares $697 $909 $1,247 $2,070 Investor C Shares $297 $609 $1,047 $2,264
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $197 $609 $1,047 $2,070 Investor C Shares $197 $609 $1,047 $2,264
31 [GRAPHIC OMITTED] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Chicago Equity is its sub-adviser. Chicago Equity's Equity Management Team makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC OMITTED] You'll find more about Chicago Equity on page 179. [GRAPHIC OMITTED] Why invest in Nations Blue Chip Fund? Nations Blue Chip Fund may be suitable for investors who are looking for a "core" equity holding for their portfolio. It's considered to be a more conservative equity investment because it invests in a broad range of large, well-established companies. These companies tend to be less volatile than other kinds of companies. Nations Blue Chip Fund [GRAPHIC OMITTED] Investment objective The Fund seeks to achieve long-term capital appreciation through investments in blue chip stocks. [GRAPHIC OMITTED] Principal investment strategies The Fund invests all of its assets in Nations Blue Chip Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in blue chip stocks. These are stocks of well-established, nationally known companies that have a long record of profitability and a reputation for quality management, products and services. The Master Portfolio primarily invests in blue chip stocks that are included in the S&P 500, but may invest up to 15% of its assets in stocks that are not included in the index. It usually holds between 160 and 185 stocks. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team uses quantitative analysis to analyze fundamental information about securities and identify value. Starting with a universe of approximately 600 common stocks, the team uses a multi-factor computer model to rank securities, based on the following criteria, among others: o changes in actual and expected earnings o unexpected changes in earnings o price-to-earnings ratio o dividend discount model o price-to-cash flow The team tries to manage risk by matching the market capitalization, style and industry weighting characteristics of the S&P 500. The team focuses on selecting individual stocks to try to provide higher returns than the S&P 500 while maintaining a level of risk similar to the index. The team may sell a security when there is a development in the company or its industry that causes earnings estimates to fall, when the team believes other investments are more attractive, and for other reasons. 32 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Blue Chip Fund has the following risks: o Investment strategy risk - The Master Portfolio uses quantitative analysis to select blue chip stocks that are believed to have the potential for long-term growth. There is a risk that the value of these investments will not rise as high as expected, or will fall. o Stock market risk - The value of the stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 33 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH FOLLOWING PLOT POINTS] 35.78% 23.76% 32.70% 27.86% 21.16% -9.28% ------ ------ ------ ------ ------ ------ 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -9.28% Best and worst quarterly returns during this period Best: 4th quarter 1998: 23.71% Worst: 3rd quarter 1998: -12.18%
[GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment.
Since 1 year 5 years inception* Investor A Shares -14.50% 16.81% 16.93% Investor B Shares -14.10% -- 3.96% Investor C Shares -10.76% -- 15.74% S&P 500 -9.10% 18.33% 17.91%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are January 13, 1994, July 15, 1998 and November 11, 1996, respectively. The return for the index shown is from inception of Investor A Shares 34 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.65% 0.65% 0.65% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.31% 0.31% 0.31% ----- ------ ----- Total annual Fund operating expenses 1.21% 1.96% 1.96% ===== ====== =====
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. 35 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $691 $938 $1,203 $1,960 Investor B Shares $699 $915 $1,257 $2,091 Investor C Shares $299 $615 $1,057 $2,285
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $199 $615 $1,057 $2,091 Investor C Shares $199 $615 $1,057 $2,285
36 Nations Strategic Growth Fund [GRAPHIC OMITTED] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Growth Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] Minimizing taxes The Fund's proactive tax management strategy may help reduce capital gains distributions. The tax management strategy seeks to limit portfolio turnover, offset capital gains with capital losses and sell securities that have the lowest tax burden on shareholders. [GRAPHIC OMITTED] Investment objective The Fund seeks long-term, after-tax returns by investing in a diversified portfolio of common stocks. [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 65% of its assets in common stocks of companies that it selects from most major industry sectors. The Fund normally holds 60 to 80 securities, which include common stocks, preferred stocks and convertible securities like warrants and rights. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team identifies stocks using a disciplined analytical process. Starting with a universe of companies with market capitalizations of at least $1 billion, the team assesses the investment potential of these companies and their industries by evaluating: o the growth prospects of the company's industry o the company's relative competitive position in the industry The team believes that this analysis identifies companies with favorable long-term growth potential, competitive advantages and sensible business strategies. The team then uses quantitative analysis to decide when to invest, evaluating each company's earnings trends and stock valuations, among other things, to try to determine when it is reasonably valued. In actively managing the portfolio, the team considers the characteristics of the S&P 500 as a general baseline. The index characteristics evaluated by the team include risk and sector diversification, as well as individual securities holdings. The team may use various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains and income distributed to shareholders. For example, the team: o will focus on long-term investments to try to limit the number of buy and sell transactions o will try to sell securities that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss o invests primarily in securities with lower dividend yields o may use options, instead of selling securities While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when it believes that the profitability of the company's industry is beginning to decline, there is a meaningful deterioration in the company's competitive position, the company's management fails to execute its business strategy, when the team considers the security's price to be overvalued, and for other reasons. 37 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Strategic Growth Fund has the following risks: o Investment strategy risk - The team chooses stocks that are believed to have the potential for long-term growth. There is a risk that the value of these investments will not rise as expected, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Convertible securities risk - The issuer of a convertible security may have the option to redeem it at a specified price. If a convertible security is redeemed, the Fund may accept the redemption, convert the convertible security to common stock, or sell the convertible security to a third party. Any of these transactions could affect the Fund's ability to meet its objective. o Technology and technology-related risk - The Fund may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. 38 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH FOLLOWING PLOT POINTS] -12.55% ------- 2000 *Year-to-date return as of June 30, 2001: -7.20% Best and worst quarterly returns during this period Best: 1st quarter 2000: 4.62% Worst: 4th quarter 2000: -11.60%
[GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment.
Since 1 year inception* Investor A Shares -17.58% -2.29% Investor B Shares -17.48% -1.12% Investor C Shares -14.06% -0.45% S&P 500 -9.10% 0.74%
*The inception date of Investor A Shares, Investor B Shares and Investor C Shares is August 2, 1999. The return for the index shown is from that date. 39 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.65% 0.65% 0.65% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.29% 0.29% 0.29% ----- ------ ----- Total annual Fund operating expenses 1.19% 1.94% 1.94% ===== ====== =====
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 40 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $689 $932 $1,193 $1,938 Investor B Shares $697 $909 $1,247 $2,070 Investor C Shares $297 $609 $1,047 $2,264
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $197 $609 $1,047 $2,070 Investor C Shares $197 $609 $1,047 $2,264
41 Nations Marsico Growth & Income Fund [GRAPHIC OMITTED] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Marsico Capital Management, LLC (Marsico Capital) is its sub-adviser. Thomas F. Marsico is its portfolio manager and makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC OMITTED] You'll find more about Marsico Capital and Mr. Marsico on page 177. [GRAPHIC OMITTED] Why invest in a growth and income fund? Growth and income funds can invest in a mix of equity and fixed income securities. This can help reduce volatility and provide the Fund with the flexibility to shift among securities that offer the potential for higher returns. While this Fund invests in a wide range of companies and industries, it holds fewer investments than other kinds of funds. This means it can have greater price swings than more diversified funds. It also means it may have relatively higher returns when one of its investments performs well, or relatively lower returns when an investment performs poorly. [GRAPHIC OMITTED] Investment objective The Fund seeks long-term growth of capital with a limited emphasis on income. [GRAPHIC OMITTED] Principal investment strategies The Fund invests all of its assets in Nations Marsico Growth & Income Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio invests primarily in equity securities of large capitalization companies that are selected for their growth potential. It invests at least 25% of its assets in securities that are believed to have income potential, and generally holds 35 to 50 securities. It may hold up to 25% of its assets in foreign securities. Marsico Capital may shift assets between growth and income securities based on its assessment of market, financial and economic conditions. The Master Portfolio, however, is not designed to produce a consistent level of income. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Marsico Capital uses an approach that combines "top-down" economic analysis with "bottom-up" stock selection. The "top-down" approach takes into consideration such macroeconomic factors as interest rates, inflation, the regulatory environment and the global competitive landscape. In addition, Marsico Capital also examines such factors as the most attractive global investment opportunities, industry consolidation and the sustainability of economic trends. As a result of the "top-down" analysis, Marsico Capital identifies sectors, industries and companies which it believes should benefit from the overall trends observed. Marsico Capital then looks for individual companies with earnings growth potential that may not be recognized by the market at large. In determining whether a particular company is suitable for investment, Marsico Capital focuses on a number of different attributes including the company's specific market expertise or dominance, its franchise durability and pricing power, solid fundamentals (strong balance sheet, improving returns on equity, ability to generate free cash flow), strong management and reasonable valuations in the context of projected growth rates. As part of this fundamental, "bottom-up" research, Marsico Capital may visit with various levels of a company's management as well as with its customers, suppliers and competitors. Marsico Capital also prepares detailed earnings and cash flow models of companies. These models permit it to project earnings growth and other important characteristics under different scenarios. Each model is customized to follow a particular company and is intended to replicate and describe a company's past, present and future performance. The models are comprised of quantitative information and detailed narratives that reflect updated interpretations of corporate data. Marsico Capital may sell a security when it believes there is a deterioration in the company's financial situation, the security is overvalued, when there is a negative development in the company's competitive, regulatory or economic environment, and for other reasons. 42 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Marsico Growth & Income Fund has the following risks: o Investment strategy risk - Marsico Capital uses an investment strategy that tries to identify equities with growth or income potential. There is a risk that the value of these investments will not rise as high as Marsico Capital expects, or will fall. o Stock market risk - The value of the stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Master Portfolio may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. o Interest rate risk - The prices of the Master Portfolio's fixed income securities will tend to fall when interest rates rise and to rise when interest rates fall. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Master Portfolio could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. o Foreign investment risk - Because the Master Portfolio may invest up to 25% of its assets in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 43 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. For information about the performance of other stock funds managed by Thomas Marsico, see How the Funds are managed. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH FOLLOWING PLOT POINTS] 38.62% 52.11% -15.47% ------ ------ ------- 1998 1999 2000 *Year-to-date return as of June 30, 2001: -12.49% Best and worst quarterly returns during this period Best: 4th quarter 1999: 35.19% Worst: 3rd quarter 1998: -12.24%
44 [GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment.
Since 1 year inception* Investor A Shares -20.32% 18.88% Investor B Shares -20.26% 19.75% Investor C Shares -16.91% 20.49% S&P 500 -9.10% 12.26%
*The inception date of Investor A Shares, Investor B Shares and Investor C Shares is December 31, 1997. The return for the index shown is from that date. [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.75% 0.75% 0.75% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.35% 0.35% 0.35% ----- ------ ----- Total annual Fund operating expenses 1.35% 2.10% 2.10% ===== ====== =====
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. 45 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $705 $979 $1,273 $2,109 Investor B Shares $713 $958 $1,329 $2,240 Investor C Shares $313 $658 $1,129 $2,431
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $213 $658 $1,129 $2,240 Investor C Shares $213 $658 $1,129 $2,431
46 Nations Capital Growth Fund [GRAPHIC OMITTED] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Growth Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] What is a growth fund? Growth funds invest in companies that have the potential for significant increases in revenue or earnings. These are typically companies that are developing or applying new technologies, products or services in growing industry sectors. [GRAPHIC OMITTED] Investment objective The Fund seeks growth of capital by investing in companies that are believed to have superior earnings growth potential. [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 65% of its assets in common stocks of companies that have one or more of the following characteristics: o above-average earnings growth compared with the S&P 500 o established operating histories, strong balance sheets and favorable financial performance o above-average return on equity compared with the S&P 500 The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team identifies stocks using a disciplined analytical process. Starting with a universe of companies with market capitalization of at least $1 billion, the team assesses the investment potential of these companies and their industries by evaluating: o the growth prospects of the company's industry o the company's relative competitive position in the industry The team believes that this analysis identifies companies with favorable long-term growth potential, competitive advantages and sensible business strategies. The team then uses quantitative analysis to decide when to invest, evaluating each company's earnings trends and stock valuations, among other things, to try to determine when it is reasonably valued. In actively managing the portfolio, the team considers the characteristics of the S&P 500 as a general baseline. The index characteristics evaluated by the team include risk and sector diversification, as well as individual securities holdings. The team may use various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: o may limit the number of buy and sell transactions it makes o will try to sell shares that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when its price reaches the target set by the team, the company's growth prospects are deteriorating, when the team believes other investments are more attractive, and for other reasons. 47 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Capital Growth Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have superior growth potential and are selling at reasonable prices, with the expectation that they will rise in value. There is a risk that the value of these investments will not rise as high as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Fund may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. 48 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH FOLLOWING PLOT POINTS] 7.53% -1.55% 28.56% 18.29% 30.36% 29.73% 23.57% -12.17% ----- ------ ------ ------ ------ ------ ------ ------- 1993 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -10.31% Best and worst quarterly returns during this period Best: 4th quarter 1998: 28.21% Worst: 3rd quarter 1998: -14.93%
[GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment.
Since 1 year 5 years inception* Investor A Shares -17.23% 15.40% 14.26% Investor B Shares -16.39% 15.71% 14.77% Investor C Shares -13.53% 16.10% 14.33% S&P 500 -9.10% 18.33% 17.32%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are October 2, 1992, June 7, 1993 and October 2, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 49 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.65% 0.65% 0.65% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.29% 0.29% 0.29% ----- ------ ----- Total annual Fund operating expenses 1.19% 1.94% 1.94% ===== ====== =====
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 50 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $689 $932 $1,193 $1,938 Investor B Shares $697 $909 $1,247 $2,070 Investor C Shares $297 $609 $1,047 $2,264
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $197 $609 $1,047 $2,070 Investor C Shares $197 $609 $1,047 $2,264
51 [GRAPHIC OMITTED] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Growth Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] What is a growth fund? Growth funds invest in companies that have the potential for significant increases in revenue or earnings. These are typically companies that are developing or applying new technologies, products or services in growing industry sectors. Nations Aggressive Growth Fund [GRAPHIC OMITTED] Investment objective The Fund seeks capital appreciation. [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 65% of its assets in common stocks of large and medium-sized U.S. companies. These companies typically have a market capitalization of $1 billion or more. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team identifies stocks using a disciplined analytical process. Starting with a universe of companies with market capitalization of at least $1 billion, the team assesses the investment potential of these companies and their industries by evaluating: o the growth prospects of the company's industry o the company's relative competitive position in the industry The team believes that this analysis identifies companies with favorable long-term growth potential, competitive advantages and sensible business strategies. The team then uses quantitative analysis to decide when to invest, evaluating each company's earnings trends and stock valuations, among other things, to try to determine when it is reasonably valued. In actively managing the portfolio, the team considers the characteristics of the Russell 3000 Growth Index as a general baseline. The index characteristics evaluated by the team include risk and sector diversification, as well as individual securities holdings. The resulting portfolio typically consists of between 50 to 75 securities. The team may use various strategies, to the extent consistent with the Fund's investment objective, to try to reduce the amount of capital gains it distributes to shareholders. For example, the team: o will focus on long-term investments to try and limit the number of buy and sell transactions o will try to sell securities that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss o will invest primarily in securities with lower dividend yields o may use options instead of selling securities While the Fund tries to manage capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when it forecasts a decline in industry profitability, it believes a company's competitive position erodes significantly, management strategies prove ineffective or a company's price exceeds the team's price target for the security, and for other reasons. 52 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Aggressive Growth Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have superior growth potential and are selling at reasonable prices, with the expectation that they will rise in value. There is a risk that the value of these investments will not rise as high as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in the U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Fund may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. 53 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Prior to April 17, 2000, the Fund had a different investment objective and principal investment strategies. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH FOLLOWING PLOT POINTS] -6.42% 27.30% 21.90% 29.59% 25.57% 8.83% -26.40% ------ ------ ------ ------ ------ ----- ------- 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -21.20% Best and worst quarterly returns during this period Best: 4th quarter 1998: 24.55% Worst: 4th quarter 2000: -24.08%
54 [GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the indices do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Russell 3000 Growth Index, an index comprised of securities in the Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies based on total market capitalization. Prior to August 1, 2001, the Fund compared its performance to the Russell 1000 Growth Index. The Fund changed the index to which it compares its performance because the Russell 3000 Growth Index is considered to be a more appropriate comparison. The indices are unmanaged and are not available for investment.
Since 1 year 5 years inception* Investor A Shares -30.65% 8.41% 10.16% Investor B Shares -30.05% 8.66% 10.95% Investor C Shares -27.56% 9.03% 11.25% Russell 3000 Growth Index -22.42% 17.06% 17.38% Russell 1000 Growth Index -22.42% 18.15% 18.31%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are July 26, 1993, May 20, 1994 and May 10, 1995, respectively. The returns for the indices shown are from inception of Investor A Shares. [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.65% 0.65% 0.65% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.35% 0.35% 0.35% ----- ------ ----- Total annual Fund operating expenses 1.25% 2.00% 2.00% ===== ====== =====
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 55 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $695 $949 $1,223 $2,002 Investor B Shares $703 $927 $1,278 $2,134 Investor C Shares $303 $627 $1,078 $2,327
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $203 $627 $1,078 $2,134 Investor C Shares $203 $627 $1,078 $2,327
56 [GRAPHIC OMITTED] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Marsico Capital is its sub-adviser. Thomas F. Marsico is its portfolio manager and makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC OMITTED] You'll find more about Marsico Capital and Mr. Marsico on page 177. [GRAPHIC OMITTED] What is a focused fund? A focused fund invests in a small number of companies with earnings that are believed to have the potential to grow significantly. This Fund focuses on large, established and well-known U.S. companies. Because a focused fund holds fewer investments than other kinds of funds, it can have greater price swings than more diversified funds. It may earn relatively higher returns when one of its investments performs well, or relatively lower returns when an investment performs poorly. Nations Marsico Focused Equities Fund [GRAPHIC OMITTED] Investment objective The Fund seeks long-term growth of capital. [GRAPHIC OMITTED] Principal investment strategies The Fund invests all of its assets in Nations Marsico Focused Equities Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in common stocks of large companies. The Master Portfolio, which is non-diversified, generally holds a core position of 20 to 30 common stocks. It may invest up to 25% of its assets in foreign securities. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Marsico Capital uses an approach that combines "top-down" economic analysis with "bottom-up" stock selection. The "top-down" approach takes into consideration such macroeconomic factors as interest rates, inflation, the regulatory environment and the global competitive landscape. In addition, Marsico Capital also examines such factors as the most attractive global investment opportunities, industry consolidation and the sustainability of economic trends. As a result of the "top-down" analysis, Marsico Capital identifies sectors, industries and companies which it believes should benefit from the overall trends observed. Marsico Capital then looks for individual companies with earnings growth potential that may not be recognized by the market at large. In determining whether a particular company is suitable for investment, Marsico Capital focuses on a number of different attributes including the company's specific market expertise or dominance, its franchise durability and pricing power, solid fundamentals (strong balance sheet, improving returns on equity, ability to generate free cash flow), strong management and reasonable valuations in the context of projected growth rates. As part of this fundamental, "bottom-up" research, Marsico Capital may visit with various levels of a company's management as well as with its customers, suppliers and competitors. Marsico Capital also prepares detailed earnings and cash flow models of companies. These models permit it to project earnings growth and other important characteristics under different scenarios. Each model is customized to follow a particular company and is intended to replicate and describe a company's past, present and future performance. The models are comprised of quantitative information and detailed narratives that reflect updated interpretations of corporate data. Marsico Capital may sell a security when it believes there is a deterioration in the company's financial situation, the security is overvalued, when there is a negative development in the company's competitive, regulatory or economic environment, and for other reasons. 57 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Marsico Focused Equities Fund has the following risks: o Investment strategy risk - There is a risk that the value of the Master Portfolio's investments will not rise as high as Marsico Capital expects, or will fall. o Holding fewer investments - The Master Portfolio is considered to be non-diversified because it may hold fewer investments than other kinds of equity funds. This increases the risk that its value could go down significantly if even only one of its investments performs poorly. The value of the Master Portfolio will tend to have greater price swings than the value of more diversified equity funds. The Master Portfolio may become a diversified fund by limiting the investments in which more than 5% of its total assets are invested. o Stock market risk - The value of the stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Master Portfolio may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. o Foreign investment risk - Because the Master Portfolio may invest up to 25% of its assets in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 58 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. For information about the performance of other stock funds managed by Thomas Marsico, see How the Funds are managed. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH FOLLOWING PLOT POINTS] 50.14% 52.85% -17.32% ------ ------ ------- 1998 1999 2000 *Year-to-date return as of June 30, 2001: -14.12% Best and worst quarterly returns during this period Best: 4th quarter 1999: 33.11% Worst: 4th quarter 2000: -12.85%
59 [GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment.
Since 1 year inception* Investor A Shares -22.07% 21.38% Investor B Shares -22.00% 22.39% Investor C Shares -18.73% 23.16% S&P 500 -9.10% 12.26%
*The inception date of Investor A Shares, Investor B Shares and Investor C Shares is December 31, 1997. The return for the index shown is from that date. [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)5 Management fees 0.75% 0.75% 0.75% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.34% 0.34% 0.34% ----- ------ ----- Total annual Fund operating expenses 1.34% 2.09% 2.09% ===== ====== =====
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. 60 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $704 $976 $1,268 $2,098 Investor B Shares $712 $955 $1,324 $2,229 Investor C Shares $312 $655 $1,124 $2,421
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $212 $655 $1,124 $2,229 Investor C Shares $212 $655 $1,124 $2,421
61 [GRAPHIC OMITTED] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Growth Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] What is a midcap growth fund? A midcap growth fund invests in medium-sized companies whose earnings are expected to grow or to continue growing. These companies may be expanding in existing markets, entering into new markets, developing new products or increasing their profit margins by gaining market share or streamlining their operations. These companies can have better potential for rapid earnings than larger companies. They may, however, have a harder time securing financing and may be more sensitive to a setback in sales than larger, more established companies. Nations MidCap Growth Fund [GRAPHIC OMITTED] Investment objective The Fund seeks capital appreciation by investing in emerging growth companies that are believed to have superior long-term earnings growth prospects. [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 65% of its assets in companies chosen from a universe of medium capitalization companies. The Fund generally holds securities of between 60 and 100 issuers, which include common stocks, preferred stocks and convertible securities like warrants, rights and convertible debt. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team identifies stocks using a disciplined analytical process. Starting with a universe of companies with market capitalization of at least $1 billion, the team assesses the investment potential of these companies and their industries by evaluating: o the growth prospects of the company's industry o the company's relative competitive position in the industry The team believes that this analysis identifies companies with favorable long-term growth potential, competitive advantages and sensible business strategies. The team then uses quantitative analysis to decide when to invest, evaluating each company's earnings trends and stock valuations, among other things, to try to determine when it is reasonably valued. In actively managing the portfolio, the team considers the characteristics of the S&P MidCap 400 as a general baseline. The index characteristics evaluated by the team include risk and sector diversification, as well as individual securities holdings. The team may use various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: o may limit the number of buy and sell transactions it makes o will try to sell shares that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when its price reaches the target set by the team, the company's growth prospects are deteriorating, when the team believes other investments are more attractive, and for other reasons. 62 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations MidCap Growth Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have the potential for superior long-term growth. There is a risk that the value of these investments will not rise as high as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Fund may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. 63 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH FOLLOWING PLOT POINTS] 11.66% 0.39% 29.71% 18.32% 20.48% 3.30% 43.45% 14.30% ------ ----- ------ ------ ------ ----- ------ ------ 1993 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -8.70% Best and worst quarterly returns during this period Best: 4th quarter 1999: 32.63% Worst: 3rd quarter 1998: -26.48%
[GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P MidCap 400, an unmanaged index of 400 domestic stocks chosen for market size, liquidity and industry representation. The index is weighted by market value, and is not available for investment.
Since 1 year 5 years inception* Investor A Shares 7.74% 17.87% 16.69% Investor B Shares 9.03% 18.18% 17.90% Investor C Shares 12.76% 18.59% 16.82% S&P MidCap 400 17.51% 20.41% 17.82%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are December 10, 1992, June 7, 1993 and December 18, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 64 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.65% 0.65% 0.65% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.33% 0.33% 0.33% ----- ------ ----- Total annual Fund operating expenses 1.23% 1.98% 1.98% ===== ====== =====
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 65 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $693 $944 $1,213 $1,981 Investor B Shares $701 $921 $1,268 $2,113 Investor C Shares $301 $621 $1,068 $2,306
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $201 $621 $1,068 $2,113 Investor C Shares $201 $621 $1,068 $2,306
66 [GRAPHIC OMITTED] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Marsico Capital is its sub-adviser. James A. Hillary is its portfolio manager and makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC OMITTED] You'll find more about Marsico Capital and Mr. Hillary on page 177. [GRAPHIC OMITTED] What is a multi-cap fund? A multi-cap fund invests in companies across the capitalization spectrum -- small, medium-sized and large companies. As a multi-cap fund, this Fund may invest in large, established and well-known U.S. and foreign companies, as well as small, new and relatively unknown companies that are believed to have the potential to grow significantly. Nations Marsico 21st Century Fund [GRAPHIC OMITTED] Investment objective The Fund seeks long-term growth of capital. [GRAPHIC OMITTED] Principal investment strategies The Fund invests all of its assets in Nations Marsico 21st Century Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio is an aggressive growth fund that primarily invests in equity securities of companies of any capitalization size. The Master Portfolio will focus on paradigm shifting technologies and companies seeking to take advantage of technological innovations in the way business is conducted. The Master Portfolio may invest without limit in foreign securities. The Master Portfolio also may invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Marsico Capital uses an approach that combines "top-down" economic analysis with "bottom-up" stock selection. The "top-down" approach takes into consideration such macroeconomic factors as interest rates, inflation, the regulatory environment and the global competitive landscape. In addition, Marsico Capital also examines such factors as the most attractive global investment opportunities, industry consolidation and the sustainability of economic trends. As a result of the "top-down" analysis, Marsico Capital identifies sectors, industries and companies which it believes should benefit from the overall trends observed. Marsico Capital then looks for individual companies with earnings growth potential that may not be recognized by the market at large. In determining whether a particular company is suitable for investment, Marsico Capital focuses on a number of different attributes including the company's specific market expertise or dominance, its franchise durability and pricing power, solid fundamentals (strong balance sheet, improving returns on equity, ability to generate free cash flow), strong management and reasonable valuations in the context of projected growth rates. As part of this fundamental, "bottom-up" research, Marsico Capital may visit with various levels of a company's management as well as with its customers, suppliers and competitors. Marsico Capital also prepares detailed earnings and cash flow models of companies. These models permit it to project earnings growth and other important characteristics under different scenarios. Each model is customized to follow a particular company and is intended to replicate and describe a company's past, present and future performance. The models are comprised of quantitative information and detailed narratives that reflect updated interpretations of corporate data. Marsico Capital may sell a security when it believes there is a deterioration in the company's financial situation, the security is overvalued, when there is a negative development in the company's competitive, regulatory or economic environment, and for other reasons. 67 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Marsico 21st Century Fund has the following risks: o Investment strategy risk - There is a risk that the value of the Master Portfolio's investments will not rise as high as Marsico Capital expects, or will fall. o Stock market risk - The value of any stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Small company risk - Stocks of smaller companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains but also carry more risk. o Technology and technology-related risk - The Master Portfolio may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. o Foreign investment risk - Because the Master Portfolio may invest without limitation in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 68 [GRAPHIC OMITTED] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.75% 0.75% 0.75% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.60% 0.60% 0.60% ----- ----- ----- Total annual Fund operating expenses 1.60% 2.35% 2.35% ===== ===== =====
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. 69 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $729 $1,052 $1,397 $2,369 Investor B Shares $738 $1,033 $1,455 $2,499 Investor C Shares $338 $ 733 $1,255 $2,686
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $238 $733 $1,255 $2,499 Investor C Shares $238 $733 $1,255 $2,686
70 [GRAPHIC OMITTED] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's SmallCap Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] Why invest in a small company fund? A small company fund invests in smaller companies with promising products or that are operating in a dynamic field. These companies can have stronger potential for rapid earnings growth than larger companies. They may, however, have a harder time securing financing and may be more sensitive to a setback than larger, more established companies. The team looks for companies whose earnings are growing quickly, and whose share prices are reasonably valued. Nations Small Company Fund [GRAPHIC OMITTED] Investment objective The Fund seeks long-term capital growth by investing primarily in equity securities. [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 65% of its assets in companies with a market capitalization of $2 billion or less. The Fund usually holds 75 to 130 equity securities. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team identifies stocks using a disciplined process based on the fundamental analysis of the overall economy, industry conditions, and the financial situation and management of each company. It generates ideas from: o company meetings/conferences o independent industry analysis o quantitative analysis o Wall Street (brokerage) research The team then conducts a rigorous qualitative analysis of each company being considered for investment. This involves, among other things: o gaining an in-depth understanding of the company's business o evaluating the company's growth potential, risks and competitive strengths o discussing its growth strategy with company management o validating the growth strategy with external research The team will only invest in a company when its stock price is attractive relative to its forecasted growth. The team may use various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: o may limit the number of buy and sell transactions it makes o will try to sell shares that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when its price reaches the target set by the team, the company's growth prospects are deteriorating, when the team believes other investments are more attractive, and for other reasons. 71 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Small Company Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have the potential for long-term growth. There is a risk that the value of these investments will not rise as high as the team expects, or will fall. o Small company risk - Stocks of small companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains but also carry more risk. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Fund may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. 72 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH FOLLOWING PLOT POINTS] 19.92% 19.47% 1.22% 54.51% -1.83% ------ ------ ----- ------ ------ 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -8.38% Best and worst quarterly returns during this period Best: 4th quarter 1999: 43.14% Worst: 3rd quarter 1998: -25.80%
73 [GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the indices do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Russell 2000 Growth Index, an index comprised of securities in the Russell 2000 Index, which is a measure of small company performance, with a greater than average growth orientation. Prior to August 1, 2001, the Fund compared its performance to the Russell 2000 Index. The Fund changed the index to which it compares its performance because the Russell 2000 Growth Index is considered to be a more appropriate comparison. The indices are unmanaged, weighted by market capitalization and are not available for investment.
Since 1 year 5 years inception* Investor A Shares -7.46% 15.71% 15.25% Investor B Shares -6.89% 16.10% 15.75% Investor C Shares -3.42% -- 10.65% Russell 2000 Growth Index -22.43% 7.14% 7.48% Russell 2000 Index -3.02% 10.31% 10.70%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are December 12, 1995, December 12, 1995 and September 22, 1997, respectively. The returns for the indices shown are from inception of Investor A Shares. 74 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.90% 0.90% 0.90% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.30% 0.30% 0.30% ------ ------ ----- Total annual Fund operating expenses 1.45% 2.20% 2.20% Fee waivers and/or reimbursements (0.05)% (0.05)% (0.05)% ------ ------ ----- Total net expenses(5) 1.40% 2.15% 2.15% ====== ====== =====
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 75 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $709 $1,003 $1,319 $2,210 Investor B Shares $718 $ 983 $1,375 $2,340 Investor C Shares $318 $ 683 $1,175 $2,530
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $218 $683 $1,175 $2,340 Investor C Shares $218 $683 $1,175 $2,530
76 [GRAPHIC OMITTED] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Growth Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] What does a financial services fund invest in? The financial services industry includes banks, brokerage firms, asset management firms, insurance companies and transaction processing companies, among others. Nations Financial Services Fund [GRAPHIC OMITTED] Investment objective The Fund seeks growth of capital. [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 80% of its assets in equity securities of companies that are principally engaged in the financial services industry. The Fund, which is non-diversified, generally holds 40 to 60 securities. It may invest without limitation in foreign securities. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team identifies stocks using a disciplined analytical process. Starting with a universe of companies across the entire financial sector, the team assesses the investment potential of these companies by evaluating each company's relative competitive position in the industry. The team believes that this analysis identifies companies with favorable long-term growth potential, competitive advantages and sensible business strategies. The team then uses quantitative analysis to decide when to invest, evaluating each company's earnings trends and stock valuations, among other things, to try to determine when it's reasonably valued. In managing the portfolio, the team places an emphasis on companies believed to exhibit certain characteristics, such as companies that: o are increasing their revenues along with their earnings o can grow their revenues and earnings in a variety of interest rate environments o have both marketing expertise and superior technology The team may sell a security when it believes there is a deterioration in the company's financial situation, the security is overvalued, when there is a negative development in the company's competitive, regulatory or economic environment, and for other reasons. 77 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Financial Services Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have the potential for long-term growth. There is a risk that the value of the Fund's investments will not rise as high as the team expects, or will fall. o Holding fewer investments - The Fund is considered to be non-diversified because it may hold fewer investments than other kinds of equity funds. This increases the risk that its value could go down significantly if even only one of its investments performs poorly. The value of the Fund will tend to have greater price swings than the value of more diversified equity funds. The Fund may become a diversified fund by limiting the investments in which more than 5% of its total assets are invested. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Concentration risk - The Fund concentrates its investments in financial services companies and will be subject to the risks affecting the financial services industry generally. Legislative and regulatory developments may significantly affect this industry and consequently may subject the Fund's investments to greater market fluctuations. In addition, the Federal Reserve may adjust interest rates which can have a significant impact upon the profitability of financial services companies, and a corresponding impact upon the value of the Fund's investments. o Foreign investment risk - Because the Fund may invest without limitation in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfoliodoesn't attract other feeder funds, however, a feeder fund's expensescould be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 78 [GRAPHIC OMITTED] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses (Expenses that are deducted from the Fund's assets) Management fees 0.75% 0.75% 0.75% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses(4) 0.55% 0.55% 0.55% ----- ------ ----- Total annual Fund operating expenses(5) 1.55% 2.30% 2.30% ===== ====== =====
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)Other expenses are based on estimates for the current fiscal year. (5)The Fund's investment adviser and/or some of its other service providers have agreed to limit total annual operating expenses to the levels shown above until July 31, 2002. There is no guarantee that these limitations will continue after this date. The investment adviser is entitled to reimbursement from the Fund of any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this agreement if such reimbursements do not cause the Fund's expenses to exceed the existing expense limitations. 79 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years Investor A Shares $724 $1,037 Investor B Shares $733 $1,018 Investor C Shares $333 $ 718
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years Investor B Shares $233 $718 Investor C Shares $233 $718
80 [GRAPHIC OMITTED] About the sub-adviser Brandes is this Fund's sub-adviser. Brandes' Large Cap Investment Committee makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about Brandes on page 179. [GRAPHIC OMITTED] What is the Graham and Dodd approach to investing? Benjamin Graham is widely regarded as the founder of this classic value approach to investing and a pioneer in modern security analysis. In his 1934 book, Security Analysis, co-written by David Dodd, Graham introduced the idea that stocks should be chosen by identifying the "true" long-term -- or intrinsic -- value of a company based on measurable data. Benjamin Graham and David Dodd have never had any affiliation with the Fund. The management team follows this approach, looking at each stock as though it's a business that's for sale. By buying stocks at what it believes are favorable prices, the team looks for the potential for appreciation over the business cycle, and for a margin of safety against price declines. Nations Global Value Fund [GRAPHIC OMITTED] Investment objective The Fund seeks long-term capital appreciation by investing primarily in equity securities of domestic and foreign issuers, including issuers in emerging markets countries. [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 80% of its assets in equity securities of domestic and foreign companies that have a market capitalization of more than $1 billion at the time of investment and that are believed to be undervalued. The Fund typically invests in at least three countries, including the United States, at any one time. The Fund primarily invests in equity securities and may, with respect to its foreign investments, invest in the foregoing and/or depositary receipts. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The management team uses the "Graham and Dodd" value approach to selecting securities and managing the Fund. The team invests in a company when its current price appears to be below its "true" long-term -- or intrinsic -- value. The team uses fundamental analysis to determine intrinsic value, and will look at a company's earnings, book value, cash flow, capital structure, and management record, as well as its industry and its position in the industry. This analysis includes a review of company reports, filings with the SEC, computer databases, industry publications, general and business publications, brokerage firm research reports and other information sources, as well as interviews with company management. The team may sell a security when its price reaches the target set by the team, when there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, and for other reasons. 81 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Limits on investments To help manage risk, the Fund has certain limits on its investments. These limits apply at the time an investment is made: o The Fund will normally invest no more than 5% of its assets in a single security. o It may not invest more than the greater of: o 20% of its assets in a single country or industry, or o 150% of the weighting of a single country or industry in the MSCI World Index (limited to less than 25% of its assets in a single industry, other than U.S. government securities). o It generally may not invest more than 20% of its assets in emerging markets or developing countries. [GRAPHIC OMITTED] Risks and other things to consider Nations Global Value Fund has the following risks: o Investment strategy risk - The team chooses stocks it believes are undervalued or out of favor with the expectation that these stocks will eventually rise in value. There is a risk that the value of these investments will not rise as high or as quickly as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Foreign investment risk - Because the Fund invests in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Emerging markets risk - Securities issued by companies in developing or emerging market countries, like those in Eastern Europe, the Middle East, Asia or Africa, may be more sensitive to the risks of foreign investing. In particular, these countries may experience instability resulting from rapid social, political and economic development. Many of these countries are dependent on international trade, which makes them sensitive to world commodity prices and economic downturns in other countries. Some emerging countries have a higher risk of currency devaluations, and some countries may experience long periods of high inflation or rapid changes in inflation rates. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 82 [GRAPHIC OMITTED] For information about the performance of other global stock accounts managed by Brandes, see How the Funds are managed. [GRAPHIC OMITTED] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses (Expenses that are deducted from the Fund's assets) Management fees 0.90% 0.90% 0.90% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses(4) 0.50% 0.50% 0.50% ----- ----- ----- Total annual Fund operating expenses(5) 1.65% 2.40% 2.40% ===== ===== =====
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)Other expenses are based on estimates for the current fiscal year. (5)The Fund's investment adviser and/or some of its other service providers have agreed to limit total annual operating expenses to the levels shown above until July 31, 2002. There is no guarantee that these limitations will continue after this date. The investment adviser is entitled to reimbursement from the Fund of any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this agreement if such reimbursements do not cause the Fund's expenses to exceed the existing expense limitations. 83 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years Investor A Shares $733 $1,066 Investor B Shares $743 $1,048 Investor C Shares $343 $ 748
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years Investor B Shares $243 $748 Investor C Shares $243 $748
84 [GRAPHIC OMITTED] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Brandes is its sub-adviser. Brandes' Large Cap Investment Committee makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC OMITTED] You'll find more about Brandes on page 179. [GRAPHIC OMITTED] What is the Graham and Dodd approach to investing? Benjamin Graham is widely regarded as the founder of this classic value approach to investing and a pioneer in modern security analysis. In his 1934 book, Security Analysis, co-written by David Dodd, Graham introduced the idea that stocks should be chosen by identifying the "true" long-term -- or intrinsic -- value of a company based on measurable data. Benjamin Graham and David Dodd have never had any affiliation with the Fund. The management team follows this approach, looking at each stock as though it's a business that's for sale. By buying stocks at what it believes are favorable prices, the team looks for the potential for appreciation over the business cycle, and for a margin of safety against price declines. Nations International Value Fund [GRAPHIC OMITTED] Investment objective The Fund seeks long-term capital appreciation by investing primarily in equity securities of foreign issuers, including emerging markets countries. [GRAPHIC OMITTED] Principal investment strategies The Fund invests all of its assets in Nations International Value Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in foreign companies anywhere in the world that have a market capitalization of more than $1 billion at the time of investment. The Master Portfolio typically invests in at least three countries other than the United States at any one time. The Master Portfolio primarily invests in equity securities either directly or indirectly through closed-end investment companies and depositary receipts. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The management team uses the "Graham and Dodd" value approach to selecting securities and managing the Master Portfolio. The team invests in a company when its current price appears to be below its true long-term -- or intrinsic -- value. The team uses fundamental analysis to determine intrinsic value, and will look at a company's book value, cash flow, capital structure, and management record, as well as its industry and its position in the industry. This analysis includes a review of company reports, filings with the SEC, computer databases, industry publications, general and business publications, brokerage firm research reports and other information sources, as well as interviews with company management. The team may sell a security when its price reaches the target set by the team, there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, and for other reasons. 85 [GRAPHIC OMITTED] Limits on investments To help manage risk, the Fund has certain limits on its investments. These limits apply at the time an investment is made: o The Fund will normally invest no more than 5% of its assets in a single security. o It may not invest more than the greater of: o 20% of its assets in a single country or industry, or o 150% of the weighting of a single country or industry in the MSCI EAFE Index (limited to less than 25% of its assets in a single industry, other than U.S. government securities). o It generally may not invest more than 20% of its assets in emerging markets or developing countries. [GRAPHIC OMITTED You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations International Value Fund has the following risks: o Investment strategy risk - The team chooses stocks it believes are undervalued or out of favor with the expectation that these stocks will eventually rise in value. There is a risk that the value of these investments will not rise as high or as quickly as the team expects, or will fall. o Foreign investment risk - Because the Master Portfolio invests primarily in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Emerging markets risk - Securities issued by companies in developing or emerging market countries, like those in Eastern Europe, the Middle East, Asia or Africa, may be more sensitive to the risks of foreign investing. In particular, these countries may experience instability resulting from rapid social, political and economic development. Many of these countries are dependent on international trade, which makes them sensitive to world commodity prices and economic downturns in other countries. Some emerging countries have a higher risk of currency devaluations, and some countries may experience long periods of high inflation or rapid changes in inflation rates. o Stock market risk - The value of the stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 86 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. For information about the performance of other international accounts managed by Brandes, see How the Funds are managed. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 15.32% 20.38% 11.82% 52.43% 2.94% ------ ------ ------ ------ ----- 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -6.96% Best and worst quarterly returns during this period Best: 4th quarter 1999: 24.15% Worst: 3rd quarter 1998: -16.57%
[GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the MSCI EAFE Index (Morgan Stanley Capital International Europe, Australasia and Far East Index), an unmanaged, capitalization-weighted index consisting of securities listed on exchanges in European, Australasian and Far Eastern Markets. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares -2.97% 18.08% 17.92% Investor B Shares -2.51% -- 15.84% Investor C Shares 1.25% -- 21.56% MSCI EAFE Index -14.17% 7.13% 7.13%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are December 27, 1995, May 22, 1998 and June 15, 1998, respectively. The return for the index shown is from inception of Investor A Shares. 87 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.90% 0.90% 0.90% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.33% 0.33% 0.33% ---- ----- ------ Total annual Fund operating expenses 1.48% 2.23% 2.23% ==== ===== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. 88 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $717 $1,017 $1,338 $2,245 Investor B Shares $726 $ 997 $1,395 $2,376 Investor C Shares $326 $ 697 $1,195 $2,565
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $226 $697 $1,195 $2,376 Investor C Shares $226 $697 $1,195 $2,565
89 [GRAPHIC OMITTED] About the sub-advisers The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser. The Master Portfolio is a "multi-manager" fund, which means that it's managed by more than one sub-adviser. Gartmore Global Partners (Gartmore), INVESCO Global Asset Management (N.A.), Inc. (INVESCO) and Putnam Investment Management LLC (Putnam) each manage approximately one-third of the assets of the Master Portfolio. Gartmore's Global Equities Portfolio Construction Team, INVESCO's International Equity Portfolio Management Team and Putnam's Core International Equity Group make the day-to-day investment decisions for their portions of the Master Portfolio. [GRAPHIC OMITTED] You'll find more about Gartmore, on page 183, and INVESCO and Putnam on page 184. [GRAPHIC OMITTED] Why invest in an international stock fund? International stock funds invest in a diversified portfolio of companies located in markets throughout the world. These companies can offer investment opportunities that are not available in the United States. Investing internationally also involves special risks not associated with investing in the U.S. stock market. Nations International Equity Fund [GRAPHIC OMITTED] Investment objective The Fund seeks long-term capital growth by investing primarily in equity securities of non-United States companies in Europe, Australia, the Far East and other regions, including developing countries. [GRAPHIC OMITTED] Principal investment strategies The Fund invests all of its assets in Nations International Equity Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in established companies located in at least three countries other than the United States. The investment managers select countries, including emerging market or developing countries, and companies they believe have the potential for growth. The Master Portfolio primarily invests in equity securities which may include equity interests in foreign investment funds or trusts, convertible securities, real estate investment trust securities and depositary receipts. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The Master Portfolio may invest in foreign currency exchange contracts to convert foreign currencies to and from the U.S. dollar, and to hedge against changes in foreign currency exchange rates. The Master Portfolio is a "multi-manager" fund. It has three different investment managers. Each is responsible for managing approximately one-third of the Master Portfolio's assets. The managers all have different, but complementary, investment styles: o Gartmore combines "top-down" allocation among regions around the world with a stock selection process that focuses on investing in securities when growth is likely to be higher, or sustained longer, than other investors expect. o INVESCO uses a "bottom-up" approach, and favors well-established companies with above average financial strength and sustainable growth. o Putnam is a "core manager," focusing on stable, long-term investments, rather than growth or value stocks. It combines "bottom-up" stock selection with "top-down" country allocation. The multi-manager strategy is based on the belief that having more than one manager may result in better performance and more stable returns over time. A manager may sell a security when its price reaches the target set by the manager, when the company's growth prospects are deteriorating, when the manager believes other investments are more attractive, and for other reasons. 90 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations International Equity Fund has the following risks: o Investment strategy risk - The managers choose stocks they believe have the potential for long-term growth. There is a risk that the value of these investments will not rise as high as expected, or will fall. There is also a risk that the Fund's multi-manager strategy may not result in better performance or more stable returns. o Foreign investment risk - Because the Master Portfolio invests primarily in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. If the Master Portfolio invests in emerging markets there may be other risks involved, such as those of immature economies and lesser developed and more thinly traded securities markets. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Stock market risk - The value of the stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Futures risk - This Master Portfolio may use futures contracts to convert currencies and to hedge against changes in foreign currency exchange rates. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 91 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH FOLLOWING PLOT POINTS] 26.90% 2.21% 8.21% 8.14% 1.04% 16.40% 39.13% -15.33% ------ ----- ----- ----- ----- ------ ------ ------- 1993 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -13.83% Best and worst quarterly returns during this period Best: 4th quarter 1999: 28.40% Worst: 3rd quarter 1998: -13.88%
92 [GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the MSCI EAFE Index (Morgan Stanley Capital International Europe, Australasia and Far East Index), an unmanaged, capitalization-weighted index consisting of securities listed on exchanges in European, Australasian and Far Eastern Markets. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares -20.20% 7.14% 7.14% Investor B Shares -19.79% 7.23% 7.88% Investor C Shares -16.79% 7.66% 7.45% MSCI EAFE Index -14.17% 7.13% 8.94%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are June 3, 1992, June 7, 1993 and June 17, 1992, respectively. The return for the index shown is from inception of Investor A Shares. [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.80% 0.80% 0.80% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.35% 0.35% 0.35% ---- ----- ------ Total annual Fund operating expenses 1.40% 2.15% 2.15% ==== ===== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. 93 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $709 $993 $1,298 $2,161 Investor B Shares $718 $973 $1,354 $2,292 Investor C Shares $318 $673 $1,154 $2,483
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $218 $673 $1,154 $2,292 Investor C Shares $218 $673 $1,154 $2,483
94 [GRAPHIC OMITTED] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Marsico Capital is its sub-adviser. James Gendelman is the portfolio manager and makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC OMITTED] You'll find more about Marsico Capital and James Gendelman on page 177. [GRAPHIC OMITTED] What is an international fund? International stock funds invest in a diversified portfolio of companies located in markets throughout the world. These companies can offer investment opportunities that are not available in the United States. Nations Marsico International Opportunities Fund [GRAPHIC OMITTED] Investment objective The Fund seeks long-term growth of capital. [GRAPHIC OMITTED] Principal investment strategies The Fund invests all of its assets in Nations Marsico International Opportunities Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in common stocks of foreign companies. While the Master Portfolio may invest in companies of any size, it focuses on large companies. These companies are selected for their long-term growth potential. The Master Portfolio normally invests in issuers from at least three different countries not including the United States and generally holds a core position of 35 to 50 common stocks. The Master Portfolio may invest in common stocks of companies operating in emerging markets. The Master Portfolio also may invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Marsico Capital uses an approach that combines "top-down" economic analysis with "bottom-up" stock selection. The "top-down" approach takes into consideration such macroeconomic factors as interest rates, inflation, the regulatory environment and the global competitive landscape. In addition, Marsico Capital also examines such factors as the most attractive global investment opportunities, industry consolidation and the sustainability of economic trends. As a result of the "top-down" analysis, Marsico Capital identifies sectors, industries and companies which it believes should benefit from the overall trends observed. Marsico Capital then looks for individual companies with earnings growth potential that may not be recognized by the market at large. In determining whether a particular company is suitable for investment, Marsico Capital focuses on a number of different attributes including the company's specific market expertise or dominance, its franchise durability and pricing power, solid fundamentals (strong balance sheet, improving returns on equity, ability to generate free cash flow), strong management and reasonable valuations in the context of projected growth rates. As part of this fundamental, "bottom-up" research, Marsico Capital may visit with various levels of a company's management as well as with its customers, suppliers and competitors. Marsico Capital also prepares detailed earnings and cash flow models of companies. These models permit it to project earnings growth and other important characteristics under different scenarios. Each model is customized to follow a particular company and is intended to replicate and describe a company's past, present and future performance. The models are comprised of quantitative information and detailed narratives that reflect updated interpretations of corporate data. 95 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. Marsico Capital may sell a security when it believes there is a deterioration in the company's financial situation, the security is overvalued, when there is a negative development in the company's competitive, regulatory or economic environment, and for other reasons. [GRAPHIC OMITTED] Risks and other things to consider Nations Marsico International Opportunities Fund has the following risks: o Investment strategy risk - There is a risk that the value of the Master Portfolio's investments will not rise as high as Marsico Capital expects, or will fall. o Stock market risk - The value of any stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Master Portfolio may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. o Foreign investment risk - Because the Master Portfolio invests primarily in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. If the Master Portfolio invests in emerging markets there may be other risks involved, such as those of immature economies and less developed and more thinly traded securities markets. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 96 [GRAPHIC OMITTED] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.80% 0.80% 0.80% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 5.46% 5.46% 5.46% ---------- ----- ----- Total annual Fund operating expenses 6.51% 7.26% 7.26% Fee waivers and/or reimbursements (4.76)% (4.76)% (4.76)% ---------- ----- ------- Total net expenses(6) 1.75% 2.50% 2.50% ========== ===== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. (6)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 97 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $743 $1,993 $3,206 $6,082 Investor B Shares $753 $2,002 $3,285 $6,187 Investor C Shares $353 $1,708 $3,098 $6,307
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $253 $1,708 $3,098 $6,187 Investor C Shares $253 $1,708 $3,098 $6,307
98 [GRAPHIC OMITTED] About the sub-adviser Gartmore is this Fund's sub-adviser. Christopher Palmer, CFA, a senior investment manager on the Gartmore Emerging Markets Team, makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about Gartmore on page 183. [GRAPHIC OMITTED] What's an emerging market? This Fund considers a country to be an emerging market if: o the International Finance Corporation has defined it as an emerging market, o it has a low-to-middle income economy according to the World Bank, or o it's listed as developing in World Bank publications. There are over 25 countries that currently qualify as emerging markets, including Argentina, Brazil, Chile, China, the Czech Republic, Colombia, Ecuador, Greece, Hong Kong, Indonesia, India, Malaysia, Mexico, the Philippines, Poland, Portugal, Peru, Russia, Singapore, South Africa, Thailand, Taiwan and Turkey. Nations Emerging Markets Fund [GRAPHIC OMITTED] Investment objective The Fund seeks long-term capital growth by investing primarily in equity securities of companies in emerging market countries, such as those in Latin America, Eastern Europe, the Pacific Basin, the Far East and India. [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 65% of its assets in companies in emerging markets or developing countries. The Fund intends to invest in securities of companies in at least three of these countries at any one time. The Fund normally invests in common stocks, preferred stocks, convertible securities, equity interests in foreign investment funds or trusts, and depositary receipts. The Fund may invest in foreign currency exchange contracts to convert foreign currencies to and from the U.S. dollar, and to hedge against changes in foreign currency exchange rates. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The portfolio manager looks for emerging markets that are believed to have the potential for strong economic growth, and tries to avoid emerging markets that might be politically or economically risky. The portfolio manager starts with approximately 800 companies in the most promising markets, and: o uses fundamental research to select stocks, looking at earnings growth, financial resources, marketability, and other factors o visits companies to confirm the corporate and industry factors that led to a stock's selection as a potential investment o regularly reviews the Fund's investments to determine whether companies are meeting expected return targets and whether their fundamental financial health has changed The portfolio manager may sell a security when its price reaches the target set by the portfolio manager, when there is a deterioration in the growth prospects of the company or its industry, when the portfolio manager believes other investments are more attractive, and for other reasons. 99 [GRAPHIC OMITTED] You'll find more about other risks of investing in this fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Emerging Markets Fund has the following risks: o Investment strategy risk - The portfolio manager invests in securities of companies in emerging markets, which have high growth potential, but can be more volatile than securities in more developed markets. There is a risk that the value of these investments will not rise as high as the portfolio manager expects, or will fall. o Foreign investment risk - Because the Fund invests primarily in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Emerging markets risk - Securities issued by companies in developing or emerging market countries, like those in Eastern Europe, the Middle East, Asia or Africa, may be more sensitive to the risks of foreign investing. In particular, these countries may experience instability resulting from rapid social, political and economic development. Many of these countries are dependent on international trade, which makes them sensitive to world commodity prices and economic downturns in other countries. Some emerging countries have a higher risk of currency devaluations, and some countries may experience long periods of high inflation or rapid changes in inflation rates. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Futures risk - This Fund may use futures contracts to convert currencies and to hedge against changes in foreign currency exchange rates. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 100 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH FOLLOWING PLOT POINTS] 8.50% -3.20% -25.78% 96.09% -35.30 ----- ------ ------- ------ ------ 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -0.08% Best and worst quarterly returns during this period Best: 4th quarter 1999: 48.17% Worst: 3rd quarter 1998: -24.26%
101 [GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P/IFC Investables Index, an unmanaged index that tracks more than 1,400 stocks in 25 emerging markets in Asia, Latin America, Eastern Europe, Africa and the Middle East. The index is weighted by market capitalization and is not available for investment.
Since 1 year 5 years inception* Investor A Shares -39.03% -1.40% -1.68% Investor B Shares -38.89% -1.33% -1.52% Investor C Shares -36.41% -0.82% -1.24% S&P/IFC Investables Index -30.28% -3.25% -3.19%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares is June 30, 1995. The return for the index shown is from that date. [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2 ) 1.00%(3) Annual Fund operating expenses4 (Expenses that are deducted from the Fund's assets) Management fees 1.00% 1.00% 1.00% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.82% 0.82% 0.82% ---- -------- -------- Total annual Fund operating expenses 2.07% 2.82% 2.82% ==== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 102 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $773 $1,187 $1,626 $2,841 Investor B Shares $785 $1,174 $1,689 $2,969 Investor C Shares $385 $ 874 $1,489 $3,147
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $285 $874 $1,489 $2,969 Investor C Shares $285 $874 $1,489 $3,147
103 [GRAPHIC OMITTED] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Quantitative Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] What is an index fund? Index funds use a "passive" or "indexing" investment approach, which attempts to duplicate the performance of a specific market index. Correlation measures how closely a fund's returns match those of an index. A perfect correlation of 1.0 means that the net asset value of the fund increases or decreases in exact proportion to changes in the index. Nations LargeCap Index Fund [GRAPHIC OMITTED] Investment objective The Fund seeks investment results that (before fees and expenses) correspond to the total return of the Standard & Poor's 500 Composite Stock Price Index (S&P 500). [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 80% of its assets in common stocks that are included in the S&P 500. The S&P 500 is an unmanaged index of 500 widely held common stocks, and is not available for investment. The Fund may buy stock index futures and financial futures as substitutes for the underlying securities in the S&P 500. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Different common stocks have different weightings in the S&P 500, depending on the amount of stock outstanding and the stock's current price. In trying to match the performance of the S&P 500, the team will try to allocate the Fund's portfolio among common stocks in approximately the same weightings as the S&P 500, beginning with the most heavily weighted stocks that make up a larger portion of the value of the S&P 500. The Fund may buy shares of Bank of America Corporation, which is currently included in the S&P 500, subject to certain restrictions. The Fund tries to achieve a correlation of 0.95 with the S&P 500 on an annual basis (before fees and expenses). The Fund's ability to track the S&P 500 is affected by transaction costs and other expenses, changes in the composition of the S&P 500, changes in the number of shares issued by the companies represented in the S&P 500, and by the timing and amount of shareholder purchases and redemptions, among other things. Equity mutual funds, like other investors in equity securities, incur transaction costs, such as brokerage costs, when they buy and sell securities. The team tries to minimize these costs for the Fund by using program trades and crossing networks. The team may sell a stock when its percentage weighting in the index is reduced, when the stock is removed from the index, and for other reasons. 104 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations LargeCap Index Fund has the following risks: o Investment strategy risk - This Fund tries to match (before fees and expenses) the returns of the S&P 500, and is not actively managed. There is no assurance that the returns of the Fund will match the returns of the S&P 500. The value of the Fund will rise and fall with the performance of the S&P 500. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Futures risk - This Fund may use futures contracts as a substitute for the securities included in the index. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. 105 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH FOLLOWING PLOT POINTS] 22.22% 32.04% 28.06% 20.34% -9.60% ------ ------ ------ ------ ------ 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -7.01% Best and worst quarterly returns during this period Best: 4th quarter 1998: 21.12% Worst: 3rd quarter 1998: -9.93%
[GRAPHIC OMITTED] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment.
Since 1 year 5 years inception* Investor A Shares -9.60% 17.59% 18.32% S&P 500 -9.10% 18.33% 18.70%
*The inception date of Investor A Shares is October 10, 1995. The return for the index shown is from that date. 106 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% Other expenses 0.28% ------ Total annual Fund operating expenses 0.93% Fee waivers and/or reimbursements (0.33% ------ Total net expenses(2) 0.60% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $61 $263 $482 $1,113
107 [GRAPHIC OMITTED] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Quantitative Strategies Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] What is an index fund? Index funds use a "passive" or "indexing" investment approach, which attempts to duplicate the performance of a specific market index. Correlation measures how closely a fund's returns match those of an index. A perfect correlation of 1.0 means that the net asset value of the fund increases or decreases in exact proportion to changes in the index. Nations MidCap Index Fund [GRAPHIC OMITTED] Investment objective The Fund seeks investment results that (before fees and expenses) correspond to the total return of the Standard & Poor's MidCap 400 Stock Price Index (S&P MidCap 400). [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 80% of its assets in common stocks that are included in the S&P MidCap 400. The S&P MidCap 400 is an unmanaged index of 400 domestic stocks chosen for their market size, liquidity and industry representation. The index is not available for investment. The Fund may buy stock index futures and other financial futures as substitutes for the underlying securities in the S&P MidCap 400. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Different common stocks have different weightings in the S&P MidCap 400, depending on the amount of stock outstanding and the stock's current price. In trying to match the performance of the S&P MidCap 400, the team will try to allocate the Fund's portfolio among common stocks in approximately the same weightings as the S&P MidCap 400, beginning with the most heavily weighted stocks that make up a larger portion of the value of the S&P MidCap 400. The Fund tries to achieve a correlation of at least 0.95 with the return of the S&P MidCap 400 on an annual basis (before fees and expenses). The Fund's ability to track the S&P MidCap 400 may be adversely affected by transaction costs and other expenses, changes in the composition of the S&P MidCap 400, changes in the number of shares issued by the companies represented in the S&P MidCap 400, and by the timing and amount of shareholder purchases and redemptions, among other things. Equity mutual funds, like other investors in equity securities, incur transaction costs, such as brokerage costs, when they buy and sell securities. The team tries to minimize these costs for the Fund by using electronic trading systems such as crossing networks and other trading strategies. The team may sell a stock when its percentage weighting in the index is reduced, when the stock is removed from the index, when the team believes the stock is not liquid enough, and for other reasons. 108 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations MidCap Index Fund has the following risks: o Investment strategy risk - This Fund tries to match (before fees and expenses) the returns of the S&P MidCap 400, and is not actively managed. There is no assurance that the returns of the Fund will match the returns of the S&P MidCap 400. The value of the Fund will rise and fall with the performance of the S&P MidCap 400. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Futures risk - This Fund may use futures contracts as a substitute for the securities included in the index. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. [GRAPHIC OMITTED] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. 109 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% Other expenses 0.35% ------ Total annual Fund operating expenses 1.00% Fee waivers and/or reimbursements (0.40)% ------ Total net expenses(2) 0.60% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $61 $279 $514 $1,188
110 [GRAPHIC OMITTED] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Quantitative Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] What is an index fund? Index funds use a "passive" or "indexing" investment approach, which attempts to duplicate the performance of a specific market index. Correlation measures how closely a fund's returns match those of an index. A perfect correlation of 1.0 means that the net asset value of the fund increases or decreases in exact proportion to changes in the index. Nations SmallCap Index Fund [GRAPHIC OMITTED] Investment objective The Fund seeks investment results that (before fees and expenses) correspond to the total return of the Standard & Poor's SmallCap 600 Index (S&P SmallCap 600). [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 80% of its assets in common stocks that are included in the S&P SmallCap 600. The S&P SmallCap 600 is an unmanaged market capitalization index consisting of 600 common stocks that capture the economic and industry characteristics of small company stock performance. It is not available for investment. The Fund may buy stock index futures and other financial futures as substitutes for the underlying securities in the S&P SmallCap 600. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Different common stocks have different weightings in the S&P SmallCap 600, depending on the amount of stock outstanding and the stock's current price. In trying to match the performance of the S&P SmallCap 600, the team will try to allocate the Fund's portfolio among common stocks in approximately the same weightings as the S&P SmallCap 600, beginning with the most heavily weighted stocks that make up a larger portion of the value of the S&P SmallCap 600. The Fund tries to achieve a correlation of at least 0.95 with the S&P SmallCap 600 on an annual basis (before fees and expenses). The Fund's ability to track the S&P SmallCap 600 is affected by transaction costs and other expenses, changes in the composition of the S&P SmallCap 600, changes in the number of shares issued by the companies represented in the S&P SmallCap 600, and by the timing and amount of shareholder purchases and redemptions, among other things. Equity mutual funds, like other investors in equity securities, incur transaction costs, such as brokerage costs, when they buy and sell securities. The team tries to minimize these costs for the Fund by using program trades and crossing networks. The team may sell a stock when its percentage weighting in the index is reduced, when the stock is removed from the index, and for other reasons. 111 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations SmallCap Index Fund has the following risks: o Investment strategy risk - This Fund tries to match (before fees and expenses) the returns of the S&P SmallCap 600, and is not actively managed. There is no assurance that the returns of the Fund will match the returns of the S&P SmallCap 600. The value of the Fund will rise and fall with the performance of the S&P SmallCap 600. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Small company risk - Stocks of smaller companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains but also carry more risk. o Futures risk - This Fund may use futures contracts as a substitute for the securities included in the index. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. 112 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Prior to May 12, 2000, the Fund had a different investment objective and principal investment strategies. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 27.55% -1.89% 5.27% 9.20% - ------------------------------- 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 5.78% Best and worst quarterly returns during this period Best: 2nd quarter 1997: 17.52% Worst: 3rd quarter 1998: -20.89%
[GRAPHIC OMITTED] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P SmallCap 600, an unmanaged index of 600 common stocks, weighted by market capitalization. The S&P SmallCap 600 is not available for investment.
Since 1 year inception* Investor A Shares 9.20% 9.83% S&P SmallCap 600 11.80% 12.44%
*The inception date of Investor A Shares is October 15, 1996. The return for the index shown is from that date. 113 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A (Fees paid directly from your investment) Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% Other expenses 0.39% ------ Total annual Fund operating expenses 1.04% Fee waivers and/or reimbursements (0.39)% ------ Total net expenses(2) 0.65% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $66 $292 $536 $1,236
114 [GRAPHIC OMITTED] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Quantitative Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] What is a managed index fund? A managed index fund is designed to deliver the industry and risk characteristics of its benchmark with the benefits of relatively low costs and active investment management. With a managed index fund, the team may take advantage of individual asset selection from a variety of instruments that are expected to generate returns in excess of the S&P 500. There is no assurance that active management will result in a higher return than the index. Nations Managed Index Fund [GRAPHIC OMITTED] Investment objective The Fund seeks, over the long term, to provide a total return that (before fees and expenses) exceeds the total return of the Standard & Poor's 500 Composite Stock Price Index (S&P 500). [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 80% of its assets in a portfolio consisting of common stocks that are included in the S&P 500, convertible securities that are convertible into stocks included in that index, and other derivatives whose economic returns are, by design, closely equivalent to the returns of the S&P 500 or its components. The S&P 500 is an unmanaged index of 500 widely held common stocks, and is not available for investment. The team tries to maintain a portfolio that matches the industry and risk characteristics of the S&P 500. The team will, from time to time, vary the number and percentages of the Fund's holdings to try to provide higher returns than the S&P 500 and to reduce the risk of underperforming the index over time. The Fund generally holds fewer stocks than the index and may hold securities that are not in the index. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. In selecting investments for the Fund, the team uses quantitative analysis to evaluate the attractiveness of each potential investment. The team may examine a wide variety of factors classified as value measures (forward price-to-earnings, trailing price-to-earnings, book value-to-price, price-to-cash flow, etc.), growth measures (earnings growth, revenue growth, etc.), price momentum and earnings momentum (earnings change, estimate revision, earnings surprise, etc.), among others. The Fund seeks to hold a higher percentage of attractive investments than the index and a lesser percentage, or none, of less attractive investments. In all cases, investments are selected with the intention of increasing return relative to the S&P 500 and/or reducing portfolio volatility relative to the S&P 500. In addition, the team believes capital market inefficiencies may exist and may sometimes be exploited by using a variety of derivative instruments. The team tries to control costs when it buys and sells securities for the Fund by using computerized systems called crossing networks that allow it to try to make trades at better prices and reduced commission rates. The team uses various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: o may try to sell shares of a security with the highest cost for tax purposes first, before selling other shares of the same security. The team will only use this strategy when it is in the best interest of the Fund to do so and may sell other shares when appropriate o may offset capital gains by selling securities to realize a capital loss. This may reduce capital gains distributions 115 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies may also be affected by changes in tax laws and regulations, or by court decisions. The team may sell a stock when it believes other stocks in the index are more attractive investments, when the stock is removed from the index, and for other reasons. [GRAPHIC OMITTED] Risks and other things to consider Nations Managed Index Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have the potential for higher total returns than the S&P 500. There is a risk that the returns of these investments will not exceed those of the S&P 500, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Futures risk - This Fund may use futures contracts periodically to manage liquidity. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. 116 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 33.19% 26.33% 17.41% -11.14% - --------------------------------- 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -5.45% Best and worst quarterly returns during this period Best: 4th quarter 1998: 20.91% Worst: 3rd quarter 1998: -10.67%
[GRAPHIC OMITTED] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment.
Since 1 year inception* Investor A Shares -11.14% 17.67% S&P 500 -9.10% 19.60%
*The inception date of Investor A Shares is July 31, 1996. The return for the index shown is from that date. 117 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees (Fees paid directly from your investment) Investor A Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% Other expenses 0.29% ------ Total annual Fund operating expenses 0.94% Fee waivers and/or reimbursements (0.19)% ------ Total net expenses(2) 0.75% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $77 $281 $502 $1,137
118 [GRAPHIC OMITTED] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] Corporate fixed income securities This Fund focuses on fixed income securities issued by corporations. Corporate fixed income securities have the potential to pay higher income than U.S. Treasury securities with similar maturities. [GRAPHIC OMITTED] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations Short-Term Income Fund [GRAPHIC OMITTED] Investment objective The Fund seeks high current income consistent with minimal fluctuations of principal. [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 65% of its total assets in investment grade fixed income securities. The team may choose unrated securities if it believes they are of comparable quality to investment grade securities at the time of investment. The Fund may invest in: o corporate debt securities, including bonds, notes and debentures o mortgage-related securities issued by governments, their agencies or instrumentalities, or corporations o asset-backed securities o U.S. government obligations The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may invest in private placements to seek to enhance its yield. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be three years or less, and its duration will be three years or less. When selecting individual investments, the team: o looks at a fixed income security's potential to generate both income and price appreciation o allocates assets among U.S. government obligations, including securities issued by government agencies, mortgage-backed securities and U.S. Treasury securities; asset-backed securities and corporate securities, based on how they are expected to perform under current market conditions, and on how they have performed in the past. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk o tries to manage risk by diversifying the Fund's investments in securities of many different issuers The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 119 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Short-Term Income Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Mortgage-related risk - The value of the Fund's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Fund may have to reinvest this money in mortgage-backed or other securities that have lower yields. 120 o Asset-backed securities risk - Payment of interest and repayment of principal may be impacted by the cash flows generated by the assets backing these securities. The value of the Fund's asset-backed securities may also be affected by changes in interest rates, the availability of information concerning the interests in and structure of the pools of purchase contracts, financing leases or sales agreements that are represented by these securities, the creditworthiness of the servicing agent for the pool, the originator of the loans or receivables, or the entities that provide any supporting letters of credit, surety bonds, or other credit enhancements. [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 7.33% -0.48% 11.08% 4.68% 5.82% 6.08% 3.00% 6.90% - ---------------------------------------------------------------- 1993 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 4.30% Best and worst quarterly returns during this period Best: 2nd quarter 1995: 3.47% Worst: 1st quarter 1994: -1.00%
[GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Merrill Lynch 1-3 Year Treasury Index, an index of U.S. Treasury bonds with maturities of one to three years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 5.79% 5.08% 5.10% Investor B Shares 1.12% 4.67% 5.05% Investor C Shares 5.11% 4.90% 4.90% Merrill Lynch 1-3 Year Treasury Index 7.99% 5.92% 5.64%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are October 2, 1992, June 7, 1993 and October 2, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 121 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. Investor B Shares of this Fund are only available to existing shareholders for investment. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price per share 1.00% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) none 1.00%(2) Annual Fund operating expenses(3) (Expenses that are deducted from the Fund's assets) Management fees 0.30% 0.30% 0.30% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.31% 0.31% 0.31% ------ ------ ----- Total annual Fund operating expenses 0.86% 1.61% 1.61% Fee waivers and/or reimbursements (0.10)% (0.10)% (0.10)% ------ ------ ----- Total net expenses(4) 0.76% 1.51% 1.51% ====== ====== =====
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2) This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (3)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (4)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 122 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $177 $362 $562 $1,141 Investor B Shares $154 $498 $867 $1,702 Investor C Shares $254 $498 $867 $1,903
If you bought Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor C Shares $154 $498 $867 $1,903
123 [GRAPHIC OMITTED] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] U.S. government securities This Fund invests most of its assets in securities that are U.S. government issued or guaranteed. This means the Fund is generally not subject to credit risk, but it could earn less income than funds that invest in other kinds of fixed income securities. [GRAPHIC OMITTED] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations Short-Intermediate Government Fund [GRAPHIC OMITTED] Investment objective The Fund seeks high current income consistent with modest fluctuation of principal. [GRAPHIC OMITTED] Principal investment strategies The Fund invests most of its assets in U.S. government obligations and repurchase agreements relating to these obligations. It may invest in mortgage-related securities issued or backed by the U.S. government, its agencies or instrumentalities, or corporations. The Fund may also engage in reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be five years or less, and its duration will be four years or less. When selecting individual investments, the team: o looks at a fixed income security's potential to generate both income and price appreciation o allocates assets primarily among U.S. government obligations, including securities issued by government agencies, mortgage-backed securities and U.S. Treasury securities, based on how they are expected to perform under current market conditions, and on how they have performed in the past. The team may change the allocations when market conditions change o selects securities using structure analysis, which evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 124 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Short-Intermediate Government Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests may not be investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Mortgage-related risk - The value of the Fund's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Fund may have to reinvest this money in mortgage-backed or other securities that have lower yields. 125 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 5.69% 7.84% -2.59% 12.22% 2.98% 7.03% 6.39% 0.23% 9.32% - ------------------------------------------------------------------------ 1992 1993 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 3.13% Best and worst quarterly returns during this period Best: 2nd quarter 1992: 4.44% Worst: 1st quarter 1994: -1.78%
[GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Intermediate Government Bond Index, an index of U.S. government agency and U.S. Treasury securities. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 5.84% 4.45% 5.76% Investor B Shares 5.47% 4.53% 4.49% Investor C Shares 7.77% 4.63% 4.89% Lehman Intermediate Government Bond Index 10.47% 6.19% 7.09%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are August 5, 1991, June 7, 1993 and June 17, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 126 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price per share 3.25% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 3.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.30% 0.30% 0.30% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.29% 0.29% 0.29% ----- ----- ------ Total annual Fund operating expenses 0.84% 1.59% 1.59% ===== ===== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 127 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $408 $585 $776 $1,330 Investor B Shares $462 $702 $866 $1,688 Investor C Shares $262 $502 $866 $1,889
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $162 $502 $866 $1,688 Investor C Shares $162 $502 $866 $1,889
128 [GRAPHIC OMITTED] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] Mortgage-backed securities This Fund invests in mortgage-backed securities. Mortgage-backed securities tend to pay higher income than U.S. Treasury bonds and other government-backed bonds with similar maturities, but also have specific risks associated with them. They pay a monthly amount that includes a portion of the principal on the underlying mortgages, as well as interest. Nations Government Securities Fund [GRAPHIC OMITTED] Investment objective The Fund seeks high current income consistent with moderate fluctuation of principal. [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 65% of its assets in U.S. government obligations and repurchase agreements secured by these securities. It may also invest in the following securities rated investment grade at the time of investment: o mortgage-related securities issued by governments, their agencies or instrumentalities, or corporations o asset-backed securities or municipal securities o corporate debt securities, including bonds, notes and debentures The Fund may also engage in reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between five and 30 years. When selecting individual investments, the team: o looks at a fixed income security's potential to generate both income and price appreciation o allocates assets primarily among U.S. government obligations, including securities issued by government agencies, mortgage-backed securities and U.S. Treasury securities, based on how they are expected to perform under current market conditions, and on how they have performed in the past. The team may change the allocations when market conditions change o selects securities using structure analysis, which evaluates the characteristics of a security, including its call features, coupons and expected timing of cash flows The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 129 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Government Securities Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests may not be investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Mortgage-related risk - The value of the Fund's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Fund may have to reinvest this money in mortgage-backed or other securities that have lower yields. 130 o Asset-backed securities risk - Payment of interest and repayment of principal may be impacted by the cash flows generated by the assets backing these securities. The value of the Fund's asset-backed securities may also be affected by changes in interest rates, the availability of information concerning the interests in and structure of the pools of purchase contracts, financing leases or sales agreements that are represented by these securities, the creditworthiness of the servicing agent for the pool, the originator of the loans or receivables, or the entities that provide any supporting letters of credit, surety bonds, or other credit enhancements. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 131 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. The information about the performance for the period prior to June 8, 2001, reflects performance information for a predecessor fund which was reorganized into the Fund on June 8, 2001. The predecessor fund had an identical investment objective and principal investment strategies. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 5.08% 7.61% -5.32% 14.99% 2.28% 8.29% 8.16% -3.29% 11.91% - --------------------------------------------------------------------------- 1992 1993 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 2.20% Best and worst quarterly returns during this period Best: 1st quarter 1995: 4.91% Worst: 1st quarter 1994: -3.04%
[GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Government Bond Index, an unmanaged index of government bonds with an average maturity of approximately nine years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 6.62% 4.31% 5.59% Investor B Shares 7.07% 4.59% 4.56% Investor C Shares 10.04% 4.71% 4.70% Lehman Government Bond Index 13.24% 6.49% 7.84%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are April 17, 1991, June 7, 1993 and July 6, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 132 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price per share 4.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.50% 0.50% 0.50% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.37% 0.37% 0.37% ------ ----- ------ Total annual Fund operating expenses 1.12% 1.87% 1.87% Fee waivers and/or reimbursements (0.15)% (0.15)% (0.15)% ------ ----- ----- Total net expenses(5) 0.97% 1.72% 1.72% ====== ===== =====
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 133 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $569 $800 $1,050 $1,763 Investor B Shares $675 $873 $1,197 $1,982 Investor C Shares $275 $573 $ 997 $2,178
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $175 $573 $997 $1,982 Investor C Shares $175 $573 $997 $2,178
134 [GRAPHIC OMITTED] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and BACAP is its sub-adviser. BACAP's Fixed Income Management Team makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] Intermediate-term securities The team focuses on fixed income securities with intermediate terms. While these securities generally won't earn as much income as securities with longer terms, they tend to be less sensitive to changes in interest rates. [GRAPHIC OMITTED] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations Intermediate Bond Fund [GRAPHIC OMITTED] Investment objective The Fund seeks to obtain interest income and capital appreciation. [GRAPHIC OMITTED] Principal investment strategies The Fund invests all of its assets in Nations Intermediate Bond Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in intermediate and longer-term fixed income securities that are rated investment grade. The Master Portfolio can invest up to 35% of its assets in mortgage-backed securities, including collateralized mortgage obligations (CMOs), that are backed by the U.S. government, its agencies or instrumentalities, or corporations. The Master Portfolio can invest up to 10% of its assets in high yield debt securities. The Master Portfolio may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Master Portfolio may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Master Portfolio may invest in private placements to seek to enhance its yield. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Master Portfolio's average dollar-weighted maturity will be between three and six years. Its duration generally will be the same as the Lehman Intermediate Government/Corporate Bond Index. When selecting individual investments, the team: o looks at a fixed income security's potential to generate both income and price appreciation o allocates assets among U.S. corporate securities and mortgage-backed securities, based on how they are expected to perform under current market conditions, and on how they have performed in the past. The team may change the allocations when market conditions change o selects securities using structure analysis, which evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Master Portfolio's benchmark. This can help manage interest rate risk o tries to manage risk by diversifying the Master Portfolio's investments in securities of many different issuers The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 135 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Intermediate Bond Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses for the Master Portfolio will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Master Portfolio could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Master Portfolio invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risks of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Mortgage-related risk - The value of the Master Portfolio's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Master Portfolio may have to reinvest this money in mortgage-backed or other securities that have lower yields. 136 o Investment in other Nations Funds - The Master Portfolio may pursue its high yield and foreign securities strategies by investing in High Yield Portfolio and International Bond Portfolio, respectively, rather than directly in high yield and foreign securities. High Yield Portfolio and International Bond Portfolio are registered investment companies in the Nations Funds Family whose interests are offered by private placements only. BA Advisors and its affiliates are entitled to receive fees from High Yield Portfolio and International Bond Portfolio for providing services in addition to the fees which they are entitled to receive from the Master Portfolio or Fund for services provided directly. BA Advisors and its affiliates may waive fees which they are entitled to receive from either Portfolio. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 137 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 14.54% 3.14% 6.54% 7.32% 0.02% 7.96% - ----------------------------------------------- 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 3.53% Best and worst quarterly returns during this period Best: 2nd quarter 1995: 4.50% Worst: 1st quarter 1996: -1.06%
[GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Intermediate Government/Corporate Bond Index, an unmanaged index of all publicly issued investment grade corporate, U.S. Treasury, and U.S. government and agency securities with maturities of 1 to 10 years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 4.44% 4.34% 4.83% Investor B Shares 2.15% -- 4.04% Investor C Shares 13.10% -- 6.52% Lehman Intermediate Government/ Corporate Bond Index 10.12% 6.11% 6.09%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are January 24, 1994, October 20, 1999 and November 20, 1996, respectively. The return for the index shown is from inception of Investor A Shares. 138 [GRAPHIC OMITTED] There are two kinds of fees - shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price per share 3.25% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 3.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.40% 0.40% 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.41% 0.41% 0.41% ----- ----- ------ Total annual Fund operating expenses(6) 1.06% 1.81% 1.81% ===== ===== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. (6)The Fund's investment adviser and/or some of its other service providers have agreed to limit total annual operating expenses to the levels shown above until July 31, 2002. There is no guarantee that these limitations will continue after this date. 139 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $430 $652 $891 $1,579 Investor B Shares $484 $769 $980 $1,930 Investor C Shares $284 $569 $980 $2,127
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $184 $569 $980 $1,930 Investor C Shares $184 $569 $980 $2,127
140 [GRAPHIC OMITTED] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] More investment opportunities This Fund can invest in a wide range of fixed income securities. This allows the team to focus on securities that offer the potential for higher returns. Nations Bond Fund [GRAPHIC OMITTED] Investment objective The Fund seeks total return by investing in investment grade fixed income securities. [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 65% of its assets in investment grade fixed income securities. The team may choose unrated securities if it believes they are of comparable quality to investment grade securities at the time of investment. The Fund may invest in: o corporate debt securities, including bonds, notes and debentures o U.S. government obligations o foreign debt securities denominated in U.S. dollars o mortgage-related securities issued by governments, their agencies or instrumentalities, or corporations o asset-backed securities o municipal securities The Fund may invest up to 10% of its total assets in high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may invest in private placements to seek to enhance its yield. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be 10 years or less and will never be more than 15 years. When selecting individual investments, the team: o looks at a fixed income security's potential to generate both income and price appreciation o allocates assets primarily among U.S. government obligations, including securities issued by government agencies, mortgage-backed securities and U.S. Treasury securities; and corporate securities, based on how they are expected to perform under current market conditions, and on how they have performed in the past. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to manage risk by diversifying the Fund's investments in securities of many different issuers The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 141 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Bond Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Mortgage-related risk - The value of the Fund's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Fund may have to reinvest this money in mortgage-backed or other securities that have lower yields. o Investment in other Nations Funds - The Fund may pursue its high yield and foreign securities strategies by investing in High Yield Portfolio and International Bond Portfolio, respectively, rather than directly in high yield and foreign securities. High Yield Portfolio and International Bond Portfolio are registered investment companies in the Nations Funds Family whose interests are offered by private placements only. BA Advisors and its affiliates are entitled to receive fees from High Yield Portfolio and International Bond Portfolio for providing services in addition to the fees which they are entitled to receive from Nations Bond Fund for services provided directly. BA Advisors and its affiliates may waive fees which they are entitled to receive from either Portfolio. 142 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 10.61% -3.51% 17.05% 1.92% 8.26% 6.94% -1.45% 9.83% - -------------------------------------------------------------------- 1993 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 3.19% Best and worst quarterly returns during this period Best: 2nd quarter 1995: 5.90% Worst: 1st quarter 1994: -2.85%
[GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Aggregate Bond Index, an index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. The indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. The indices are not available for investment.
Since 1 year 5 years inception* Investor A Shares 6.30% 4.32% 5.63% Investor B Shares 6.01% 4.40% 4.98% Investor C Shares 7.98% 4.43% 5.56% Lehman Aggregate Bond Index 11.63% 6.46% 7.19%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are November 19, 1992, June 7, 1993 and November 16, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 143 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 3.25% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 3.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.40% 0.40% 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.27% 0.27% 0.27% ----- ------ ------ Total annual Fund operating expenses 0.92% 1.67% 1.67% ===== ====== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 144 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $416 $609 $818 $1,421 Investor B Shares $470 $726 $907 $1,777 Investor C Shares $270 $526 $907 $1,976
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $170 $526 $907 $1,777 Investor C Shares $170 $526 $907 $1,976
145 [GRAPHIC OMITTED] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] Multi-sector approach The Fund follows a multi-sector approach in order to pursue high income while seeking to control volatility. To try to accomplish this, the Fund is diversified broadly in three sectors of the market -- U.S. government, foreign and lower-rated corporate bonds. This diversification is thought to be critical in managing the exchange-rate uncertainties of foreign bonds and the special credit risks of lower-rated bonds. Nations Strategic Income Fund [GRAPHIC OMITTED] Investment objective The Fund seeks total return with an emphasis on current income by investing in a diversified portfolio of fixed income securities. [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 65% of its assets in investment grade debt securities. The Fund may invest in: o corporate debt securities o U.S. government obligations o foreign debt securities denominated in U.S. dollars or foreign currencies o mortgage-related securities issued by governments and non-government issuers o asset-backed securities The Fund may invest up to 35% of its assets in lower-quality fixed income securities ("junk bonds" or "high yield bonds") rated "Ba" or "B" by Moody's Investors Services, Inc. (Moody's) or "BB" or "B" by Standard & Poor's Corporation (S&P). The team may choose unrated securities if it believes they are of comparable quality at the time of investment. The Fund may also invest in other registered investment companies. The Fund will limit its investments in foreign securities to one-third of its total assets. The Fund may engage in forward foreign currency contracts, reverse repurchase agreements and forward purchase agreements to seek to protect against movements in the value of foreign currencies in which its foreign securities may be denominated. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements primarily used to seek to enhance returns and manage liquidity. These investments will generally be short-term in nature. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in private placements to seek to enhance its yield. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than five years. When selecting individual investments, the team: o looks at a fixed income security's potential to generate both income and price appreciation o allocates assets primarily among U.S. government obligations and U.S. corporate securities, including high yield corporate bonds. The allocation is structured to provide the potential for the best return, based on how they are expected to perform under current market conditions, and on how they have performed in the past. The team may change the allocations when market conditions change 146 o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk o tries to manage risk by diversifying the Fund's investments in securities of many different issuers The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Strategic Income Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Foreign investment risk - Because the Fund may invest up to one-third of its assets in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. The Fund's use of forward foreign currency contracts to seek to protect against movements in the value of foreign currencies may not eliminate the risk that the Fund will be adversely affected by changes in foreign currencies. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. 147 o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Asset-backed securities risk - Payment of interest and repayment of principal may be impacted by the cash flows generated by the assets backing these securities. The value of the Fund's asset-backed securities may also be affected by changes in interest rates, the availability of information concerning the interests in and structure of the pools of purchase contracts, financing leases or sales agreements that are represented by these securities, the creditworthiness of the servicing agent for the pool, the originator of the loans or receivables, or the entities that provide any supporting letters of credit, surety bonds, or other credit enhancements. o Mortgage-related risk - The value of the Fund's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Fund may have to reinvest this money in mortgage-backed or other securities that have lower yields. o Investment in other Nations Funds - The Fund may pursue its high yield and foreign securities strategies by investing in High Yield Portfolio and International Bond Portfolio, respectively, rather than directly in high yield and foreign securities. High Yield Portfolio and International Bond Portfolio are registered investment companies in the Nations Funds Family whose interests are offered by private placements only. BA Advisors and its affiliates are entitled to receive fees from High Yield Portfolio and International Bond Portfolio for providing services in addition to the fees which they are entitled to receive from Nations Strategic Income Fund for services provided directly. BA Advisors and its affiliates may waive fees which they are entitled to receive from either Portfolio. 148 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 15.62% -2.74% 20.61% 2.21% 8.32% 7.27% -2.93% 7.77% - ------------------------------------------------------------------ 1993 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 3.21% Best and worst quarterly returns during this period Best: 2nd quarter 1995: 7.42% Worst: 1st quarter 1996: -3.24%
[GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Aggregate Bond Index, an index made up of the Lehman Government/Corporate Bond Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. The indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. The indices are not available for investment.
Since 1 year 5 years inception* Investor A Shares 2.65% 3.42% 6.20% Investor B Shares 1.86% 3.50% 5.34% Investor C Shares 5.97% 3.87% 6.36% Lehman Aggregate Bond Index 11.63% 6.46% 7.19%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are November 25, 1992, June 7, 1993 and November 9, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 149 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 4.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.50% 0.50% 0.50% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.33% 0.33% 0.33% ------ ----- ------ Total annual Fund operating expenses 1.08% 1.83% 1.83% Fee waivers and/or reimbursements (0.10)% (0.10% (0.10)% ------ ----- ----- Total net expenses(5) 0.98% 1.73% 1.73% ====== ===== =====
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 150 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $570 $793 $1,034 $1,723 Investor B Shares $676 $866 $1,181 $1,943 Investor C Shares $276 $566 $ 981 $2,140
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $176 $566 $981 $1,943 Investor C Shares $176 $566 $981 $2,140
151 [GRAPHIC OMITTED] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and MacKay Shields LLC (MacKay Shields) is its sub-adviser. MacKay Shields' High Yield Portfolio Management Team makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC OMITTED] You'll find more about MacKay Shields and its High Yield Portfolio Management Team on page 184. [GRAPHIC OMITTED] High yield debt securities This Fund invests primarily in high yield debt securities, which are often referred to as "junk bonds." High yield debt securities offer the potential for higher income than other kinds of debt securities with similar maturities, but they also have higher credit risk. Nations High Yield Bond Fund [GRAPHIC OMITTED] Investment objective The Fund seeks maximum income by investing in a diversified portfolio of high yield debt securities. [GRAPHIC OMITTED] Principal investment strategies The Fund invests all of its assets in Nations High Yield Bond Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in domestic and foreign corporate high yield debt securities. These securities are not rated investment grade, but generally will be rated "Ba" or "B" by Moody's Investor Services, Inc. or "BB" or "B" by Standard & Poor's Corporation. The team may choose unrated securities if it believes they are of comparable quality at the time of investment. The portfolio is not managed to a specific duration. Its duration will generally track the CSFB Global High Yield Index. The Master Portfolio invests primarily in: o Domestic corporate high yield debt securities, including private placements o U.S. dollar-denominated foreign corporate high yield debt securities, including private placements o Zero-coupon bonds o U.S. government obligations o Equity securities (up to 25% of its assets), which may include convertible securities The Master Portfolio also may invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. When selecting investments for the portfolio, the team: o focuses on individual security selection ("bottom-up" analysis) o uses fundamental credit analysis o emphasizes current income while attempting to minimize risk to principal o seeks to identify a catalyst for capital appreciation such as an operational or financial restructuring o tries to manage risk by diversifying the Master Portfolio's investments across securities of many different issuers The team may sell a security when its market price rises above the target price the team has set, when it believes there has been a deterioration in an issuer's fundamentals, such as earnings, sales or management, or an issuer's credit quality, or to maintain portfolio diversification, and for other reasons. 152 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations High Yield Bond Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Credit risk - The types of securities in which the Master Portfolio typically invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Liquidity risk - There is a risk that a security held by the Master Portfolio cannot be sold at the time desired, or cannot be sold without adversely affecting the price. o Foreign investment risk - Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, may also apply to some foreign investments. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund can withdraw its entire investment from the Master Portfolio if it believes it's in the best interest of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 153 [GRAPHIC OMITTED] For information about the performance of other high yield accounts managed by MacKay Shields, see How the Funds are managed. [GRAPHIC OMITTED] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in this prospectus. [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 4.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.55% 0.55% 0.55% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.89% 0.89% 0.89% ------ ----- ------ Total annual Fund operating expenses 1.69% 2.44% 2.44% Fee waivers and/or reimbursements (0.51)% (0.51)% (0.51)% Total net expenses(6) 1.18% 1.93% 1.93% ====== ===== ====
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4)The figures contained in the table above are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. (6)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 154 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $590 $ 936 $1,305 $2,341 Investor B Shares $696 $1,012 $1,455 $2,552 Investor C Shares $296 $ 712 $1,255 $2,738
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $196 $712 $1,255 $2,552 Investor C Shares $196 $712 $1,255 $2,738
155 [GRAPHIC OMITTED] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] Lowest risk, lowest income potential This Fund has the lowest risk of the Nations Funds Municipal Bond Funds because it has a duration of less than three years. Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. This means the Fund's value tends to change less when interest rates change, but it could also earn less income than funds with longer durations. Nations Short-Term Municipal Income Fund [GRAPHIC OMITTED] Investment objective The Fund seeks high current income exempt from federal income tax consistent with minimal fluctuation of principal. [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade municipal securities, which pay interest that is generally free from federal income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be less than three years, and its duration will be between 1.25 and 2.75 years. When selecting individual investments, the team looks at a security's potential to generate both income and price appreciation. The team: o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk o tries to manage risk by diversifying the Fund's investments in securities of many different issuers The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 156 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Short-Term Municipal Income Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax, but may be subject to the federal alternative minimum tax, and state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. 157 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 0.27% 8.05% 3.97% 4.54% 4.53% 2.31% 5.37% - -------------------------------------------------------- 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 2.96% Best and worst quarterly returns during this period Best: 1st quarter 1995: 2.86% Worst: 1st quarter 1994: -0.95%
[GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman 3-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturities of two to four years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 4.32% 3.93% 4.04% Investor B Shares -0.40% 3.50% 3.88% Investor C Shares 3.69% 3.75% 4.16% Lehman 3-Year Municipal Bond Index 6.23% 4.65% 4.69%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are November 2, 1993, October 12, 1993 and May 19, 1994, respectively. The return for the index shown is from inception of Investor A Shares. 158 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. Investor B shares of this Fund are only available to existing shareholders for investment. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 1.00% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) none 1.00%(2) Annual Fund operating expenses(3) (Expenses that are deducted from the Fund's assets) Management fees 0.30% 0.30% 0.30% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.36% 0.36% 0.36% ------ ------ ----- Total annual Fund operating expenses 0.91% 1.66% 1.66% Fee waivers and/or reimbursements (0.26)% (0.26)% (0.26)% ------ ------ ----- Total net expenses(4) 0.65% 1.40% 1.40% ====== ====== =====
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (3)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (4)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 159 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $166 $362 $574 $1,185 Investor B Shares $143 $498 $878 $1,743 Investor C Shares $243 $498 $878 $1,944
If you bought Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor C Shares $143 $498 $878 $1,944
160 [GRAPHIC OMITTED] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] Moderate risk, moderate income potential This Fund has relatively moderate risk compared with the other Nations Funds Municipal Bond Funds because it has a duration of between three and six years. Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. The Fund's value will tend to change more when interest rates change than the value of Nations Short-Term Municipal Income Fund, but it could also earn more income. Its value will change less when interest rates change than the value of Nations Municipal Income Fund, but it also could earn less income. Nations Intermediate Municipal Bond Fund [GRAPHIC OMITTED] Investment objective The Fund seeks high current income exempt from federal income tax consistent with moderate fluctuation of principal. [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade municipal securities, which pay interest that is generally free from federal income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between three and 10 years, and its duration will be between three and six years. When selecting individual investments, the team looks at a security's potential to generate both income and price appreciation. The team: o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk o tries to manage risk by diversifying the Fund's investments in securities of many different issuers The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 161 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Intermediate Municipal Bond Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax, but may be subject to the federal alternative minimum tax, and state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. 162 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] - -4.78% 14.55% 3.83% 7.16% 5.25% -1.46% 7.89% - --------------------------------------------------------- 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 2.92% Best and worst quarterly returns during this period Best: 1st quarter 1995: 5.95% Worst: 1st quarter 1994: -4.09%
[GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman 7-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 4.35% 3.80% 4.21% Investor B Shares 4.09% 3.92% 4.16% Investor C Shares 6.09% 4.00% 5.58% Lehman 7-year Municipal Bond Index 9.09% 5.41% 5.69%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are August 17, 1993, December 2, 1993 and November 3, 1994, respectively. The return for the index shown is from inception of Investor A Shares. 163 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 3.25% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 3.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.40% 0.40% 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.28% 0.28% 0.28% ------ ----- ------ Total annual Fund operating expenses 0.93% 1.68% 1.68% Fee waivers and/or reimbursements (0.18)% (0.18)% (0.18)% ------ ----- ------ Total net expenses(5) 0.75% 1.50% 1.50% ====== ===== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 164 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $399 $595 $807 $1,416 Investor B Shares $453 $712 $896 $1,772 Investor C Shares $253 $512 $896 $1,972
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $153 $512 $896 $1,772 Investor C Shares $153 $512 $896 $1,972
165 [GRAPHIC OMITTED] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC OMITTED] You'll find more about BACAP on page 176. [GRAPHIC OMITTED] Highest risk, highest income potential This Fund has the relatively highest risk of the Nations Funds Municipal Bond Funds because it has a duration of more than six years. Duration is a measure used to estimate how much a fund's portfolio's will fluctuate in response to a change in interest rates. This means the Fund's value tends to change more when interest rates change, but it could also earn more income than the two Funds with shorter durations. Nations Municipal Income Fund [GRAPHIC OMITTED] Investment objective The Fund seeks high current income exempt from federal income tax with the potential for principal fluctuation associated with investments in long-term municipal securities. [GRAPHIC OMITTED] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade municipal securities, which pay interest that is generally free from federal income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than seven years, and its duration will be more than six years. When selecting individual investments, the team looks at a security's potential to generate both income and price appreciation. The team: o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk o tries to manage risk by diversifying the Fund's investments in securities of many different issuers The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 166 [GRAPHIC OMITTED] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC OMITTED] Risks and other things to consider Nations Municipal Income Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax, but may be subject to the federal alternative minimum tax, and state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. 167 [GRAPHIC OMITTED] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC OMITTED] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 8.22% 13.34% -7.62% 19.27% 4.50% 9.34% 5.78% -4.28% 9.79% - --------------------------------------------------------------------------- 1992 1993 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 2.69% Best and worst quarterly returns during this period Best: 1st quarter 1995: 7.96% Worst: 1st quarter 1994: -6.64%
[GRAPHIC OMITTED] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Municipal Bond Index, a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 4.54% 3.88% 6.18% Investor B Shares 4.94% 4.06% 4.75% Investor C Shares 7.84% 4.32% 5.58% Lehman Municipal Bond Index 11.68% 5.84% 7.24%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are February 1, 1991, June 7, 1993 and June 17, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 168 [GRAPHIC OMITTED] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC OMITTED] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 4.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.50% 0.50% 0.50% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.29% 0.29% 0.29% ------ ----- ------ Total annual Fund operating expenses 1.04% 1.79% 1.79% Fee waivers and/or reimbursements (0.19)% (0.19)% (0.19)% ------ ----- ------- Total net expenses(5) 0.85% 1.60% 1.60% ====== ===== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 169 [GRAPHIC OMITTED] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $558 $773 $1,005 $1,672 Investor B Shares $663 $845 $1,152 $1,892 Investor C Shares $263 $545 $ 952 $2,090
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $163 $545 $952 $1,892 Investor C Shares $163 $545 $952 $2,090
170 [GRAPHIC OMITTED] Other important information You'll find specific information about each Fund's principal investments, strategies and risks in the descriptions starting on page 7. The following are some other risks and information you should consider before you invest: o Changing investment objectives and policies - The investment objective and certain investment policies of any Fund can be changed without shareholder approval. Other investment policies may be changed only with shareholder approval. o Holding other kinds of investments - The Funds may hold investments that aren't part of their principal investment strategies. Please refer to the SAI for more information. The portfolio managers or management team can also choose not to invest in specific securities described in this prospectus and in the SAI. o Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest up to 25% of their assets in Nations Money Market Funds. BA Advisors and its affiliates are entitled to receive fees from the Nations Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Funds for services provided directly. BA Advisors may waive fees which it is entitled to receive from either the Nations Money Market Funds or the Funds. o Foreign investment risk - Funds that invest in foreign securities may be affected by changes in currency exchange rates and the costs of converting currencies; foreign government controls on foreign investment, repatriation of capital, and currency and exchange; foreign taxes; inadequate supervision and regulation of some foreign markets; difficulty selling some investments which may increase volatility; different settlement practices or delayed settlements in some markets; difficulty getting complete or accurate information about foreign companies; less strict accounting, auditing and financial reporting standards than those in the U.S.; political, economic or social instability; and difficulty enforcing legal rights outside the U.S. If a Fund invests in emerging markets there may be other risks involved, such as those of immature economies and less developed and more thinly traded securities markets. o Investing defensively - A Fund may temporarily hold investments that are not part of its investment objective or its principal investment strategies to try to protect it during a market or economic downturn or because of political or other conditions. A Fund may not achieve its investment objective while it is investing defensively. o Securities lending program - A Fund may lend portfolio securities to approved broker-dealers or other financial institutions on a fully collateralized basis in order to earn additional income. There may be delays in receiving additional collateral after the loan is made or in recovering the securities loaned. 171 o Bank of America and its affiliates - Bank of America and its affiliates currently provide services to some or all of the Funds, including investment advisory, investment sub-advisory, co-administration and brokerage services, and are paid for providing these services. Bank of America and its affiliates also may, at times, provide other services and be compensated for them, including transfer agency, interfund lending and securities lending services, or make loans to the Funds. Finally, Bank of America or its affiliates may serve as counterparties in transactions with Nations Funds where permitted by law or regulation, and may receive compensation in that capacity. o Portfolio turnover - A Fund that replaces -- or turns over -- more than 100% of its investments in a year is considered to trade frequently. Frequent trading can result in larger distributions of short-term capital gains to shareholders. These gains are taxable at higher rates than long-term capital gains. Frequent trading can also mean higher brokerage and other transaction costs, which could reduce the Fund's returns. The Funds generally buy securities for capital appreciation, investment income, or both, and don't engage in short-term trading. The annual portfolio turnover rates for Nations Classic Value Fund, Nations Financial Services Fund and Nations Global Value Fund are expected to be no more than 50%, 100% and 100%, respectively. You'll find the portfolio turnover rate for each other Fund in Financial highlights. 172 [GRAPHIC OMITTED] How the Funds are managed [GRAPHIC OMITTED] Banc of America Advisors, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Investment adviser BA Advisors is the investment adviser to over 75 mutual fund portfolios in the Nations Funds Family, including the Funds described in this prospectus. BA Advisors is a registered investment adviser. It's a wholly-owned subsidiary of Bank of America, which is owned by Bank of America Corporation. Nations Funds pays BA Advisors an annual fee for its investment advisory services. The fee is calculated as a percentage of the average daily net assets of each Fund and is paid monthly. BA Advisors uses part of this money to pay investment sub-advisers for the services they provide to each Fund. BA Advisors has agreed to waive fees and/or reimburse expenses for certain Funds until July 31, 2002. You'll find a discussion of any waiver and/or reimbursement in the Fund descriptions. There is no assurance that BA Advisors will continue to waive and/or reimburse any fees and/or expenses after this date. 173 The following chart shows the maximum advisory fees BA Advisors can receive, along with the actual advisory fees it received during the Funds' last fiscal year, after waivers and/or reimbursements: Annual investment advisory fee, as a % of average daily net assets
Maximum Actual fee advisory paid last fee fiscal year Nations Convertible Securities Fund 0.65% 0.65% Nations Asset Allocation Fund 0.65% 0.63% Nations Equity Income Fund 0.65% 0.54% Nations Classic Value Fund 0.65% N/A Nations Value Fund 0.65% 0.65% Nations Blue Chip Fund(1) 0.65% 0.65% Nations Strategic Growth Fund 0.65% 0.65% Nations Marsico Growth & Income Fund(1) 0.75% 0.75% Nations Capital Growth Fund 0.65% 0.65% Nations Aggressive Growth Fund 0.65% 0.65% Nations Marsico Focused Equities Fund(1) 0.75% 0.75% Nations MidCap Growth Fund 0.65% 0.65% Nations Marsico 21st Century Fund(1) 0.75% N/A Nations Small Company Fund 0.90% 0.84% Nations Financial Services Fund 0.75% N/A Nations Global Value Fund 0.90% N/A Nations International Value Fund(1) 0.90% 0.80% Nations International Equity Fund(1) 0.80% 0.80% Nations Marsico International Opportunities Fund(1) 0.80% N/A Nations Emerging Markets Fund 1.00% 0.98% Nations LargeCap Index Fund 0.40% 0.07% Nations MidCap Index Fund 0.40% 0.10% Nations SmallCap Index Fund 0.40% 0.02% Nations Managed Index Fund 0.40% 0.21% Nations Short-Term Income Fund 0.30% 0.20% Nations Short-Intermediate Government Fund 0.30% 0.30% Nations Government Securities Fund 0.50% 0.40% Nations Intermediate Bond Fund(1) 0.40% 0.40% Nations Bond Fund 0.40% 0.40% Nations Strategic Income Fund 0.50% 0.39% Nations High Yield Bond Fund(1) 0.55% 0.55% Nations Short-Term Municipal Income Fund 0.30% 0.06% Nations Intermediate Municipal Bond Fund 0.40% 0.24% Nations Municipal Income Fund 0.50% 0.33%
(1) These Funds don't have their own investment adviser because they invest in Nations Blue Chip Master Portfolio, Nations Marsico Growth & Income Master Portfolio, Nations Marsico Focused Equities Master Portfolio, Nations Marsico 21st Century Master Portfolio, Nations International Value Master Portfolio, Nations International Equity Master Portfolio, Nations Marsico International Opportunities Master Portfolio, Nations Intermediate Bond Master Portfolio and Nations High Yield Bond Master Portfolio, respectively. BA Advisors is the investment adviser to each Master Portfolio. 174 Investment sub-advisers Nations Funds and BA Advisors engage one or more investment sub-advisers for each Fund to make day-to-day investment decisions for the Fund. BA Advisors retains ultimate responsibility (subject to Board oversight) for overseeing the sub-advisers and evaluates the Funds' needs and available sub-advisers' skills and abilities on an ongoing basis. Based on its evaluations, BA Advisors may at times recommend to a Fund's Board that the Fund: o change, add or terminate one or more sub-advisers; o continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or o materially change a sub-advisory agreement with a sub-adviser. Applicable law requires a Fund to obtain shareholder approval in order to act on most of these types of recommendations, even if the Fund's Board has approved the proposed action and believes that the action is in shareholders' best interests. BA Advisors and the Funds have applied for relief from the SEC to permit the Funds to act on many of BA Advisors' recommendations with approval only by the Funds' Board and not by Fund shareholders. BA Advisors or a Fund would inform the Fund's shareholders of any actions taken in reliance on this relief. Until BA Advisors and the Funds obtain the relief, each Fund will continue to submit these matters to shareholders for their approval to the extent required by applicable law. 175 [GRAPHIC OMITTED] Banc of America Capital Management, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Banc of America Capital Management, LLC BACAP is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Its management expertise covers all major domestic asset classes, including equity and fixed income securities, and money market instruments. Currently managing more than $125 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 60 funds in the Nations Funds Family. BACAP takes a team approach to investment management. Each team has access to the latest technology and analytical resources. BACAP is the investment sub-adviser to the Funds shown in the table below. The table also tells you which internal BACAP asset management team is responsible for making the day-to-day investment decisions for each Fund.
Fund BACAP Team Nations Convertible Securities Fund Income Strategies Team Nations Asset Allocation Fund Fixed Income Management Team for the fixed income and money market portions of the Fund Nations Equity Income Fund Income Strategies Team Nations Value Fund Value Strategies Team Nations Strategic Growth Fund Growth Strategies Team Nations Capital Growth Fund Growth Strategies Team Nations Aggressive Growth Fund Growth Strategies Team Nations MidCap Growth Fund Growth Strategies Team Nations Small Company Fund SmallCap Strategies Team Nations Financial Services Fund Growth Strategies Team Nations LargeCap Index Fund Quantitative Strategies Team Nations MidCap Index Fund Quantitative Strategies Team Nations SmallCap Index Fund Quantitative Strategies Team Nations Managed Index Fund Quantitative Strategies Team Nations Short-Term Income Fund Fixed Income Management Team Nations Short-Intermediate Government Fund Fixed Income Management Team Nations Government Securities Fund Fixed Income Management Team Nations Intermediate Bond Fund(1) Fixed Income Management Team Nations Bond Fund Fixed Income Management Team Nations Strategic Income Fund Fixed Income Management Team Nations Short-Term Municipal Income Fund Municipal Fixed Income Management Team Nations Intermediate Municipal Bond Fund Municipal Fixed Income Management Team Nations Municipal Income Fund Municipal Fixed Income Management Team
(1)Nations Intermediate Bond Fund doesn't have its own investment sub-adviser because it invests in Nations Intermediate Bond Master Portfolio. BACAP is the investment sub-adviser to the Master Portfolio. 176 [GRAPHIC OMITTED] Marsico Capital Management, LLC 1200 17th Street Suite 1300 Denver, Colorado 80202 Marsico Capital Management, LLC Marsico Capital is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Marsico Capital is a full service investment advisory firm founded by Thomas F. Marsico in September 1997. Marsico Capital currently has over $13 billion in assets under management. Marsico Capital is the investment sub-adviser to: o Nations Marsico Growth & Income Master Portfolio o Nations Marsico Focused Equities Master Portfolio o Nations Marsico 21st Century Master Portfolio o Nations Marsico International Opportunities Master Portfolio Thomas F. Marsico, Chairman and Chief Executive Officer of Marsico Capital, is the portfolio manager responsible for making the day-to-day investment decisions for Nations Marsico Growth & Income Master Portfolio and Nations Marsico Focused Equities Master Portfolio. Mr. Marsico was an executive vice president and portfolio manager at Janus Capital Corporation from 1988 until he formed Marsico Capital in September 1997. He has more than 20 years of experience as a securities analyst and portfolio manager. James A. Hillary is the portfolio manager of Nations Marsico 21st Century Master Portfolio. Mr. Hillary has eleven years of experience as a securities analyst and portfolio manager and is a founding member of Marsico Capital Management. Prior to joining Marsico Capital in 1997, Mr. Hillary was a portfolio manager at W.H. Reaves, a New Jersey-based money management firm where he managed equity mutual funds and separate accounts. He holds a Bachelor's degree from Rutgers University and a law degree from Fordham University. Mr. Hillary is also a certified public accountant. James G. Gendelman is the portfolio manager of Nations Marsico International Opportunities Master Portfolio. Prior to joining Marsico Capital in May, 2000, Mr. Gendelman spent thirteen years as a Vice President of International Sales for Goldman, Sachs & Co. He holds a Bachelor's degree in Accounting from Michigan State University and an MBA in Finance from the University of Chicago. Mr. Gendelman was an accountant for Ernst & Young from 1983 to 1985. 177 Performance of other stock funds managed by Thomas Marsico Nations Marsico Focused Equities Fund and Nations Marsico Growth & Income Fund have been in operation since December 31, 1997, so they have a relatively short performance history. The tables below are designed to show you how similar stock funds managed by Thomas Marsico performed in the past. The Janus Twenty Fund has an investment objective, policies and strategies that are substantially similar to Nations Marsico Focused Equities Fund. Mr. Marsico managed the Janus Twenty Fund from January 31, 1988 through August 11, 1997. He had full discretionary authority for selecting investments for that fund, which had approximately $6 billion in net assets on August 11, 1997. The table below shows the returns for the Janus Twenty Fund compared with the S&P 500 for the periods ending August 7, 1997. The returns reflect deductions of fees and expenses, and assume all dividends and distributions have been reinvested. Average annual total returns as of August 7, 1997
Janus Twenty Fund (%) S&P 500 (%) one year 48.21 46.41 three years 32.07 30.63 five years 20.02 20.98 during the period of Mr. Marsico's management (January 31, 1988 to August 7, 1997) 23.38 18.20
This information is designed to show the historical track record of Mr. Marsico. It does not indicate how the Fund has performed or will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's expenses. The Janus Growth and Income Fund has an investment objective, policies and strategies that are substantially similar to Nations Marsico Growth & Income Fund. Mr. Marsico managed the Janus Growth and Income Fund from its inception on May 31, 1991 through August 11, 1997. He had full discretionary authority for selecting investments for that fund, which had approximately $1.7 billion in net assets on August 11, 1997. 178 The table below shows the returns for the Janus Growth and Income Fund compared with the S&P 500 for the period ending August 7, 1997. The returns reflect deductions of fees and expenses, and assume all dividends and distributions have been reinvested. Average annual total returns as of August 7, 1997
Janus Growth and Income Fund (%) S&P 500 (%) one year 47.77 46.41 three years 31.13 30.63 five years 21.16 20.98 during the period of Mr. Marsico's management (May 31, 1991 to August 7, 1997) 21.19 18.59
This information is designed to show the historical track record of Mr. Marsico. It does not indicate how the Fund has performed or will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's expenses. [GRAPHIC OMITTED] Chicago Equity Partners, LLC 180 North LaSalle Suite 3800 Chicago, Illinois 60601 Chicago Equity Partners, LLC Chicago Equity is a registered investment adviser and is owned by the firm's senior management. Chicago Equity is the investment sub-adviser to Nations Blue Chip Master Portfolio and is one of two sub-advisers to Nations Asset Allocation Fund. Chicago Equity's Equity Management Team is responsible for making the day-to-day investment decisions for Nations Blue Chip Master Portfolio and for the equity portion of Nations Asset Allocation Fund. [GRAPHIC OMITTED] Brandes Investment Partners, L.P. 11988 El Camino Real Suite 500 San Diego, California 92130 Brandes Investment Partners, L.P. Founded in 1974, Brandes is an investment advisory firm with 56 investment professionals who manage more than $50 billion in assets. Brandes uses a value-oriented approach to managing international investments, seeking to build wealth by buying high quality, undervalued stocks. Brandes is the investment sub-adviser to Nations Classic Value Fund, Nations Global Value Fund and Nations International Value Master Portfolio. Brandes' Large Cap Investment Committee is responsible for making the day-to-day investment decisions for the Funds and the Master Portfolio. Performance of other international/global stock funds and accounts managed by Brandes Nations Classic Value Fund and Nations Global Value Fund commenced their operations on April 16, 2001. Nations International Value Master Portfolio (including its predecessors) has been in operation since December 27, 1995. The tables below are designed to show you how composites of similar equity accounts managed by Brandes performed over various periods in the past. 179 The accounts comprising the Brandes U.S. Value Equity composite have investment objectives, policies and strategies that are substantially similar to Nations Classic Value Fund. The Brandes U.S. Value Equity composite includes all accounts managed by Brandes that are substantially similar to Nations Classic Value Fund. The table below shows the returns for the Brandes U.S. Value Equity composite compared with the Russell 1000 Value Index for the periods ending March 31, 2001 and December 31 of prior years. The returns of the Brandes U.S. Value Equity composite reflect deductions of account fees and expenses, and assume all dividends and distributions have been reinvested. The returns of the Russell 1000 Value Index assume all dividends and distributions have been reinvested. Average annual total returns as of March 31, 2001
Brandes U.S. Value Equity Russell 1000 Composite (%) Value Index (%) one year 47.98% 0.27% three years 4.09% 3.85% five years 14.52% 14.24% since inception (6/30/91) 15.27% 15.65%
Annual total returns as of December 31
Brandes U.S. Value Equity Russell 1000 Composite (%) Value Index (%) 2000 34.46% 7.02% 1999 (12.45)% 7.35% 1998 1.69% 15.63% 1997 32.99% 35.18% 1996 29.47% 21.64% 1995 20.98% 38.36% 1994 ( 3.54)% (1.98)% 1993 24.00% 18.07% 1992 23.40% 13.58%
This information is designed to demonstrate the historical track record of Brandes. It does not indicate how the Fund has performed or will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's expenses. The performance reflected in the composite has been calculated in compliance with the AIMR Performance Presentation Standards which differ from the method used by the SEC. The Brandes composite includes U.S. equity accounts managed by Brandes. The accounts don't pay the same expenses that mutual funds pay and aren't subject to the diversification rules, tax restrictions and investment limits under the 1940 Act or Subchapter M of the Internal Revenue Code. Returns could have been lower if the composite had been subject to these expenses and regulations. The aggregate returns of the accounts in the composite may not reflect the returns of any particular account of Brandes. 180 The accounts comprising the Brandes Global Equity composite have investment objectives, policies and strategies that are substantially similar to Nations Global Value Fund. The Brandes Global Equity composite includes all accounts managed by Brandes that are substantially similar to Nations Global Value Fund. The table below shows the returns for the Brandes Global Equity composite compared with the MSCI World Index for the periods ending March 31, 2001 and December 31 of prior years. The returns of the Brandes Global Equity composite reflect deductions of account fees and expenses, and assume all dividends and distributions have been reinvested. The returns of the MSCI World Index assume all dividends and distributions have been reinvested. Average annual total returns as of March 31, 2001
Brandes Global Equity MSCI World Composite (%) Index (%) one year 23.32% (25.10)% three years 12.05% 0.93% five years 19.48% 8.21% ten years 18.58% 9.37%
Annual total returns as of December 31
Brandes Global Equity MSCI World Composite (%) Index (%) 2000 23.16% (13.18)% 1999 20.92% 24.93% 1998 13.08% 24.34% 1997 28.14% 15.76% 1996 22.38% 13.48% 1995 20.81% 20.72% 1994 (2.34)% (5.08)% 1993 39.71% 22.50% 1992 12.23% (5.23)% 1991 37.07% 18.29% 1990 (11.79)% (17.02)% 1989 13.04% 16.61% 1988 26.02% 23.29% 1987 (2.57)% 16.16% 1986 20.77% 41.89% 1985 35.55% 40.57% 1984 7.09% 4.72% 1983 39.91% 21.93% 1982 29.86% 9.71% 1981 13.56% ( 4.78)% 1980 34.28% 25.67%
181 This information is designed to demonstrate the historical track record of Brandes. It does not indicate how the Fund has performed or will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's expenses. The performance reflected in the composite has been calculated in compliance with the AIMR Performance Presentation Standards which differ from the method used by the SEC. The Brandes composite includes global equity accounts managed by Brandes. The accounts don't pay the same expenses that mutual funds pay and aren't subject to the diversification rules, tax restrictions and investment limits under the 1940 Act or Subchapter M of the Internal Revenue Code. Returns could have been lower if the composite had been subject to these expenses and regulations. The aggregate returns of the accounts in the composite may not reflect the returns of any particular account of Brandes. The fund and the accounts comprising the Brandes composite's investment objective, policies and strategies are substantially similar to Nations International Value Master Portfolio. The table below shows the returns for the Brandes composite compared with the MSCI EAFE Index for the periods ending December 31, 2000. The returns of the Brandes composite reflect deductions of account fees and expenses, and assume all dividends and distributions have been reinvested. Average annual total returns as of December 31, 2000
Brandes MSCI EAFE Composite (%) Index (%) one year 2.80% (14.17)% three years 22.03% 9.35% five years 20.47% 7.13% ten years 19.38% 6.42%
Annual total returns as of December 31
Brandes MSCI EAFE Composite (%) Index (%) 2000 2.80% (14.17)% 1999 53.67% 29.96% 1998 15.03% 20.33% 1997 20.05% 1.78% 1996 16.34% 6.05% 1995 13.75% 11.21% 1994 (2.98)% 7.78% 1993 40.86% 32.56% 1992 6.28% (12.17)% 1991 40.17% 12.13%
182 This information is designed to demonstrate the historical track record of Brandes. It does not indicate how the Fund has performed or will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's expenses. The Brandes composite includes Brandes International Equity Fund (since 1995) and international equity accounts managed by Brandes. The accounts don't pay the same expenses that mutual funds pay and aren't subject to the diversification rules, tax restrictions and investment limits under the 1940 Act or Subchapter M of the Internal Revenue Code. Returns could have been lower if the composite had been subject to these expenses and regulations. The aggregate returns of the accounts in the composite may not reflect the returns of any particular account of Brandes. [GRAPHIC OMITTED] Gartmore Global Partners Gartmore House 8 Fenchurch Place London EC3M 4PH, England Gartmore Global Partners Gartmore is a global asset manager dedicated to serving the needs of U.S. based investors. Gartmore was formed in 1995 as a registered investment adviser and manages more than $991 million in assets. Gartmore is a general partnership which is an indirect wholly-owned subsidiary of Nationwide Mutual Insurance Company. Gartmore generally follows a growth philosophy, which is reflected in its active management of market allocation and stock selection. Gartmore is co-investment sub-adviser to: o Nations International Equity Master Portfolio Gartmore is the investment sub-adviser to: o Nations Emerging Markets Fund Gartmore's Global Equities Portfolio Construction Team is responsible for the day-to-day investment decisions for its portion of the Master Portfolio. Christopher Palmer has been responsible since August 1999 for investments in developing countries, and has been the principal portfolio manager of Nations Emerging Markets Fund since that time. He joined Gartmore in 1995 and is a senior investment manager on the Gartmore Emerging Markets Team. Before he joined Gartmore, Mr. Palmer worked for Unifund, S.A., a private investment bank, in its Mexico City and Hong Kong offices, and managed global derivatives, credit and counterparty credit risk as vice president in the Institutional Credit Department of Bear Stearns & Co. He graduated from Colgate University in 1986 with a BA Honors degree in History and completed an MBA in Finance at New York University in 1988. Mr. Palmer was awarded the CFA designation by the Association of Investment Management and Research in 1993. 183 [GRAPHIC OMITTED] INVESCO Global Asset Management (N.A.), Inc. 1360 Peachtree Street, N.E. Atlanta, Georgia 30309 INVESCO Global Asset Management (N.A), Inc. INVESCO Global is a division of AMVESCAP PLC, a publicly traded UK financial holding company located in London. INVESCO Global is one of the three investment sub-advisers to Nations International Equity Master Portfolio. INVESCO's International Equity Portfolio Management Team is responsible for making the day-to-day investment decisions for its portion of the Master Portfolio. [GRAPHIC OMITTED] Putnam Investment Management LLC One Post Office Square Boston, Massachusetts 02109 Putnam Investment Management LLC Putnam is a wholly-owned subsidiary of Putnam Investments, Inc., which, except for shares held by employees, is owned by Marsh & McLennan Companies. Putnam is one of three investment sub-advisers to Nations International Equity Master Portfolio. Putnam's Core International Equity Group is responsible for making the day-to-day investment decisions for its portion of the Master Portfolio. [GRAPHIC OMITTED] MacKay Shields LLC 9 West 57th Street New York, New York 10019 MacKay Shields LLC Founded in 1938, MacKay Shields is an independently-managed, wholly-owned subsidiary of New York Life Insurance Company. The firm's 63 investment professionals manage more than $30 billion in assets, including over $6 billion in high yield assets. MacKay Shields' High Yield Portfolio Management Team is responsible for making the day-to-day decisions for Nations High Yield Bond Master Portfolio. 184 Prior performance of other high yield accounts managed by MacKay Shields Nations High Yield Bond Fund commenced its operations on February 14, 2000. The table below is designed to show you how a composite of similar high yield accounts managed by MacKay Shields performed over various time periods in the past. The accounts comprising the MacKay Shields composite have investment objectives, policies and strategies that are substantially similar to those of Nations High Yield Bond Master Portfolio. The table below shows the returns for the MacKay Shields composite compared with the CSFB Global High Yield Index for the periods ending December 31, 2000. The returns of the MacKay Shields composite reflect deductions of account fees and expenses, and assume all dividends and distributions have been reinvested. Average annual total returns as of December 31, 2000
CSFB MacKay Shields Global High Yield Composite (%) Index (%) one year (3.40)% (5.22)% three years 4.26% (0.52)% five years 9.67% 4.50% ten years 15.24% 11.20%
Annual total returns as of December 31
CSFB MacKay Shields Global High Yield Composite (%) Index (%) 2000 (3.4)% (5.2)% 1999 10.7% 3.3% 1998 5.0% 0.6% 1997 15.9% 12.6% 1996 19.6% 12.4% 1995 21.2% 17.4% 1994 2.6% (1.0)% 1993 23.1% 18.9% 1992 23.4% 16.7% 1991 (since 7/1/91) 12.8% 12.9%
This information is designed to demonstrate the historical track record of MacKay Shields. It does not indicate how the Fund will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's fees and expenses. The MacKay Shields composite includes all high yield accounts managed by MacKay Shields. The accounts don't pay the same expenses that mutual funds pay and aren't subject to the diversification rules, tax restrictions and investment limits under the 1940 Act or Subchapter M of the Internal Revenue Code. Returns could have been lower if the composite had been subject to these expenses and regulations and reflected a deduction for investment advisory fees. Performance is expressed in U.S. dollars. The aggregate returns of the accounts in the composite may not reflect the returns of any particular account of MacKay Shields. For further information regarding the composite performance, please see the SAI. 185 [GRAPHIC OMITTED] Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 Other service providers The Funds are distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. Stephens may pay commissions, distribution (12b-1) and shareholder servicing fees, and/or other compensation to companies for selling shares and providing services to investors. BA Advisors is also co-administrator of the Funds, and assists in overseeing the administrative operations of the Funds. The Funds pay BA Advisors and Stephens a combined fee for their services, plus certain out-of-pocket expenses. The fee is calculated as an annual percentage of the average daily net assets of the Funds and is paid monthly, as follows: Stock Funds (also Nations High Yield Bond Fund) 0.23% International/Global Stock Funds 0.22% Index Funds 0.23% Government and Corporate Bond Funds (except Nations High Yield Bond Fund) 0.22% Municipal Bond Funds 0.22%
[GRAPHIC OMITTED] PFPC Inc. 400 Bellevue Parkway Wilmington, Delaware 19809 PFPC Inc. (PFPC) is the transfer agent for the Funds' shares. Its responsibilities include processing purchases, sales and exchanges, calculating and paying distributions, keeping shareholder records, preparing account statements and providing customer service. 186 About your investment - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] We've used the term, investment professional, to refer to the person who has assisted you with buying Nations Funds. Selling agent or servicing agent (sometimes referred to as a selling agent) means the company that employs your investment professional. Selling and servicing agents include banks, brokerage firms, mutual fund dealers and other financial institutions, including affiliates of Bank of America. [GRAPHIC OMITTED] For more information about how to choose a share class, contact your investment professional or call us at 1.800.321.7854. [GRAPHIC OMITTED] Before you invest, please note that, over time,distribution (12b-1) and shareholder servicing fees will increase the cost of your investment, and may cost you more than any sales charges you may pay. For more information, see How selling and servicing agents are paid. [GRAPHIC OMITTED] Choosing a share class Before you can invest in the Funds, you'll need to choose a share class. There are three classes of shares of each Fund offered by this prospectus except Nations Short-Term Income Fund and Nations Short-Term Municipal Income Fund, which don't offer Investor B Shares to new investors. Each class has its own sales charges and fees. The table below compares the charges and fees and other features of the share classes.
Nations Short-Intermediate Government Fund, Nations Nations Government Intermediate Securities Fund, Nations Bond Fund, Nations Strategic Short-Term Nations Income Fund, Income Fund, Bond Fund, Nations High Yield All Stock Nations Nations Bond Fund, Funds and Short-Term Intermediate Nations International/ Municipal Municipal Municipal Global Investor A Shares Income Fund Bond Fund Income Fund Stock Funds Maximum amount you no limit no limit no limit no limit can buy Maximum front-end 1.00% 3.25% 4.75% 5.75% sales charge Maximum deferred none none none none sales charge(1) Maximum annual 0.25% 0.25% 0.25% 0.25% distribution distribution distribution distribution distribution and shareholder (12b-1)/ (12b-1)/ (12b-1)/ (12b-1)/ servicing fees service fee(2) service fee service fee service fee Conversion feature none none none none
(1) A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2) These Funds pays this fee under a separate servicing plan. 187
Nations Nations Short-Intermediate Government Government Fund, Securities Fund, Nations Intermediate Nations Strategic Nations Bond Fund, Income Fund, Short-Term Nations Nations Income, Bond Fund, High Yield All Stock Nations Nations Bond Fund, Funds and Short-Term Intermediate Nations International/ Municipal Municipal Municipal Global Investor B Shares Income Fund Bond Fund Income Fund Stock Funds Maximum amount you $250,000 $250,000 $250,000 $250,000 can buy Maximum front-end none none none none sales charge Maximum deferred none 3.00%(1) 5.00%(1) 5.00%(1) sales charge Redemption fee none none none none Maximum annual 0.75% 0.75% 0.75% 0.75% distribution and distribution and distribution distribution distribution shareholder servicing (12b-1) fee and (12b-1) fee and (12b-1) fee and (12b-1) fee and fees 0.25% service fee 0.25% service fee 0.25% service fee 0.25% service fee Conversion feature none yes yes yes
(1) This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details.
Nations Nations Short-Intermediate Government Government Fund, Securities Fund, Nations Intermediate Nations Strategic Nations Bond Fund, Income Fund, Short-Term Nations Nations Income Fund, Bond Fund, High Yield All Stock Nations Nations Bond Fund, Funds and Short-Term Intermediate Nations International/ Municipal Municipal Municipal Global Investor C Shares Income Fund Bond Fund Income Fund Stock Funds Maximum amount you no limit no limit no limit no limit can buy Maximum front-end none none none none sales charge Maximum deferred 1.00% 1.00% 1.00% 1.00% sales charge(1) Redemption fee none none none none Maximum annual 0.75% 0.75% 0.75% 0.75% distribution and distribution distribution distribution distribution shareholder servicing (12b-1) fee and (12b-1) fee and (12b-1) fee and (12b-1) fee and fees 0.25% service fee 0.25% service fee 0.25% service fee 0.25% service fee Conversion feature none none none none
(1) This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. 188 The share class you choose will depend on how much you're investing, how long you're planning to stay invested, and how you prefer to pay the sales charge. The total cost of your investment over the time you expect to hold your shares will be affected by the distribution (12b-1) and shareholder servicing fees, as well as by the amount of any front-end sales charge or contingent deferred sales charge (CDSC) that applies, and when you're required to pay the charge. You should think about these things carefully before you invest. Investor A Shares have a front-end sales charge, which is deducted when you buy your shares. This means that a smaller amount is invested in the Funds, unless you qualify for a waiver or reduction of the sales charge. However, Investor A Shares have lower ongoing distribution (12b-1) and/or shareholder servicing fees than Investor B and Investor C Shares. This means that Investor A Shares can be expected to pay relatively higher dividends per share. Investor B Shares have limits on how much you can invest. When you buy Investor B or Investor C Shares, the full amount is invested in the Funds. However, you may pay a CDSC when you sell your shares. Over time, Investor B and Investor C Shares can incur distribution (12b-1) and shareholder servicing fees that are equal to or more than the front-end sales charge, and the distribution (12b-1) and shareholder servicing fees you would pay for Investor A Shares. Although the full amount of your purchase is invested in the Funds, any positive investment return on this money may be partially or fully offset by the expected higher annual expenses of Investor B and Investor C Shares. You should also consider the conversion feature for Investor B Shares, which is described in About Investor B Shares. [GRAPHIC OMITTED] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by a Fund every business day. [GRAPHIC OMITTED] About Investor A Shares There is no limit to the amount you can invest in Investor A Shares. You generally will pay a front-end sales charge when you buy your shares, or in some cases, a CDSC when you sell your shares. Front-end sales charge You'll pay a front-end sales charge when you buy Investor A Shares, unless: o you qualify for a waiver of the sales charge. You can find out if you qualify for a waiver in the section, When you might not have to pay a sales charge - Front end sales charges o you're reinvesting distributions The sales charge you'll pay depends on the Fund you're buying and the amount you're investing -- generally, the larger the investment, the smaller the percentage sales charge. 189
Nations Short-Term Income Fund Nations Short-Term Municipal Income Fund Amount retained by selling Sales charge Sales charge agents as a % of the as a % of the as a % of the offering price net asset value offering price Amount you bought per share per share per share $0-$99,999 1.00% 1.01% 0.75% $100,000-$249,999 0.75% 0.76% 0.50% $250,000-$999,999 0.50% 0.50% 0.40% $1,000,000 or more 0.00% 0.00% 1.00%(1)
Nations Short-Intermediate Government Fund Nations Intermediate Bond Fund Nations Bond Fund Nations Intermediate Municipal Bond Fund Amount retained by selling Sales charge Sales charge agents as a % of the as a % of the as a % of the offering price net asset value offering price Amount you bought per share per share per share $0-$99,999 3.25% 3.36% 3.00% $100,000-$249,999 2.50% 2.56% 2.25% $250,000-$499,999 2.00% 2.04% 1.75% $500,000-$999,999 1.50% 1.53% 1.25% $1,000,000 or more 0.00% 0.00% 1.00%(1)
Nations Government Securities Fund Nations Strategic Income Fund Nations High Yield Bond Fund Nations Municipal Income Fund Amount retained by selling Sales charge Sales charge agents as a % of the as a % of the as a % of the offering price net asset value offering price Amount you bought per share per share per share $0-$49,999 4.75% 4.99% 4.25% $50,000-$99,999 4.50% 4.71% 4.00% $100,000-$249,999 3.50% 3.63% 3.00% $250,000-$499,999 2.50% 2.56% 2.25% $500,000-$999,999 2.00% 2.04% 1.75% $1,000,000 or more 0.00% 0.00% 1.00%(1)
(1) 1.00% on the first $3,000,000, 0.50% on the next $47,000,000, 0.25% on amounts over $50,000,000. Stephens pays the amount retained by selling agents on investments of $1,000,000 or more, but may be reimbursed when a CDSC is deducted if the shares are sold within eighteen months from the time they were bought. Please see How selling and servicing agents are paid for more information. 190 All Stock Funds and all International/Global Stock Funds
Amount retained by selling Sales charge Sales charge agents as a % of the as a % of the as a % of the offering price net asset value offering price Amount you bought per share per share per share $0-$49,999 5.75% 6.10% 5.00% $50,000-$99,999 4.50% 4.71% 3.75% $100,000-$249,999 3.50% 3.63% 2.75% $250,000-$499,999 2.50% 2.56% 2.00% $500,000-$999,999 2.00% 2.04% 1.75% $1,000,000 or more 0.00% 0.00% 1.00%(1)
(1)1.00% on the first $3,000,000, 0.50% on the next $47,000,000, 0.25% on amounts over $50,000,000. Stephens pays the amount retained by selling agents on investments of $1,000,000 or more, but may be reimbursed when a CDSC is deducted if the shares are sold within eighteen months from the time they were bought. Please see How selling and servicing agents are paid for more information. Contingent deferred sales charge If you own or buy $1,000,000 or more of Investor A Shares, there is one situation when you'll pay a CDSC: o If you buy your shares on or after August 1, 1999 and sell them within 18 months of buying them, you'll pay a CDSC of 1.00%. The CDSC is calculated from the day your purchase is accepted (the trade date). We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. You won't pay a CDSC on any increase in net asset value since you bought your shares, or on any shares you receive from reinvested distributions. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. [GRAPHIC OMITTED] About Investor B Shares You can buy up to $250,000 of Investor B Shares. You don't pay a sales charge when you buy Investor B Shares, but you may have to pay a CDSC when you sell them. Investor B Shares are not available for Nations Short-Term Income Fund or Nations Short-Term Municipal Income Fund. Contingent deferred sales charge You'll pay a CDSC when you sell your Investor B Shares, unless: o you bought the shares on or after January 1, 1996 and before August 1, 1997 o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge - Contingent deferred sales charges 191 The CDSC you pay depends on the Fund you bought, when you bought your shares, how much you bought in some cases, and how long you held them. Nations Short-Intermediate Government Fund Nations Intermediate Bond Fund Nations Bond Fund Nations Intermediate Municipal Bond Fund
If you sell your shares during the following year: You'll pay a CDSC of: - --------------------------------- -------------------------------------------------------------------- Shares you bought Shares Shares on or after you you bought Shares you bought between 1/1/1996 bought after 8/1/1997 and 11/15/1998 and before before 11/15/1998 in the following amounts: 8/1/1997 1/1/1996 ------------ -------------------------- ------------ --------- $500,000- $0-$499,999 $999,999 the first year you own them 3.0% 3.0% 2.0% none 4.0% the second year you own them 3.0% 2.0% 1.0% none 3.0% the third year you own them 2.0% 1.0% none none 3.0% the fourth year you own them 1.0% none none none 2.0% the fifth year you own them none none none none 2.0% the sixth year you own them none none none none 1.0% after six years of owning them none none none none none
Nations Government Securities Fund Nations Strategic Income Fund Nations High Yield Bond Fund Nations Municipal Income Fund
If you sell your shares during the following year: You'll pay a CDSC of: - --------------------------------- ----------------------------------------------------------------------- Shares you bought Shares Shares on or after you you bought Shares you bought between 1/1/1996 bought after 8/1/1997 and 11/15/1998 and before before 11/15/1998 in the following amounts: 8/1/1997 1/1/1996 ------------ ----------------------------------- ------------ --------- $250,000- $500,000- $0-$249,999 $499,999 $999,999 the first year you own them 5.0% 4.0% 3.0% 2.0% none 5.0% the second year you own them 4.0% 3.0% 2.0% 1.0% none 4.0% the third year you own them 3.0% 3.0% 1.0% none none 3.0% the fourth year you own them 3.0% 2.0% none none none 2.0% the fifth year you own them 2.0% 1.0% none none none 2.0% the sixth year you own them 1.0% none none none none 1.0% after six years of owning them none none none none none none
192 All Stock Funds and International/Global Stock Funds
If you sell your shares during the following year: You'll pay a CDSC of: - --------------------------------- ----------------------------------------------------------------------- Shares you bought Shares Shares on or after you you bought Shares you bought between 1/1/1996 bought after 8/1/1997 and 11/15/1998 and before before 11/15/1998 in the following amounts: 8/1/1997 1/1/1996 ------------ ----------------------------------- ------------ --------- $250,000- $500,000- $0-$249,999 $499,999 $999,999 the first year you own them 5.0% 5.0% 3.0% 2.0% none 5.0% the second year you own them 4.0% 4.0% 2.0% 1.0% none 4.0% the third year you own them 3.0% 3.0% 1.0% none none 3.0% the fourth year you own them 3.0% 3.0% none none none 2.0% the fifth year you own them 2.0% 2.0% none none none 2.0% the sixth year you own them 1.0% 1.0% none none none 1.0% after six years of owning them none none none none none none
The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor B Shares. Please see How selling and servicing agents are paid for more information. About the conversion feature Investor B Shares generally convert automatically to Investor A Shares according to the following schedule: Nations Short-Intermediate Government Fund Nations Intermediate Bond Fund Nations Bond Fund Nations Intermediate Municipal Bond Fund
Will convert to Investor A Shares Investor B Shares you bought after you've owned them for after November 15, 1998 eight years between August 1, 1997 and November 15, 1998 $0-$499,999 six years $500,000-$999,999 five years before August 1, 1997 six years
193 Nations Government Securities Fund Nations Strategic Income Fund Nations High Yield Bond Fund Nations Municipal Income Fund
Will convert to Investor A Shares Investor B Shares you bought after you've owned them for after November 15, 1998 eight years between August 1, 1997 and November 15, 1998 $0-$249,999 nine years $250,000-$499,999 six years $500,000-$999,999 five years before August 1, 1997 eight years
All Stock Funds and International/Global Stock Funds
Will convert to Investor A Shares Investor B Shares you bought after you've owned them for after November 15, 1998 eight years between August 1, 1997 and November 15, 1998 $0-$249,000 nine years $250,000-$499,999 six years $500,000-$999,999 five years before August 1, 1997 nine years
The conversion feature allows you to benefit from the lower operating costs of Investor A Shares, which can help increase total returns. Here's how the conversion works: o We won't convert your shares if you tell your investment professional, selling agent or the transfer agent within 90 days before the conversion date that you don't want your shares to be converted. Remember, it's in your best interest to convert your shares because Investor A Shares have lower expenses. o Shares are converted at the end of the month in which they become eligible for conversion. Any shares you received from reinvested distributions on these shares will convert to Investor A Shares at the same time. o You'll receive the same dollar value of Investor A Shares as the Investor B Shares that were converted. No sales charge or other charges apply. o Investor B Shares that you received from an exchange of Investor B Shares of another Nations Fund will convert based on the day you bought the original shares. Your conversion date may be later if you exchanged to or from a Nations Money Market Fund. o Conversions are free from federal tax. 194 [GRAPHIC OMITTED] About Investor C Shares There is no limit to the amount you can invest in Investor C Shares. You don't pay a sales charge when you buy Investor C Shares, but you may pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC of 1.00% when you sell Investor C Shares within one year of buying them, unless: o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge - Contingent deferred sales charges The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor C Shares. Please see How selling and servicing agents are paid for more information. [GRAPHIC OMITTED] Please contact your investment professional for more information about reductions and waivers of sales charges. You should tell your investment professional that you may qualify for a reduction or a waiver before buying shares. We can change or cancel these terms at any time. Any change or cancellation applies only to future purchases. When you might not have to pay a sales charge Front-end sales charges (Investor A Shares) There are three ways you can lower the front-end sales charge you pay on Investor A Shares: o Combine purchases you've already made Rights of accumulation allow you to combine the value of Investor A, Investor B and Investor C Shares you already own with Investor A Shares you're buying to calculate the sales charge. The sales charge is based on the total value of the shares you already own, or the original purchase cost, whichever is higher, plus the value of the shares you're buying. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify for rights of accumulation. o Combine purchases you plan to make By signing a letter of intent, you can combine the value of shares you already own with the value of shares you plan to buy over a 13-month period to calculate the sales charge. o You can choose to start the 13-month period up to 90 days before you sign the letter of intent. o Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. 195 o If you don't buy as much as you planned within the period, you must pay the difference between the charges you've paid and the charges that actually apply to the shares you've bought. o Your first purchase must be at least 5% of the minimum amount for the sales charge level that applies to the total amount you plan to buy. o If the purchase you've made later qualifies for a reduced sales charge through the 90-day backdating provisions, we'll make an adjustment for the lower charge when the letter of intent expires. Any adjustment will be used to buy additional shares at the reduced sales charge. o Combine purchases with family members You can receive a quantity discount by combining purchases of Investor A Shares that you, your spouse and children under age 21 make on the same day. Some distributions or payments from the dissolution of certain qualified plans also qualify for the quantity discount. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: o full-time employees and retired employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries and the immediate families of these people o banks, trust companies and thrift institutions acting as fiduciaries o individuals receiving a distribution from a Bank of America trust or other fiduciary account may use the proceeds of that distribution to buy Investor A Shares without paying a front-end sales charge, as long as the proceeds are invested in the Funds within 90 days of the date of distribution o Nations Funds' Trustees, Directors and employees of its investment sub-advisers o registered broker/dealers that have entered into a Nations Funds dealer agreement with Stephens may buy Investor A Shares without paying a front-end sales charge for their investment account only o registered personnel and employees of these broker/dealers and their family members may buy Investor A Shares without paying a front-end sales charge according to the internal policies and procedures of the employing broker/dealer as long as these purchases are made for their own investment purposes o employees or partners of any service provider to the Funds o former shareholders of Class B Shares of the Special Equity Portfolio of The Capitol Mutual Funds who held these shares as of January 31, 1994 or received Investor A Shares of Nations Aggressive Growth Fund may buy Investor A Shares of Nations Aggressive Growth Fund without paying a front-end sales charge 196 o investors who buy through accounts established with certain fee-based investment advisers or financial planners, including Nations Funds wrap fee accounts and other managed agency/asset allocation accounts o shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at net asset value The following plans can buy Investor A Shares of all Funds except Nations Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond Fund and Nations Municipal Income Fund, without paying a front-end sales charge: o pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the Internal Revenue Code of 1986, as amended (the tax code) o employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must: o have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or o sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or o be an employer-sponsored plan with at least 100 eligible participants, or o be a participant in an alliance program that has signed an agreement with the Fund or a selling agent o certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors You can also buy Investor A Shares without paying a sales charge if you buy the shares within 120 days of selling the same Fund. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. Contingent deferred sales charges (Investor A, Investor B and Investor C Shares) You won't pay a CDSC on the following transactions: o shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner o distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors 197 o the following retirement plan distributions (except in the case of Nations Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond Fund and Nations Municipal Income Fund): o lump-sum or other distributions from a qualified corporate or self-employed retirement plan following the retirement (or following attainment of age 59 1/2 in the case of a "key employee" of a "top heavy" plan) o distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 o a tax-free return of an excess contribution to an IRA o distributions from a qualified retirement plan that aren't subject to the 10% additional federal withdrawal tax under Section 72(t)(2) of the tax code o payments made to pay medical expenses which exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least 12 weeks o shares sold under our right to liquidate a shareholder's account, including instances where the aggregate net asset value of Investor A, Investor B or Investor C Shares held in the account is less than the minimum account size o if you exchange Investor B or Investor C Shares of a Nations Fund that were bought through a Bank of America employee benefit plan for Investor A Shares of a Nations Fund o withdrawals made under the Automatic Withdrawal Plan described in Buying, selling and exchanging shares, if the total withdrawals of Investor A, Investor B or Investor C Shares made in a year are less than 12% of the total value of those shares in your account. A CDSC may only apply to Investor A Shares if you bought more than $1,000,000 We'll also waive the CDSC on the sale of Investor A or Investor C Shares bought before September 30, 1994 by current or retired employees of Bank of America Corporation (and its predecessors) and its affiliates, or by current or former trustees or directors of the Nations Funds or other management companies managed by Bank of America. You won't pay a CDSC on the sale of Investor B or Investor C Shares if you reinvest any of the proceeds in the same Fund within 120 days of the sale. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. 198 [GRAPHIC OMITTED] Buying, selling and exchanging shares [GRAPHIC OMITTED] When you sell shares of a mutual fund, the fund is effectively "buying" them back from you. This is called a redemption. You can invest in the Funds through your selling agent or directly from Nations Funds. You don't pay any sales charges when you buy, sell or exchange Investor A Shares of the Index Funds. We encourage you to consult with an investment professional who can open an account for you with a selling agent and help you with your investment decisions. Once you have an account, you can buy, sell and exchange shares by contacting your investment professional or selling agent. They will look after any paperwork that's needed to complete a transaction and send your order to us. You should also ask your selling agent about its limits, fees and policies for buying, selling and exchanging shares, which may be different from those described here, and about its related programs or services. The table on the next page summarizes some key information about buying, selling and exchanging shares. You'll find sales charges and other fees that apply to these transactions in Choosing a share class. The Funds also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. Please contact your investment professional, or call us at 1.800.321.7854 if you have questions or you need help placing an order. 199
Ways to buy, sell or How much you can buy, exchange sell or exchange Other things to know - ------------------------------------------------------------------------------------------------------------------------------------ Buying shares In a lump sum minimum initial investment: There is no limit to the amount you can invest in o $1,000 for regular accounts Investor A and C Shares. You can invest up to o $500 for traditional and Roth IRA $250,000 in Investor B Shares. accounts o $250 for certain fee-based accounts Investor B Shares are only available to existing o no minimum for certain retirement shareholders of Nations Short-Term Income Fund plan accounts like 401(k) plans and and Nations Short-Term Municipal Income Fund. SEP accounts, but other restrictions apply minimum additional investment: o $100 for all accounts Using our minimum initial investment: You can buy shares twice a month, monthly or Systematic o $100 quarterly, using automatic transfers from your Investment Plan minimum additional investment: bank account. o $50 - ------------------------------------------------------------------------------------------------------------------------------------ Selling shares In a lump sum o you can sell up to $50,000 of your We'll deduct any CDSC from the amount you're shares by telephone, otherwise there selling and send you or your selling agent the are no limits to the amount you can balance, usually within three business days of sell receiving your order. o other restrictions may apply to If you paid for your shares with a check that withdrawals from retirement plan wasn't certified, we'll hold the sale proceeds accounts when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared. Using our o minimum $25 per withdrawal Your account balance must be at least $10,000 Automatic to set up the plan. You can make withdrawals Withdrawal Plan twice a month, monthly, quarterly, bi-annually or annually. We'll send your money by check or deposit it directly to your bank account. No CDSC is deducted if you withdraw 12% or less of the value of your shares in a class. - ------------------------------------------------------------------------------------------------------------------------------------ Exchanging shares In a lump sum o minimum $1,000 per exchange You can exchange your Investor A Shares for Investor A shares of any other Nations Fund, except Index Funds. You won't pay a front-end sales charge, CDSC or redemption fee on the shares you're exchanging. You can exchange your Investor B Shares for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You can exchange your Investor C Shares for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of a Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. You can exchange Investor A Shares of an Index Fund for Investor A Shares of any other Index Fund. Using our o minimum $25 per exchange You must already have an investment in the Feature Funds into which you want to exchange. You can Automatic make exchanges monthly or quarterly. Exchange
200 [GRAPHIC OMITTED] A business day is any day that the New York Stock Exchange (NYSE) is open. A business day ends at the close of regular trading on the NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes early, the business day ends as of the time the NYSE closes. The NYSE is closed on weekends and on the following national holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. How shares are priced All transactions are based on the price of a Fund's shares -- or its net asset value per share. We calculate net asset value per share for each class of each Fund at the end of each business day. First, we calculate the net asset value for each class of a Fund by determining the value of the Fund's assets in the class and then subtracting its liabilities. Next, we divide this amount by the number of shares that investors are holding in the class. Valuing securities in a Fund The value of a Fund's assets is based on the total market value of all of the securities it holds. The prices reported on stock exchanges and securities markets around the world are usually used to value securities in a Fund. If prices aren't readily available, or the value of a security has been materially affected by events occurring after a foreign exchange closes, we'll base the price of a security on its fair value. When a Fund uses fair value to price securities it may value those securities higher or lower than another fund that uses market quotations to price the same securities. We use the amortized cost method, which approximates market value, to value short-term investments maturing in 60 days or less. International markets may be open on days when U.S. markets are closed. The value of foreign securities owned by a Fund could change on days when Fund shares may not be bought or sold. How orders are processed Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents before the end of a business day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive that day's net asset value per share. Orders received after the end of a business day will receive the next business day's net asset value per share. The business day that applies to your order is also called the trade date. We may refuse any order to buy or exchange shares. If this happens, we'll return any money we've received to your selling agent. Telephone orders You can place orders to buy, sell or exchange by telephone if you complete the telephone authorization section of our account application and send it to us. Here's how telephone orders work: o If you sign up for telephone orders after you open your account, you must have your signature guaranteed. o Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. o We'll take reasonable steps to confirm that telephone instructions are genuine. For example, we require proof of your identification before we will act on instructions received by telephone and may record telephone conversations. If we and our service providers don't take these steps, we may be liable for any losses from unauthorized or fraudulent instructions. o Telephone orders may be difficult to complete during periods of significant economic or market change. 201 [GRAPHIC OMITTED] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by a Fund every business day. [GRAPHIC OMITTED] Buying shares Here are some general rules for buying shares: o Except for the Index Funds, you buy Investor A Shares at the offering price per share. You buy Index Funds and Investor B and Investor C Shares at net asset value per share. o If we don't receive your money within three business days of receiving your order, we'll refuse the order. o Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. o Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. Minimum initial investment The minimum initial amount you can buy is usually $1,000. If you're buying shares through one of the following accounts or plans, the minimum initial amount you can buy is: o $500 for traditional and Roth individual retirement accounts (IRAs) o $250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts o $100 using our Systematic Investment Plan o There is no minimum for 401(k) plans, simplified employee pension plans (SEPs), salary reduction-simplified employee pension plans (SAR-SEPs), Savings Incentives Match Plans for Employees (SIMPLE IRAs), salary reduction-IRAs (SAR-IRAs) or other similar kinds of accounts. However, if the value of your account falls below $1,000 for 401(k) plans or $500 for the other plans within one year after you open your account, we may sell your shares. We'll give you 60 days notice in writing if we're going to do this Minimum additional investment You can make additional purchases of $100, or $50 if you use our Systematic Investment Plan. Systematic Investment Plan You can make regular purchases of $50 or more using automatic transfers from your bank account to the Funds you choose. You can contact your investment professional or us to set up the plan. Here's how the plan works: o You can buy shares twice a month, monthly or quarterly. o You can choose to have us transfer your money on or about the 15th or the last day of the month. o Some exceptions may apply to employees of Bank of America and its affiliates, and to plans set up before August 1, 1997. For details, please contact your investment professional. 202 [GRAPHIC OMITTED] For more information about telephone orders, see How orders are processed. [GRAPHIC OMITTED] Selling shares Here are some general rules for selling shares: o We'll deduct any CDSC from the amount you're selling and send you the balance. o If you're selling your shares through a selling agent, we'll normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. Your selling agent is responsible for depositing the sale proceeds to your account on time. o If you're selling your shares directly through us, we'll normally send the sale proceeds by mail or electronic transfer them to your bank account within three business days after the Fund receives your order. o You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. o If you paid for your shares with a check that wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared, whichever is later. o If you hold any shares in certificate form, you must sign the certificates (or send a signed stock power with them) and send them to PFPC. Your signature must be guaranteed unless you've made other arrangements with us. We may ask for any other information we need to prove that the order is properly authorized. o Under certain circumstances allowed under the Investment Company Act of 1940 (1940 Act), we can pay you in securities or other property when you sell your shares. o We can delay payment of the sale proceeds for up to seven days. o Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. We may sell your shares: o if the value of your account falls below $500. We'll give you 60 days notice in writing if we're going to do this o if your selling agent tells us to sell your shares under arrangements made between the selling agent and you o under certain other circumstances allowed under the 1940 Act 203 Automatic Withdrawal Plan The Automatic Withdrawal Plan lets you withdraw $25 or more twice a month, monthly, quarterly, bi-annually or annually. You can contact your investment professional or us to set up the plan. Here's how the plan works: o Your account balance must be at least $10,000 to set up the plan. o If you set up the plan after you've opened your account, your signature must be guaranteed. o You can choose to have us transfer your money on or about the 10th or the 25th of the month. o You won't pay a CDSC on Investor A, Investor B or Investor C Shares if you withdraw 12% or less of the value of those shares in a year. Otherwise, we'll deduct any CDSC from the withdrawals. o We'll send you a check or deposit the money directly to your bank account. o You can cancel the plan by giving your selling agent or us 30 days notice in writing. It's important to remember that if you withdraw more than your investment in the Fund is earning, you'll eventually use up your original investment. [GRAPHIC OMITTED] You should make sure you understand the investment objective and principal investment strategies of the Fund you're exchanging into. Please read its prospectus carefully. [GRAPHIC OMITTED] Exchanging shares You can sell shares of a Fund to buy shares of another Nations Fund. This is called an exchange. You might want to do this if your investment goals or tolerance for risk changes. Here's how exchanges work: o You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. o The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. o You may only make exchanges into a Fund that is legally sold in your state of residence. o You generally may only make an exchange into a Fund that is accepting investments. o We may limit the number of exchanges you can make within a specified period of time. o We may change or cancel your right to make an exchange by giving the amount of notice required by regulatory authorities (generally 60 days for a material change or cancellation). o You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. 204 Exchanging Investor A Shares o You can exchange Investor A Shares of an Index Fund for Investor A Shares of any other Index Fund. o If you received Investor A Shares of a Managed Index Fund through a conversion of Investor C Shares originally bought through a 401(k) plan, you can also exchange your shares for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds o You can exchange Investor A Shares of the other Funds for Investor A Shares of any other Nations Fund, except Index Funds. Here are some rules for exchanging Investor A Shares: o You won't pay a front-end sales charge on the shares of the Fund you're exchanging. o You won't pay a CDSC, if applicable, on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC at that time will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. o You won't pay a redemption fee on the shares you're exchanging. Any redemption fee will be deducted when you sell the shares you received from the exchange. Any redemption fee will be paid to the original Fund. o If you received Investor A Shares of Nations Short-Term Income Fund or Nations Short-Term Municipal Income Fund directly or indirectly from an exchange of Investor B Shares of another Fund, you can exchange these shares for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds; or o Investor B Shares of Nations Reserves Money Market Funds. A CDSC may apply to the shares you receive from the exchange, and to any Investor B Shares you receive from an exchange of these shares. The CDSC will be based on the period from when you bought your original Investor B Shares until you sell the shares you received from the exchange. 205 Exchanging Investor B Shares You can exchange Investor B Shares of a Fund for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Investor C Shares of a Nations Money Market Fund through an exchange of Investor B Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Investor C Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. Exchanging Investor C Shares You can exchange Investor C Shares of a Fund for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of a Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Daily Shares of a Nations Money Market Fund through an exchange of Investor C Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Daily Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. Automatic Exchange Feature The Automatic Exchange Feature lets you exchange $25 or more of Investor A, Investor B or Investor C Shares every month or every quarter. You can contact your investment professional or us to set up the plan. Here's how automatic exchanges work: o Send your request to PFPC in writing or call 1.800.321.7854. o If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. o You must already have an investment in the Funds you want to exchange. o You can choose to have us transfer your money on or about the 1st or the 15th day of the month. o The rules for making exchanges apply to automatic exchanges. 206 [GRAPHIC OMITTED] How selling and servicing agents are paid Selling and servicing agents usually receive compensation based on your investment in the Funds. The kind and amount of the compensation depends on the share class in which you invest. Selling agents typically pay a portion of the compensation they receive to their investment professionals. Commissions Your selling agent may receive an up-front commission (reallowance) when you buy shares of a Fund. The amount of this commission depends on which share class you choose: o up to 5.00% of the offering price per share of Investor A Shares of the Stock Funds and International/Global Stock Funds. The commission is paid from the sales charge we deduct when you buy your shares o up to 4.25% of the offering price per share of Investor A Shares of the Government & Corporate Bond and Municipal Bond Funds. The commission is paid from the sales charge we deduct when you buy your shares o up to 4.00% of the net asset value per share of Investor B Shares. The commission is not deducted from your purchase -- we pay your selling agent directly o up to 1.00% of the net asset value per share of Investor C Shares. The commission is not deducted from your purchase -- we pay your selling agent directly If you buy Investor B or Investor C Shares you will be subject to higher distribution (12b-1) and shareholder servicing fees and may be subject to a CDSC when you sell your shares. [GRAPHIC OMITTED] The financial institution or intermediary that buys shares for you is also sometimes referred to as a selling agent. The distribution fee is often referred to as a "12b-1" fee because it's paid through a plan approved under Rule 12b-1 under the 1940 Act. Your selling agent may charge other fees for services provided to your account. Distribution (12b-1) and shareholder servicing fees Stephens and selling and servicing agents may be compensated for selling shares and providing services to investors under distribution and shareholder servicing plans. The amount of the fee depends on the class of shares you own:
Maximum annual distribution (12b-1) and shareholder servicing fees (as an annual % of average daily net assets) Investor A Shares 0.25% combined distribution (12b-1) and shareholder servicing fee(1) Investor B Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee Investor C Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee
(1) Nations Short-Term Income Fund and Nations Short-Term Municipal Income Fund pay this fee under a separate servicing plan. Fees are calculated daily and paid monthly. Because these fees are paid out of the Funds' assets on an ongoing basis, they will increase the cost of your investment over time, and may cost you more than any sales charges you may pay. 207 The Funds pay these fees to Stephens and/or to eligible selling and servicing agents and financial institutions, including BA Advisors or its affiliates, for as long as the plans continue. We may reduce or discontinue payments at any time. Other compensation Selling and servicing agents may also receive: o a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds o additional amounts on all sales of shares: o an amount of up to 1.00% of the net asset value per share on all sales of Investor A Shares of the Index Funds o up to 1.00% of the offering price per share of Investor A Shares of all other Funds o up to 1.00% of the net asset value per share of Investor B Shares o up to 1.00% of the net asset value per share of Investor C Shares o non-cash compensation like trips to sales seminars, tickets to sporting events, theater or other entertainment, opportunities to participate in golf or other outings and gift certificates for meals or merchandise This compensation, which is not paid by the Funds, is discretionary and may be available only to selected selling and servicing agents. For example, Stephens sometimes sponsors promotions involving Banc of America Investment Services, Inc., an affiliate of BA Advisors, and certain other selling or servicing agents. Selected selling and servicing agents also may receive compensation for opening a minimum number of accounts. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. 208 [GRAPHIC] Distributions and taxes [GRAPHIC] The power of compounding Reinvesting your distributions buys you more shares of a Fund -- which lets you take advantage of the potential for compound growth. Putting the money you earn back into your investment means it, in turn, may earn even more money. Over time, the power of compounding has the potential to significantly increase the value of your investment. There is no assurance, however, that you'll earn more money if you reinvest your distributions. About distributions A mutual fund can make money two ways: o It can earn income.Examples are interest paid on bonds and dividends paid on common stocks. o A fund can also have capital gain if the value of its investments increases. If a fund sells an investment at a gain, the gain is realized. If a fund continues to hold the investment, any gain is unrealized. A mutual fund is not subject to federal income tax as long as it distributes its net investment income and realized capital gain to its shareholders. The Funds intend to pay out a sufficient amount of their income and capital gain to their shareholders so the Funds won't have to pay any federal income tax. When a Fund makes this kind of a payment, it's split among all shares, and is called a distribution. All of the Funds distribute any net realized capital gain at least once a year. The frequency of distributions of net investment income varies by Fund: Frequency of Fund income distributions Nations Convertible Securities Fund quarterly Nations Asset Allocation Fund quarterly Nations Equity Income Fund monthly Nations Classic Value Fund annually Nations Value Fund monthly Nations Blue Chip Fund quarterly Nations Strategic Growth Fund monthly Nations Marsico Growth & Income Fund quarterly Nations Capital Growth Fund monthly Nations Aggressive Growth Fund monthly Nations Marsico Focused Equities Fund quarterly Nations MidCap Growth Fund quarterly Nations Marsico 21st Century Fund quarterly Nations Small Company Fund monthly Nations Financial Services Fund annually Nations Global Value Fund annually Nations International Value Fund annually Nations International Equity Fund quarterly Nations Marsico International Opportunities Fund quarterly Nations Emerging Markets Fund quarterly Nations LargeCap Index Fund quarterly Nations MidCap Index Fund quarterly Nations SmallCap Index Fund quarterly Nations Managed Index Fund monthly Nations Short-Term Income Fund monthly Nations Short-Intermediate Government Fund monthly Nations Government Securities Fund monthly Nations Intermediate Bond Fund monthly Nations Bond Fund monthly Nations Strategic Income Fund monthly Nations High Yield Bond Fund monthly Nations Short-Term Municipal Income Fund monthly Nations Intermediate Municipal Bond Fund monthly Nations Municipal Income Fund monthly 209 Any distribution you receive is based on the number of shares you hold on the record date, which is usually the day the distribution is declared (daily dividend Funds) or the day before the distribution is declared (all other Funds). Shares are eligible to receive net investment income distributions from the settlement date (daily dividend Funds), trade date (all other Funds) or realized capital gain from the trade date of the purchase up to and including the day before the shares are sold. Different share classes of a Fund usually pay different net investment income distribution amounts, because each class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. We'll automatically reinvest distributions in additional shares of the same Fund unless you tell us you want to receive your distributions in cash. You can do this by writing to us at the address on the back cover, or by calling us at 1.800.321.7854. We generally pay cash distributions within five business days after the end of the month, quarter or year in which the distribution was made. If you sell all of your shares, we'll normally pay any distribution that applies to those shares in cash within five business days after the sale was made. If you buy shares of a Fund shortly before it makes a distribution, you will, in effect, receive part of your purchase back in the distribution, which is subject to tax. Similarly, if you buy shares of a Fund that holds securities with unrealized capital gain, you will, in effect, receive part of your purchase back if and when the Fund sells those securities and realizes and distributes the gain. This distribution is also subject to tax. The Funds have built up, or have the potential to build up, high levels of unrealized capital gain. [GRAPHIC] This information is a summary of how federal income taxes may affect your investment in the Funds. It is not intended as a substitute for careful tax planning. You should consult with your own tax adviser about your situation, including any foreign, state and local taxes that may apply. [GRAPHIC] For more information about taxes, please see the SAI. How taxes affect your investment Distributions that come from net investment income, net short-term capital gain and certain other items generally are taxable to you as ordinary income. A portion of such distributions to corporate shareholders may qualify for the dividends-received deduction. Distributions that come from net long-term capital gain generally are taxable to you as long-term capital gain. In general, all distributions are taxable to you when paid, whether they are paid in cash or automatically reinvested in additional shares of the Fund. However, any distributions declared to shareholders of record in October, November or December of one year and distributed in January of the following year will be taxable as if they had been paid to you on December 31 of the first year. We'll send you a notice every year that tells you how much you've received in distributions during the year and their federal tax status. Foreign, state and local taxes may also apply to these distributions. 210 Municipal Bond Funds Distributions that come from a Municipal Bond Fund's tax-exempt interest income are generally free from federal income tax, but may be subject to state and local tax. All or a portion of these distributions may also be subject to the federal alternative minimum tax. Any distributions that come from taxable income or realized capital gain are generally subject to tax. Distributions that come from taxable income and any net short-term capital gain generally are taxable to you as ordinary income. Distributions of net long-term capital gain generally are taxable to you as long-term capital gain. Corporate shareholders will not be able to deduct any distributions from these Funds when determining their taxable income. Foreign taxes Mutual funds that maintain most of their portfolio in foreign securities -- like the International/Global Stock Funds -- have special tax considerations. You'll generally be required to: o include in your gross income your proportional amount of foreign taxes paid by the fund o treat this amount as foreign taxes you paid directly o either deduct this amount when calculating your income, or subject to certain conditions and limitations, claim this amount as a foreign tax credit against your federal income tax liability In general, if you are an individual, each year you can claim up to $300 ($600 if you're filing jointly) of foreign taxes paid (or deemed paid) by you as a foreign tax credit against your federal income tax liability. U.S. government obligations If you invest in U.S. government obligations directly, interest on those obligations is free from state and local and individual income taxes. Distributions you receive that come from interest each Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. 211 Withholding tax We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts to be paid for in securities or other property and exchanges) if: o you haven't given us a correct Taxpayer Identification Number (TIN) and haven't certified that the TIN is correct and withholding doesn't apply o the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records o the IRS informs us that you are otherwise subject to backup withholding The IRS may also impose penalties against you if you don't give us a correct TIN. Amounts we withhold are applied to your federal income tax liability. You may receive a refund from the IRS if the withholding tax results in an overpayment of taxes. We're also normally required by federal law to withhold tax on distributions (other than capital gain distributions) paid to foreign shareholders. Taxation of redemptions and exchanges Your redemptions (including redemptions paid in securities and exchanges of Fund shares will usually result in a taxable capital gain or loss, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. 212 [GRAPHIC] Financial highlights The financial highlights table is designed to help you understand how the Funds have performed for the past five years or, if shorter, the period of the Fund's operations. Certain information reflects financial results for a single Fund share. The total investment return line indicates how much an investment in the Fund would have earned, assuming all dividends and distributions had been reinvested. Financial highlights for Investor A, Investor B and Investor C Shares of Nations Classic Value Fund, Nations Financial Services Fund and Nations Global Value Fund are not provided because these classes of shares had not yet commenced operations during the period indicated. This information, except as noted below, has been audited by PricewaterhouseCoopers LLP. The financial highlights of Nations International Value Fund for the period ended May 15, 1998 and for the year ended November 30, 1997 and the financial highlights of Nations Small Company Fund for the periods ended May 16, 1997 were audited by other independent accountants. The independent accountants' report and Nations Funds financial statements are incorporated by reference into the SAI. Please see the back cover to find out how you can get a copy. 213
Nations Convertible Securities Fund For a Share outstanding throughout each period Year ended Period ended Period ended Year ended Year ended Year ended Investor A Shares* 03/31/01 03/31/00# 05/14/99 02/28/99 02/28/98 02/28/97** Operating performance: Net asset value, beginning of period $22.17 $18.31 $17.34 $17.28 $17.35 $16.42 Net investment income 0.51 0.46 0.12 0.51 0.58 0.57 Net realized and unrealized gain/(loss) on investments (2.05) 5.26 0.96 0.25 2.89 2.34 Net increase/(decrease) in net asset value from operations (1.54) 5.72 1.08 0.76 3.47 2.91 Distributions: Dividends from net investment income (0.55) (0.45) (0.11) (0.52) (0.59) (0.57) Distributions from net realized capital gains (3.97) (1.41) -- (0.18) (2.95) (1.41) Distributions in excess of net realized capital gains (0.07) -- -- -- -- -- Total dividends and distributions (4.59) (1.86) (0.11) (0.70) (3.54) (1.98) Net asset value, end of period $16.04 $22.17 $18.31 $17.34 $17.28 $17.35 Total return++ (7.88)% 33.68% 6.25% 4.64% 21.54% 18.53% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $315,857 $369,488 $352,000 $356,000 $391,000 $309,000 Ratio of operating expenses to average net assets 1.24%(a)(b) 1.22%+(b) 1.30%+ 1.15%(a) 1.10%(a) 1.18%(a) Ratio of net investment income/(loss) to average net assets 2.86% 1.96%+ 3.07%+ 2.97% 3.35% 3.40% Portfolio turnover rate 73% 65% 16% 66% 69% 124% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.25%(a) 1.23%+ 1.32%+ 1.16%(a) 1.12%(a) 1.19%(a)
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Capital Income Fund A Shares, which were reorganized into Convertible Securities Investor A Shares, 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. ** As of July 22, 1996, the Portfolio designated the existing series of shares as "A" Shares. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 214
Nations Convertible Securities Fund For a Share outstanding throughout each period Year ended Period ended Period ended Period ended Investor B Shares* 03/31/01 03/31/00# 05/14/99 02/28/99** Operating performance: Net asset value, beginning of period $22.06 $18.27 $17.30 $17.67 Net investment income 0.35 0.44 0.09 0.22 Net realized and unrealized gain/(loss) on investments (2.00) 5.12 0.96 (0.17) Net increase/(decrease) in net asset value from operations (1.65) 5.56 1.05 0.05 Distributions: Dividends from net investment income (0.45) (0.36) (0.08) (0.24) Distributions from net realized capital gains (3.97) (1.41) -- (0.18) Distributions in excess of net realized capital gains (0.07) -- -- -- Total dividends and distributions (4.49) (1.77) (0.08) (0.42) Net asset value, end of period $15.92 $22.06 $18.27 $17.30 Total return++ (8.49)% 32.76% 6.10% 0.44% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $49,763 $11,175 $4,000 $3,000 Ratio of operating expenses to average net assets 1.99%(a)(b) 1.97%+(b) 2.06%+ 1.96%+(a) Ratio of net investment income to average net assets 2.08% 1.21%+ 2.34%+ 2.14%+ Portfolio turnover rate 73% 65% 16% 66% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.00%(a) 1.98%+ 2.08%+ 1.97%+(a)
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Capital Income Fund B Shares, which were reorganized into the Convertible Securities Investor B Shares, 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 Investor B Shares commenced operations on July 15, 1998. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 215
Nations Convertible Securities Fund For a Share outstanding throughout each period Year ended Period ended Period ended Year ended Year ended Period ended Investor C Shares* 03/31/01 03/31/00# 05/14/99 02/28/99 02/28/98 02/28/97** Operating performance: Net asset value, beginning of period $22.23 $18.35 $17.37 $17.24 $17.30 $16.24 Net investment income 0.35 0.38 0.10 0.40 0.48 0.32 Net realized and unrealized gain/(loss) on investments (2.02) 5.22 0.97 0.31 2.89 2.43 Net increase/(decrease) in net asset value from operations (1.67) 5.60 1.07 0.71 3.37 2.75 Distributions: Dividends from net investment income (0.44) (0.31) (0.09) (0.40) (0.48) (0.28) Distributions from net realized capital gains (3.97) (1.41) -- (0.18) (2.95) (1.41) Distributions in excess of net realized capital gains (0.07) -- -- -- -- -- Total dividends and distributions (4.48) (1.72) (0.09) (0.58) (3.43) (1.69) Net asset value, end of period $16.08 $22.23 $18.35 $17.37 $17.24 $17.30 Total return++ (8.50)% 32.81% 6.17% 4.29% 20.97% 17.47% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $9,827 $3,033 $4,000 $4,000 $3,000 $1,000 Ratio of operating expenses to average net assets 1.99%(a)(b) 1.97%+(b) 1.80%+ 1.65%(a) 1.60% 1.66%+ Ratio of net investment income to average net assets 2.08% 1.21%+ 2.56%+ 2.45% 2.85% 2.85%+ Portfolio turnover rate 73% 65% 16% 66% 69% 124% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.00%(a) 1.98%+ 2.07%+ 1.91%(a) 1.86% 1.91%+
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Capital Income Fund K Shares, which were reorganized into the Convertible Securities Investor C Shares, 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 Investor C Shares commenced operations on October 21, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 216
Nations Asset Allocation Fund For a Share outstanding throughout each period Year ended Period ended Period ended Year ended Year ended Year ended Investor A Shares*,*** 03/31/01# 03/31/00# 05/14/99 02/28/99 02/28/98 02/28/97** Operating performance: Net asset value, beginning of period $24.35 $23.40 $22.50 $21.41 $19.40 $17.52 Net investment income 0.50 0.43 0.10 0.55 0.52 0.48 Net realized and unrealized gain/(loss) on investments (2.82) 1.59 0.91 2.48 3.72 2.50 Net increase/(decrease) in net asset value from operations (2.32) 2.02 1.01 3.03 4.24 2.98 Distributions: Dividends from net investment income (0.50) (0.35) (0.11) (0.45) (0.47) (0.46) Distributions from net realized capital gains (1.21) (0.72) -- (1.49) (1.76) (0.64) Total dividends and distributions (1.71) (1.07) (0.11) (1.94) (2.23) (1.10) Net asset value, end of period $20.32 $24.35 $23.40 $22.50 $21.41 $19.40 Total return++ (10.05)% 8.99% 4.50% 14.72% 23.07% 17.64% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $231,520 $83,412 $72,000 $72,000 $49,000 $35,000 Ratio of operating expenses to average net assets 1.23%(a)(b) 1.20%+(a)(b) 1.18%+ 0.94% 1.03% 1.25% Ratio of net investment income/(loss) to average net assets 2.20% 1.60%+ 2.01%+ 2.64% 2.67% 2.59% Portfolio turnover rate 88% 84% 20% 114% 67% 116% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.25%(a) 1.27%+(a) 1.20%+ 0.94% 1.09% 1.94%
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Asset Allocation Fund A Shares, which were reorganized into the Asset Allocation Investor A Shares, 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. ** As of July 22, 1996, the Fund designated the existing series of shares as "A" Shares. *** Seafirst shares converted into Investor A Shares on June 23, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 217
Nations Asset Allocation Fund For a Share outstanding throughout each period Year ended Period ended Period ended Period ended Investor B Shares* 03/31/01# 03/31/00# 05/14/99 02/28/99** Operating performance: Net asset value, beginning of period $24.24 $23.32 $22.45 $23.17 Net investment income 0.33 0.47 0.06 0.22 Net realized and unrealized gain/(loss) on investments (2.81) 1.39 0.89 0.75 Net increase/(decrease) in net asset value from operations (2.48) 1.86 0.95 0.97 Distributions: Dividends from net investment income (0.33) (0.22) (0.08) (0.20) Distributions from net realized capital gains (1.21) (0.72) -- (1.49) Total dividends and distributions (1.54) (0.94) (0.08) (1.69) Net asset value, end of period $20.22 $24.24 $23.32 $22.45 Total return++ (10.73)% 8.31% 4.26% 4.59% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $104,745 $121,644 $10,000 $6,000 Ratio of operating expenses to average net assets 1.98%(a)(b) 1.95%+(a)(b) 1.95%+ 1.74%+ Ratio of net investment income to average net assets 1.45% 0.85%+ 1.26%+ 1.92%+ Portfolio turnover rate 88% 84% 20% 114% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.00%(a) 2.02%+(a) 1.97%+ 1.74%+
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Asset Allocation Fund B Shares, which were reorganized into the Asset Allocation Investor B Shares, 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 Investor B Shares commenced operations on July 15, 1998. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 218
Nations Asset Allocation Fund For a Share outstanding throughout each period Year ended Period ended Period ended Year ended Year ended Period ended Investor C Shares* 03/31/01# 03/31/00# 05/14/99 02/28/99 02/28/98 02/28/97** Operating performance: Net asset value, beginning of period $24.27 $23.33 $22.45 $21.36 $19.40 $17.23 Net investment income 0.33 0.42 0.05 0.44 0.41 0.19 Net realized and unrealized gain/(loss) on investments (2.82) 1.43 0.92 2.49 3.66 2.80 Net increase/(decrease) in net asset value from operations (2.49) 1.85 0.97 2.93 4.07 2.99 Distributions: Dividends from net investment income (0.33) (0.19) (0.09) (0.35) (0.36) (0.18) Distributions from net realized capital gains (1.21) (0.72) -- (1.49) (1.75) (0.64) Total dividends and distributions (1.54) (0.91) (0.09) (1.84) (2.11) (0.82) Net asset value, end of period $20.24 $24.27 $23.33 $22.45 $21.36 $19.40 Total return++ (10.74)% 8.24% 4.31% 14.23% 22.10% 17.69% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $2,532 $2,305 $2,000 $2,000 $2,000 $1,000 Ratio of operating expenses to average net assets 1.98%(a)(b) 1.95%+(a)(b) 1.67%+ 1.44% 1.52% 1.94%+ Ratio of net investment income to average net assets 1.45% 0.85%+ 1.52%+ 2.14% 2.17% 2.31%+ Portfolio turnover rate 88% 84% 20% 114% 67% 116% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.00%(a) 2.02%+(a) 1.96%+ 1.69% 1.58% 3.26%+
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Asset Allocation Fund K Shares, which were reorganized into the Asset Allocation Investor C Shares, 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 Investor C Shares commenced operations on November 11, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 219
Nations Equity Income Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor A Shares 03/31/01 03/31/00 03/31/99# 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $11.52 $11.31 $13.89 $12.26 $13.11 Net investment income 0.09 0.12 0.20 0.26 0.36 Net realized and unrealized gain/(loss) on investments (2.28) 0.36 (1.45) 3.77 1.58 Net increase/(decrease) in net asset value from operations (2.19) 0.48 (1.25) 4.03 1.94 Distributions: Dividends from net investment income (0.08) (0.12) (0.20) (0.24) (0.38) Distributions from net realized capital gains (0.53) (0.15) (1.13) (2.16) (2.41) Total dividends and distributions (0.61) (0.27) (1.33) (2.40) (2.79) Net asset value, end of year $8.72 $11.52 $11.31 $13.89 $12.26 Total return++ (19.75)% 4.26% (9.87)% 36.92% 15.30% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $21,475 $33,569 $51,278 $68,00 $47,891 Ratio of operating expenses to average net assets 1.12%(a)(b) 1.10%(a)(b) 1.05%(a)(b) 1.11%(a) 1.16%(a) Ratio of net investment income to average net assets 0.81% 1.00% 1.67% 1.97% 2.84% Portfolio turnover rate 139% 54% 69% 74% 102% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.12%(a) 1.10%(a) 1.05%(a) 1.11%(a) 1.16%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%.
Nations Equity Income Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor B Shares 03/31/01 03/31/00 03/31/99# 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $11.51 $11.31 $13.87 $12.25 $13.10 Net investment income 0.00## 0.03 0.11 0.17 0.31 Net realized and unrealized gain/(loss) on investments (2.26) 0.36 (1.45) 3.77 1.57 Net increase/(decrease) in net asset value from operations (2.26) 0.39 (1.34) 3.94 1.88 Distributions: Dividends from net investment income (0.02) (0.04) (0.09) (0.16) (0.32) Distributions from net realized capital gains (0.53) (0.15) (1.13) (2.16) (2.41) Total dividends and distributions (0.55) (0.19) (1.22) (2.32) (2.73) Net asset value, end of year $8.70 $11.51 $11.31 $13.87 $12.25 Total return++ (20.35)% 3.43% (10.49)% 36.02% 14.76% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $42,724 $73,966 $107,747 $144,929 $108,055 Ratio of operating expenses to average net assets 1.87%(a)(b) 1.85%(a)(b) 1.80%(a)(b) 1.78%(a) 1.66%(a) Ratio of net investment income to average net assets 0.06% 0.25% 0.92% 1.30% 2.34% Portfolio turnover rate 139% 54% 69% 74% 102% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.87%(a) 1.85%(a) 1.80%(a) 1.78%(a) 1.66%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset 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%. 220
Nations Equity Income Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor C Shares 03/31/01 03/31/00 03/31/99# 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $11.66 $11.45 $14.01 $12.35 $13.19 Net investment income 0.00## 0.03 0.12 0.18 0.33 Net realized and unrealized gain/(loss) on investments (2.29) 0.37 (1.44) 3.83 1.59 Net increase/(decrease) in net asset value from operations (2.29) 0.40 (1.32) 4.01 1.92 Distributions: Dividends from net investment income (0.02) (0.04) (0.11) (0.19) (0.35) Distributions from net realized capital gains (0.53) (0.15) (1.13) (2.16) (2.41) Total dividends and distributions (0.55) (0.19) (1.24) (2.35) (2.76) Net asset value, end of year $8.82 $11.66 $11.45 $14.01 $12.35 Total return++ (20.34)% 3.46% (10.28)% 36.28% 15.01% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $2,719 $4,365 $5,801 $10,348 $5,007 Ratio of operating expenses to average net assets 1.87%(a)(b) 1.85%(a)(b) 1.64%(a)(b) 1.69%(a) 1.41%(a) Ratio of net investment income to average net assets 0.06% 0.25% 1.08% 1.39% 2.59% Portfolio turnover rate 139% 54% 69% 74% 102% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.87%(a) 1.85%(a) 1.80%(a) 1.69%(a) 1.41%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset 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%.
Nations Value Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor A Shares 03/31/01 03/31/00# 03/31/99# 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $16.24 $18.16 $19.92 $17.87 $16.60 Net investment income 0.14 0.07 0.09 0.15 0.21 Net realized and unrealized gain/(loss) on investments (0.43) (0.07) 0.63 5.98 2.70 Net increase/(decrease) in net asset value from operations (0.29) -- 0.72 6.13 2.91 Distributions: Dividends from net investment income (0.15) (0.06) (0.09) (0.14) (0.22) Distributions from net realized capital gains (3.42) (1.86) (2.39) (3.94) (1.42) Total dividends and distributions (3.57) (1.92) (2.48) (4.08) (1.64) Net asset value, end of year $12.38 $16.24 $18.16 $19.92 $17.87 Total return++ (2.29)% (0.47)% 3.96% 38.22% 17.80% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $65,975 $94,256 $136,691 $149,167 $70,305 Ratio of operating expenses to average net assets 1.19%(a)(b) 1.18%(a)(b) 1.19%(a)(b) 1.20%(a) 1.22%(a) Ratio of net investment income to average net assets 1.03% 0.40% 0.51% 0.79% 1.26% Portfolio turnover rate 181% 95% 38% 79% 47% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.19%(a) 1.18%(a) 1.19%(a) 1.20%(a) 1.22%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 221
Nations Value Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor B Shares 03/31/01 03/31/00# 03/31/99# 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $16.00 $18.00 $19.81 $17.81 $16.55 Net investment income 0.04 (0.06) (0.05) 0.02 0.14 Net realized and unrealized gain/(loss) on investments (0.43) (0.08) 0.63 5.96 2.68 Net increase/(decrease) in net asset value from operations (0.39) (0.14) 0.58 5.98 2.82 Distributions: Dividends from net investment income (0.06) (0.00)## -- (0.04) (0.14) Distributions from net realized capital gains (3.42) (1.86) (2.39) (3.94) (1.42) Total dividends and distributions (3.48) (1.86) (2.39) (3.98) (1.56) Net asset value, end of year $12.13 $16.00 $18.00 $19.81 $17.81 Total return++ (3.05)% (1.24)% 3.11% 37.29% 17.21% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $93,064 $124,000 $154,025 $149,635 $99,999 Ratio of operating expenses to average net assets 1.94%(a)(b) 1.93%(a)(b) 1.94%(a)(b) 1.87%(a) 1.72%(a) Ratio of net investment income/(loss) to average net assets 0.28% (0.35)% (0.24)% 0.12% 0.76% Portfolio turnover rate 181% 95% 38% 79% 47% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.94%(a) 1.93%(a) 1.94%(a) 1.87%(a) 1.72%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset 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%.
Nations Value Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor C Shares 03/31/01 03/31/00# 03/31/99# 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $15.99 $17.98 $19.75 $17.75 $16.50 Net investment income 0.04 (0.06) (0.02) 0.04 0.17 Net realized and unrealized gain/(loss) on investments (0.42) (0.07) 0.65 5.95 2.68 Net increase/(decrease) in net asset value from operations (0.38) (0.13) 0.63 5.99 2.85 Distributions: Dividends from net investment income (0.06) (0.00)## (0.01) (0.05) (0.18) Distributions from net realized capital gains (3.42) (1.86) (2.39) (3.94) (1.42) Total dividends and distributions (3.48) (1.86) (2.40) (3.99) (1.60) Net asset value, end of year $12.13 $15.99 $17.98 $19.75 $17.75 Total return++ (2.98)% (1.18)% 3.39% 37.55% 17.51% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $8,479 $10,042 $12,106 $13,969 $6,519 Ratio of operating expenses to average net assets 1.94%(a)(b) 1.93%(a)(b) 1.70%(a)(b) 1.78%(a) 1.47%(a) Ratio of net investment income/(loss) to average net assets 0.28% (0.32)% 0.00% 0.21% 1.01% Portfolio turnover rate 181% 95% 38% 79% 47% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.94%(a) 1.93%(a) 1.94%(a) 1.78%(a) 1.47%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset 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%. 222
Nations Blue Chip Fund For a Share outstanding throughout each period Year ended Period ended Period ended Year ended Year ended Year ended Investor A Shares*,*** 03/31/01# 03/31/00# 05/14/99 02/28/99 02/28/98 02/28/97** Operating performance: Net asset value, beginning of period $37.24 $35.92 $33.43 $29.90 $25.22 $20.53 Net investment income/(loss) (0.01) 0.02 0.00## 0.09 0.16 0.23 Net realized and unrealized gain/(loss) on investments (8.14) 4.65 2.49 5.26 7.91 5.21 Net increase/(decrease) in net asset value from operations (8.15) 4.67 2.49 5.35 8.07 5.44 Distributions: Dividends from net investment income 0.00## -- -- (0.10) (0.15) (0.22) Distributions from net realized capital gains (2.18) (3.35) -- (1.72) (3.24) (0.53) Distributions in excess of net realized capital gains (0.44) -- -- -- -- -- Total dividends and distributions (2.62) (3.35) -- (1.82) (3.39) (0.75) Net asset value, end of period $26.47 $37.24 $35.92 $33.43 $29.90 $25.22 Total return++ (23.30)% 14.10% 7.45% 18.58% 33.96% 27.01% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $603,622 $394,071 $423,000 $401,000 $288,000 $153,000 Ratio of operating expenses to average net assets 1.21% 1.20%+ 1.29%+ 1.16% 1.18% 1.28% Ratio of net investment income/(loss) to average net assets (0.02)% (0.08)%+ (0.03)%+ 0.31% 0.63% 0.99% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.21% 1.23%+ 1.33%+ 1.17% 1.22% 1.71%
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Blue Chip Fund A Shares, which were reorganized into the Blue Chip Investor A Shares, 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. ** As of July 22, 1996, the Fund designated the existing series of shares as "A" Shares. *** Seafirst Shares converted into Investor A Shares on June 23, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01. 223
Nations Blue Chip Fund For a Share outstanding throughout each period Year ended Period ended Period ended Period ended Investor B Shares* 03/31/01# 03/31/00# 05/14/99 02/28/99** Operating performance: Net asset value, beginning of period $36.80 $35.77 $33.34 $33.73 Net investment loss (0.25) (0.26) (0.02) (0.05) Net realized and unrealized gain/(loss) on investments (7.98) 4.64 2.45 1.39 Net increase/(decrease) in net asset value from operations (8.23) 4.38 2.43 1.34 Distributions: Dividends from net investment income -- -- -- (0.01) Distributions from net realized capital gains (2.18) (3.35) -- (1.72) Distributions in excess of net realized capital gains (0.44) -- -- -- Total dividends and distributions (2.62) (3.35) -- (1.73) Net asset value, end of period $25.95 $36.80 $35.77 $33.34 Total return++ (23.85)% 13.37% 7.29% 4.53% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $75,623 $75,538 $21,000 $13,000 Ratio of operating expenses to average net assets 1.96% 1.95%+ 2.05%+ 1.97%+ Ratio of net investment loss to average net assets (0.77)% (0.83)%+ (0.77)%+ (0.58)%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.96% 1.98%+ 2.09%+ 1.99%+
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Blue Chip Fund B Shares, which were reorganized into the Blue Chip Investor B Shares, 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. ** Blue Chip Investor B Shares commenced operations on July 15, 1998. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method.
Nations Blue Chip Fund For a Share outstanding throughout each period Year ended Period ended Period ended Year ended Year ended Period ended Investor C Shares* 03/31/01# 03/31/00# 05/14/99 02/28/99 02/28/98 02/28/97** Operating performance: Net asset value, beginning of period $36.71 $35.69 $33.24 $29.79 $25.20 $20.38 Net investment income/(loss) (0.25) (0.24) (0.04) (0.06) 0.04 0.07 Net realized and unrealized gain/(loss) on investments (7.97) 4.61 2.49 5.23 7.83 5.35 Net increase/(decrease) in net asset value from operations (8.22) 4.37 2.45 5.17 7.87 5.42 Distributions: Dividends from net investment income -- -- -- -- (0.04) (0.07) Distributions from net realized capital gains (2.18) (3.35) -- (1.72) (3.24) (0.53) Distributions in excess of net realized capital gains (0.44) -- -- -- -- -- Total dividends and distributions (2.62) (3.35) -- (1.72) (3.28) (0.60) Net asset value, end of period $25.87 $36.71 $35.69 $33.24 $29.79 $25.20 Total return++ (23.84)% 13.35% 7.37% 17.96% 33.08% 26.96% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $17,034 $17,123 $15,000 $13,000 $7,000 $1,000 Ratio of operating expenses to average net assets 1.96% 1.95%+ 1.80%+ 1.66% 1.67% 1.92%+ Ratio of net investment income/(loss) to average net assets (0.77)% (0.83)%+ (0.54)%+ (0.22)% 0.12% 0.45%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.96% 1.98%+ 2.08%+ 1.92% 1.69% 2.12%+
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Blue Chip Fund K Shares, which were reorganized into the Blue Chip Investor C Shares, 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. ** Blue Chip Investor C Shares commenced operations on November 11, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. 224
Nations Strategic Growth Fund For a Share outstanding throughout each period Year ended Period ended Investor A Shares 03/31/01 03/31/00*# Operating performance: Net asset value, beginning of period $16.98 $13.88 Net investment income/(loss) (0.04) (0.03) Net realized and unrealized gain/(loss) on investments (4.47) 3.19 Net increase/(decrease) in net asset value from operations (4.51) 3.16 Distributions: Distributions from net realized capital gains (0.03) (0.06) Total dividends and distributions (0.03) (0.06) Net asset value, end of period $12.44 $16.98 Total return++ (26.62)% 22.86% ==================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $11,895 $5,503 Ratio of operating expenses to average net assets 1.19%(a)(b) 1.22%+ Ratio of net investment income/(loss) to average net assets (0.34)% (0.35)%+ Portfolio turnover rate 56% 23% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.19%(a) 1.22%+
* Strategic Growth Fund Investor A Shares commenced operations on August 2, 1999. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%.
Nations Strategic Growth Fund For a Share outstanding throughout each period Year ended Period ended Investor B Shares 03/31/01 03/31/00*# Operating performance: Net asset value, beginning of period $16.90 $13.88 Net investment income/(loss) (0.14) (0.10) Net realized and unrealized gain/(loss) on investments (4.44) 3.18 Net increase/(decrease) in net asset value from operations (4.58) 3.08 Distributions: Distributions from net realized capital gains (0.03) (0.06) Total dividends and distributions (0.03) (0.06) Net asset value, end of period $12.29 $16.90 Total return++ (27.16)% 22.29% ==================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $6,758 $4,934 Ratio of operating expenses to average net assets 1.94%(a)(b) 1.97%+ Ratio of net investment income/(loss) to average net assets (1.09)% (1.10)%+ Portfolio turnover rate 56% 23% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.94%(a) 1.97%+
* Strategic Growth Fund Investor B Shares commenced operations on August 2, 1999. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 225
Nations Strategic Growth Fund For a Share outstanding throughout each period Year ended Period ended Investor C Shares 03/31/01 03/31/00*# Operating performance: Net asset value, beginning of period $16.92 $13.88 Net investment income/(loss) (0.14) (0.10) Net realized and unrealized gain/(loss) on investments (4.45) 3.20 Net increase/(decrease) in net asset value from operations (4.59) 3.10 Distributions: Distributions from net realized capital gains (0.03) (0.06) Total dividends and distributions (0.03) (0.06) Net asset value, end of period $12.30 $16.92 Total return++ (27.14)% 22.36% ==================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $2,137 $1,706 Ratio of operating expenses to average net assets 1.94%(a)(b) 1.97%+ Ratio of net investment income/(loss) to average net assets (1.09)% (1.10)%+ Portfolio turnover rate 56% 23% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.94%(a) 1.97%+
* Strategic Growth Fund Investor C Shares commenced operations on August 2, 1999. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%.
Nations Marsico Growth & Income Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor A Shares 03/31/01 03/31/00 03/31/99# 03/31/98*# Operating performance: Net asset value, beginning of period $21.62 $14.95 $12.02 $10.00 Net investment income/(loss) (0.05) (0.11) (0.03) 0.00(b) Net realized and unrealized gain(/loss) on investments (6.54) 6.82 2.97 2.02 Net increase/(decrease) in net asset value from operations (6.59) 6.71 2.94 2.02 Distributions: Distributions from net realized capital gains (0.16) (0.04) (0.01) -- Total dividends and distributions (0.16) (0.04) (0.01) -- Net asset value, end of the period $14.87 $21.62 $14.95 $12.02 Total return++ (30.63)% 45.01% 24.38% 20.20% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $164,031 $175,859 $43,392 $1,141 Ratio of operating expenses to average net assets 1.35% 1.48%(a) 1.50%(a) 1.34%+(a) Ratio of net investment income/(loss) to average net assets (0.28)% (0.62)% (0.20)% 0.13%+ Portfolio turnover rate -- 55%(c) 150% 22% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.35% 1.48%(a) 1.50%(a) 2.22%+(a)
* Nations Marsico Growth & Income Fund Investor A Shares commenced operations on December 31, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/ or expense reimbursements, was less than 0.01%. (b) Amount represents less than $0.01 per share. (c) Amount represents results prior to conversion to a master-feeder structure. 226
Nations Marsico Growth & Income Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor B Shares 03/31/01 03/31/00 03/31/99# 03/31/98*# Operating performance: Net asset value, beginning of period $21.31 $14.85 $12.02 $10.00 Net investment income/(loss) (0.18) (0.24) (0.12) (0.02) Net realized and unrealized gain/(loss) on investments (6.42) 6.74 2.96 2.04 Net increase/(decrease) in net asset value from operations (6.60) 6.50 2.84 2.02 Distributions: Distributions from net realized capital gains (0.16) (0.04) (0.01) -- Total dividends and distributions (0.16) (0.04) (0.01) -- Net asset value, end of period $14.55 $21.31 $14.85 $12.02 Total return++ (31.13)% 43.90% 23.55% 20.20% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $239,621 $305,607 $99,257 $7,907 Ratio of operating expenses to average net assets 2.10% 2.23%(a) 2.25%(a) 2.09%+(a) Ratio of net investment income/(loss) to average net assets (1.03)% (1.37)% (0.95)% (0.62)%+ Portfolio turnover rate -- 55%(b) 150% 22% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.10% 2.23%(a) 2.25%(a) 2.97%+(a)
* Nations Marsico Growth & Income Fund Investor B Shares commenced operations on December 31, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure.
Nations Marsico Growth & Income Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor C Shares 03/31/01 03/31/00 03/31/99# 03/31/98*# Operating performance: Net asset value, beginning of period $21.34 $14.86 $12.02 $10.00 Net investment income/(loss) (0.17) (0.25) (0.12) (0.02) Net realized and unrealized gain/(loss) on investments (6.44) 6.77 2.97 2.04 Net increase/(decrease) in net asset value from operations (6.61) 6.52 2.85 2.02 Distributions: Distributions from net realized capital gains (0.16) (0.04) (0.01) -- Total dividends and distributions (0.16) (0.04) (0.01) -- Net asset value, end of period $14.57 $21.34 $14.86 $12.02 Total return++ (31.10)% 43.93% 23.63% 20.20% ====================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $32,365 $34,785 $3,233 $518 Ratio of operating expenses to average net assets 2.10% 2.23%(a) 2.25%(a) 2.09%+(a) Ratio of net investment income/(loss) to average net assets (1.03)% (1.37)% (0.95)% (0.62)%+ Portfolio turnover rate -- 55%(b) 150% 22% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.10% 2.23%(a) 2.25%(a) 2.97%+(a)
* Nations Marsico Growth & Income Fund Investor C Shares commenced operations on December 31, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/ or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure. 227
Nations Capital Growth Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor A Shares 03/31/01 03/31/00 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $14.43 $11.97 $13.26 $11.67 13.41 Net investment income/(loss) (0.07) (0.08) (0.03) (0.01) 0.02 Net realized and unrealized gain/(loss) on investments (3.84) 3.42 1.58 5.28 1.65 Net increase/(decrease) in net asset value from operations (3.91) 3.34 1.55 5.27 1.67 Distributions: Dividends from net investment income -- -- -- -- (0.02) Distributions from net realized capital gains (2.36) (0.88) (2.84) (3.68) (3.39) Total dividends and distributions (2.36) (0.88) (2.84) (3.68) (3.41) Net asset value, end of year $8.16 $14.43 $11.97 $13.26 $11.67 Total return++ (30.91)% 29.41% 14.70% 53.83% 11.58% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $32,519 $61,756 $52,987 $43,380 $20,465 Ratio of operating expenses to average net assets 1.20%(a)(b) 1.21%(a)(b) 1.21%(a) 1.20%(a)(b) 1.21%(b) Ratio of net investment income/(loss) to average net assets (0.53)% (0.63)% (0.29)% (0.12)% 0.14% Portfolio turnover rate 96% 39% 39% 113% 75% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.20%(a) 1.21%(a) 1.21%(a) 1.20%(a) 1.21%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%.
Nations Capital Growth Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor B Shares 03/31/01 03/31/00 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $13.58 $11.39 $12.83 $11.47 $13.31 Net investment income/(loss) (0.14) (0.17) (0.11) (0.10) (0.08) Net realized and unrealized gain/(loss) on investments (3.57) 3.24 1.51 5.14 1.63 Net increase/(decrease) in net asset value from operations (3.71) 3.07 1.40 5.04 1.55 Distributions: Distributions from net realized capital gains (2.36) (0.88) (2.84) (3.68) (3.39) Total dividends and distributions (2.36) (0.88) (2.84) (3.68) (3.39) Net asset value, end of year $7.51 $13.58 $11.39 $12.83 $11.47 Total return++ (31.37)% 28.42% 13.86% 52.52% 10.68% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $45,832 $75,844 $66,338 $59,496 $41,933 Ratio of operating expenses to average net assets 1.95%(a)(b) 1.96%(a)(b) 1.96%(a) 1.95%(a)(b) 1.96%(b) Ratio of net investment income/(loss) to average net assets (1.28)% (1.38)% (1.04)% (0.87)% (0.61)% Portfolio turnover rate 96% 39% 39% 113% 75% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.95%(a) 1.96%(a) 1.96%(a) 1.95%(a) 1.96%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 228
Nations Capital Growth Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor C Shares 03/31/01 03/31/00 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $13.70 $11.48 $12.92 $11.50 $13.26 Net investment income/(loss) (0.13) (0.16) (0.11) (0.08) (0.01) Net realized and unrealized gain/(loss) on investments (3.62) 3.26 1.51 5.18 1.64 Net increase/(decrease) in net asset value from operations (3.75) 3.10 1.40 5.10 1.63 Distributions: Distributions from net realized capital gains (2.36) (0.88) (2.84) (3.68) (3.39) Total dividends and distributions (2.36) (0.88) (2.84) (3.68) (3.39) Net asset value, end of year $7.59 $13.70 $11.48 $12.92 $11.50 Total return++ (31.38)% 28.46% 13.76% 53.02% 11.39% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $3,338 $4,883 $3,862 $6,176 $5,752 Ratio of operating expenses to average net assets 1.95%(a)(b) 1.96%(a)(b) 1.96%(a) 1.78%(a)(b) 1.46%(b) Ratio of net investment income/(loss) to average net assets (1.28)% (1.38)% (1.04)% (0.70)% (0.11)% Portfolio turnover rate 96% 39% 39% 113% 75% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.95%(a) 1.96%(a) 1.96%(a) 1.78%(a) 1.46%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%.
Nations Aggressive Growth Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor A Shares 03/31/01# 03/31/00# 03/31/99 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $20.43 $23.23 $22.09 $18.44 $17.16 Net investment income/(loss) (0.13) (0.02) (0.03) 0.02 0.08 Net realized and unrealized gain/(loss) on investments (7.79) (0.04) 3.21 7.87 2.80 Net increase/(decrease) in net asset value from operations (7.92) (0.06) 3.18 7.89 2.88 Distributions: Dividends from net investment income -- -- -- (0.01) (0.09) Distributions from net realized capital gains (1.83) (2.74) (2.04) (4.23) (1.51) Distributions in excess of net realized capital gains (0.57) -- -- -- -- Total dividends and distributions (2.40) (2.74) (2.04) (4.24) (1.60) Net asset value, end of year $10.11 $20.43 $23.23 $22.09 $18.44 Total return++ (42.68)% (0.41)% 15.49% 48.28% 16.76% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $21,622 $47,624 $67,356 $21,725 $6,837 Ratio of operating expenses to average net assets 1.25%(a) 1.23%(a)(b) 1.22%(a)(b) 1.23%(a)(b) 1.29%(b) Ratio of net investment income/(loss) to average net assets (0.76)% (0.10)% (0.13)% 0.12% 0.45% Portfolio turnover rate 135% 79% 72% 79% 120% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.25%(a) 1.23%(a) 1.22%(a) 1.23%(a) 1.29%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 229
Nations Aggressive Growth Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor B Shares 03/31/01# 03/31/00# 03/31/99 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $19.51 $22.47 $21.57 $18.20 $17.00 Net investment income/(loss) (0.25) (0.18) (0.17) (0.12) (0.05) Net realized and unrealized gain/(loss) on investments (7.36) (0.04) 3.11 7.72 2.76 Net increase/(decrease) in net asset value from operations (7.61) (0.22) 2.94 7.60 2.71 Distributions: Distributions from net realized capital gains (1.83) (2.74) (2.04) (4.23) (1.51) Distributions in excess of net realized capital gains (0.57) -- -- -- -- Total dividends and distributions (2.40) (2.74) (2.04) (4.23) (1.51) Net asset value, end of year $9.50 $19.51 $22.47 $21.57 $18.20 Total return++ (43.13)% (1.19)% 14.69% 47.14% 15.86% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $16,119 $39,680 $50,797 $38,079 $20,257 Ratio of operating expenses to average net assets 2.00%(a) 1.98%(a)(b) 1.97%(a)(b) 1.98%(a)(b) 2.04%(b) Ratio of net investment income/(loss) to average net assets (1.51)% (0.85)% (0.88)% (0.63)% (0.30)% Portfolio turnover rate 135% 79% 72% 79% 120% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.00%(a) 1.98%(a) 1.97%(a) 1.98%(a) 2.04%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%.
Nations Aggressive Growth Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor C Shares 03/31/01# 03/31/00# 03/31/99 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $19.90 $22.86 $21.92 $18.41 $17.10 Net investment income/(loss) (0.25) (0.18) (0.17) (0.09) 0.04 Net realized and unrealized gain/(loss) on investments (7.53) (0.04) 3.15 7.83 2.79 Net increase/(decrease) in net asset value from operations (7.78) (0.22) 2.98 7.74 2.83 Distributions: Dividends from net investment income -- -- -- -- (0.01) Distributions from net realized capital gains (1.83) (2.74) (2.04) (4.23) (1.51) Distributions in excess of net realized capital gains (0.57) -- -- -- -- Total dividends and distributions (2.40) (2.74) (2.04) (4.23) (1.52) Net asset value, end of year $9.72 $19.90 $22.86 $21.92 $18.41 Total return++ (43.14)% (1.16)% 14.64% 47.38% 16.45% =============================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $563 $1,496 $1,629 $1,199 $446 Ratio of operating expenses to average net assets 2.00%(a) 1.98%(a) 1.97%(a)(b) 1.81%(a)(b) 1.54%(b) Ratio of net investment income/(loss) to average net assets (1.51)% (0.85)% (0.88)% (0.46)% 0.20% Portfolio turnover rate 135% 79% 72% 79% 120% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.00%(a) 1.98%(a) 1.97%(a) 1.81%(a) 1.54%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 230
Nations Marsico Focused Equities Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor A Shares 03/31/01 03/31/00# 03/31/99# 03/31/98*# Operating performance: Net asset value, beginning of period $22.56 $16.73 $12.14 $10.00 Net investment income/(loss) (0.06) (0.03) (0.04) (0.01) Net realized and unrealized gain/(loss) on investments (7.11) 6.09 4.64 2.15 Net increase/(decrease) in net asset value from operations (7.17) 6.06 4.60 2.14 Distributions: Distributions from net realized capital gains (0.08) (0.23) (0.01) -- Total dividends and distributions (0.08) (0.23) (0.01) -- Net asset value, end of period $15.31 $22.56 $16.73 $12.14 Total return++ (31.80)% 36.62% 37.94% 21.40% ============================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $491,437 $690,166 $238,137 $6,056 Ratio of operating expenses to average net assets 1.34% 1.41%(a) 1.31%(a) 1.77%+(a) Ratio of net investment income/(loss) to average net assets (0.30)% (0.60)% (0.20)% (0.55)%+ Portfolio turnover rate -- 53%(b) 177% 25% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.34% 1.41%(a) 1.31%(a) 1.77%+(a)
* Nations Marsico Focused Equities Fund Investor A Shares commenced operations on December 31, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure.
Nations Marsico Focused Equities Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor B Shares 03/31/01 03/31/00# 03/31/99# 03/31/98*# Operating performance: Net asset value, beginning of period $22.26 $16.62 $12.13 $10.00 Net investment income/(loss) (0.20) (0.09) (0.12) (0.04) Net realized and unrealized gain/(loss) on investments (6.98) 5.96 4.62 2.17 Net increase/(decrease) in net asset value from operations (7.18) 5.87 4.50 2.13 Distributions: Distributions from net realized capital gains (0.08) (0.23) (0.01) -- Total dividends and distributions (0.08) (0.23) (0.01) -- Net asset value, end of period $15.00 $22.26 $16.62 $12.13 Total return ++ (32.32)% 35.71% 37.15% 21.30% ======================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $741,285 $1,003,840 $306,365 $20,446 Ratio of operating expenses to average net assets 2.09% 2.16%(a) 2.06%(a) 2.52%+(a) Ratio of net investment income/(loss) to average net assets (1.05)% (1.35)% (0.95)% (1.30)%+ Portfolio turnover rate -- 53%(b) 177% 25% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.09% 2.16%(a) 2.06%(a) 2.52%+(a)
* Nations Marsico Focused Equities Fund Investor B Shares commenced operations on December 31, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure. 231
Nations Marsico Focused Equities Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor C Shares 03/31/01 03/31/00# 03/31/99# 03/31/98*# Operating performance: Net asset value, beginning of period $22.33 $16.67 $12.13 $10.00 Net investment income/(loss) (0.20) (0.08) (0.14) (0.04) Net realized and unrealized gain/(loss) on investments (7.00) 5.97 4.69 2.17 Net increase/(decrease) in net asset value from operations (7.20) 5.89 4.55 2.13 Distributions: Distributions from net realized capital gains (0.08) (0.23) (0.01) -- Total dividends and distributions (0.08) (0.23) (0.01) -- Net asset value, end of period $15.05 $22.33 $16.67 $12.13 Total return++ (32.31)% 35.72% 37.56% 21.30% ====================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $203,642 $247,509 $13,682 $469 Ratio of operating expenses to average net assets 2.09% 2.16%(a) 2.06%(a) 2.52%+(a) Ratio of net investment income/(loss) to average net assets (1.05)% (1.35)% (0.95)% (1.30)%+ Portfolio turnover rate -- 53%(b) 177% 25% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.09% 2.16%(a) 2.06%(a) 2.52%+(a)
* Nations Marsico Focused Equities Fund Investor C Shares commenced operations on December 31, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charge. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure.
Nations MidCap Growth Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor A Shares 03/31/01 03/31/00# 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $21.87 $13.04 $16.30 $12.69 $13.91 Net investment income/(loss) (0.09) (0.12) (0.07) (0.10) (0.07) Net realized and unrealized gain/(loss) on investments (3.91) 9.59 (0.92) 5.50 0.19 Net increase/(decrease) in net asset value from operations (4.00) 9.47 (0.99) 5.40 0.12 Distributions: Distributions from net realized capital gains (3.73) (0.64) (2.27) (1.79) (1.34) Total dividends and distributions (3.73) (0.64) (2.27) (1.79) (1.34) Net asset value, end of year $14.14 $21.87 $13.04 $16.30 $12.69 Total return++ (20.98)% 74.82% (7.41)% 44.86% 0.18% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $16,536 $22,741 $18,042 $21,591 $12,126 Ratio of operating expenses to average net assets 1.23%(a) 1.25%(a)(b) 1.23%(a)(b) 1.23%(a) 1.23%(a) Ratio of net investment income/(loss) to average net assets (0.52)% (0.70)% (0.54)% (0.67)% (0.51)% Portfolio turnover rate 39% 46% 43% 76% 93% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.23%(a) 1.25%(a) 1.23%(a) 1.23%(a) 1.23%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 232
Nations MidCap Growth Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor B Shares 03/31/01 03/31/00# 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $20.38 $12.28 $15.58 $12.29 $13.61 Net investment income/(loss) (0.19) (0.22) (0.15) (0.20) (0.18) Net realized and unrealized gain/(loss) on investments (3.59) 8.96 (0.88) 5.28 0.20 Net increase/(decrease) in net asset value from operations (3.78) 8.74 (1.03) 5.08 0.02 Distributions: Distributions from net realized capital gains (3.73) (0.64) (2.27) (1.79) (1.34) Total dividends and distributions (3.73) (0.64) (2.27) (1.79) (1.34) Net asset value, end of year $12.87 $20.38 $12.28 $15.58 $12.29 Total return++ (21.51)% 73.47% (8.10)% 43.64% (0.57)% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $44,261 $49,606 $33,245 $45,451 $33,342 Ratio of operating expenses to average net assets 1.98%(a) 2.00%(a)(b) 1.98%(a)(b) 1.98%(a) 1.98%(a) Ratio of operating expenses to average net assets including interest expense -- -- -- 1.99% -- Ratio of net investment income/(loss) to average net assets (1.27)% (1.45)% (1.29)% (1.42)% (1.26)% Portfolio turnover rate 39% 46% 43% 76% 93% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.98%(a) 2.00%(a) 1.98%(a) 1.98%(a) 1.98%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%.
Nations MidCap Growth Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor C Shares 03/31/01 03/31/00# 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $20.47 $12.33 $15.63 $12.31 $13.56 Net investment income/(loss) (0.17) (0.22) (0.15) (0.18) (0.10) Net realized and unrealized gain/(loss) on investments (3.62) 9.00 (0.88) 5.29 0.19 Net increase/(decrease) in net asset value from operations (3.79) 8.78 (1.03) 5.11 0.09 Distributions: Distributions from net realized capital gains (3.73) (0.64) (2.27) (1.79) (1.34) Total dividends and distributions (3.73) (0.64) (2.27) (1.79) (1.34) Net asset value, end of year $12.95 $20.47 $12.33 $15.63 $12.31 Total return++ (21.46)% 73.50% (8.08)% 43.80% (0.04)% ============================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $3,248 $2,628 $1,383 $2,266 $1,437 Ratio of operating expenses to average net assets 1.98%(a) 2.00%(a)(b) 1.98%(a)(b) 1.81%(a) 1.48%(a) Ratio of operating expenses to average net assets including interest expense -- -- -- 1.82% -- Ratio of net investment income/(loss) to average net assets (1.27)% (1.45)% (1.29)% (1.25)% (0.76)% Portfolio turnover rate 39% 46% 43% 76% 93% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.98%(a) 2.00%(a) 1.98%(a) 1.81%(a) 1.48%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 233
Nations Marsico 21st Century Fund For a Share outstanding throughout the period Period ended Investor A Shares 03/31/01* Operating performance: Net asset value, beginning of period $10.00 Net investment income/(loss) (0.06) Net realized and unrealized gain/(loss) on investments (2.97) Net increase/(decrease) in net asset value from operations (3.03) Net asset value, end of period $6.97 Total return++ (30.30)% =========================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $19,644 Ratio of operating expenses to average net assets 1.60%+ Ratio of net investment income/(loss) to average net assets (0.66)%+ Portfolio turnover rate 426% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.60%+
* Marsico 21st Century Fund Investor A Shares commenced operations on April 10, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges.
Nations Marsico 21st Century Fund For a Share outstanding throughout the period Period ended Investor B Shares 03/31/01* Operating performance: Net asset value, beginning of period $10.00 Net investment income/(loss) (0.11) Net realized and unrealized gain/(loss) on investments (2.97) Net increase/(decrease) in net asset value from operations (3.08) Net asset value, end of period $6.92 Total return++ (30.80)% =================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $50,404 Ratio of operating expenses to average net assets 2.35%+ Ratio of net investment income/(loss) to average net assets (1.41)%+ Portfolio turnover rate 426% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.35%+
* Marsico 21st Century Fund Investor B Shares commenced operations on April 10, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. 234
Nations Marsico 21st Century Fund For a Share outstanding throughout the period Period ended Investor C Shares 03/31/01* Operating performance: Net asset value, beginning of period $10.00 Net investment income/(loss) (0.11) Net realized and unrealized gain/(loss) on investments (2.97) Net increase/(decrease) in net asset value from operations (3.08) Net asset value, end of period $6.92 Total return++ (30.80)% =================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $6,557 Ratio of operating expenses to average net assets 2.35%+ Ratio of net investment income/(loss) to average net assets (1.41)%+ Portfolio turnover rate 426% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.35%+
* Marsico 21st Century Fund Investor C Shares commenced operations on April 10, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges.
Nations Small Company Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Period ended Period ended Investor A Shares* 03/31/01 03/31/00# 03/31/99# 03/31/98 05/16/97 8/31/96** Operating performance: Net asset value, beginning of period $22.44 $11.43 $15.74 $12.05 $10.64 $10.00 Net investment income/(loss) (0.14) (0.15) (0.07) (0.02) 0.03 0.05 Net realized and unrealized gain/(loss) on investments (6.58) 11.19 (3.11) 4.42 1.46 0.64 Net increase/(decrease) in net asset value from operations (6.72) 11.04 (3.18) 4.40 1.49 0.69 Distributions: Dividends from net investment income -- -- -- -- (0.03) (0.05) Distributions from net realized capital gains (2.20) (0.03) (1.13) (0.71) (0.05) -- Total dividends and distributions (2.20) (0.03) (1.13) (0.71) (0.08) (0.05) Net asset value, end of period $13.52 $22.44 $11.43 $15.74 $12.05 $10.64 Total return++ (31.96)% 96.91% (21.32)% 37.02% 13.98% 6.88% =================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $146,457 $245,425 $16,143 $6,772 $3,697 $2,611 Ratio of operating expenses to average net assets 1.40%(a)(b) 1.38%(a)(b) 1.20%(a) 1.20%+(a) 1.23%+ 1.25%+ Ratio of net investment income/(loss) to average net assets (0.77)% (0.90)% (0.67)% (0.20)%+ 0.30%+ 0.66%+ Portfolio turnover rate 48% 63% 87% 59% 48% 31% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.45%(a) 1.47%(a) 1.47%(a) 1.51%+(a) 1.66%+ 1.65%+
* The financial information for the fiscal periods prior to May 23, 1997 reflects the financial information for the Pilot Small Capitalization Equity Fund's Class A Shares, which were reorganized into Small Company Fund Investor A Shares as of the close of business on May 23, 1997. Prior to May 23, 1997, the investment adviser to Small Company Fund was Boatmen's Trust Company. Effective May 23, 1997, the investment sub-adviser to Small Company Fund is Banc of America Capital Management, LLC ** Represents the period from December 12, 1995 (commencement of operations) to August 31, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 235
Nations Small Company Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Period ended Period ended Investor B Shares* 03/31/01 03/31/00# 03/31/99# 03/31/98 05/16/97 08/31/96** Operating performance: Net asset value, beginning of period $21.94 $11.23 $15.59 $12.03 $10.65 $10.00 Net investment income/(loss) (0.23) (0.25) (0.11) (0.08) (0.03) 0.01 Net realized and unrealized gain/(loss) on investments (6.43) 10.99 (3.12) 4.35 1.46 0.65 Net increase/(decrease) in net asset value from operations (6.66) 10.74 (3.23) 4.27 1.43 0.66 Distributions: Dividends from net investment income -- -- -- -- -- (0.01) Distributions from net realized capital gains (2.20) (0.03) (1.13) (0.71) (0.05) -- Total dividends and distributions (2.20) (0.03) (1.13) (0.71) (0.05) (0.01) Net asset value, end of period $13.08 $21.94 $11.23 $15.59 $12.03 $10.65 Total return++ (32.45)% 95.79% (21.86)% 36.06% 13.43% 6.65% ================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $11,744 $13,839 $5,127 $3,384 $2,635 $1,878 Ratio of operating expenses to average net assets 2.15%(a)(b) 2.13%(a)(b) 1.95%(a) 1.87%+(a) 1.97%+ 2.01%+ Ratio of net investment income/(loss) to average net assets (1.52)% (1.65)% (1.42)% (0.87)%+ (0.45)%+ (0.07)%+ Portfolio turnover rate 48% 63% 87% 59% 48% 31% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.20%(a) 2.22%(a) 2.22%(a) 2.18%+(a) 2.41%+ 2.44%+
* The financial information for the fiscal periods prior to May 23, 1997 reflects the financial information for the Pilot Small Capitalization Equity Fund's Class B Shares, which were reorganized into the Small Company Fund Investor B Shares as of the close of business on May 23, 1997. Prior to May 23, 1997, the investment adviser to Small Company Fund was Boatman's Trust Company. Effective May 23, 1997, the investment sub-adviser to Small Company Fund is Banc of America Capital Management, LLC **Represents the period from December 12, 1995 (commencement of operations) to August 31, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charge. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%.
Nations Small Company Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor C Shares 03/31/01 03/31/00# 03/31/99# 03/31/98* Operating performance: Net asset value, beginning of period $22.21 $11.38 $15.74 $15.18 Net investment income/(loss) (0.25) (0.23) (0.12) (0.08) Net realized and unrealized gain/(loss) on investments (6.50) 11.09 (3.11) 1.35 Net increase/(decrease) in net asset value from operations (6.75) 10.86 (3.23) 1.27 Distributions: Distributions from net realized capital gains (2.20) (0.03) (1.13) (0.71) Total dividends and distributions (2.20) (0.03) (1.13) (0.71) Net asset value, end of period $13.26 $22.21 $11.38 $15.74 Total return ++ (32.46)% 95.76% (21.66)% 8.75% =================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $2,813 $3,588 $1,951 $3,122 Ratio of operating expenses to average net assets 2.15%(a)(b) 2.13%(a)(b) 1.70%(a) 1.95%+(a) Ratio of net investment income/(loss) to average net assets (1.52)% (1.65)% (1.17)% (0.95)%+ Portfolio turnover rate 48% 63% 87% 59% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.20%(a) 2.22%(a) 2.22%(a) 2.26%+(a)
* Small Company Fund Investor C Shares commenced operations on September 22, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charge. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 236
Nations International Value Fund For a Share outstanding throughout each period Year ended Year ended Period ended Period ended Year ended Period ended Investor A Shares* 03/31/01 03/31/00# 03/31/99# 05/15/98 11/30/97 11/30/96** Operating performance: Net asset value, beginning of period $18.77 $14.43 $15.44 $13.13 $11.29 $10.00 Net investment income 0.27 0.36 0.14 0.08 0.01 0.04 Net realized and unrealized gain/(loss) on investments (0.39) 4.72 0.36 2.52 1.91 1.31 Net increase/(decrease) in net asset value from operations (0.12) 5.08 0.50 2.60 1.92 1.35 Distributions: Dividends from net investment income (0.19) (0.25) (0.17) -- (0.01) (0.04) Dividends in excess of net investment income -- -- -- -- (0.05) -- Distributions from net realized capital gains (1.20) (0.49) (1.34) (0.29) (0.02) (0.02) Total dividends and distributions (1.39) (0.74) (1.51) (0.29) (0.08) (0.06) Net asset value, end of period $17.26 $18.77 $14.43 $15.44 $13.13 $11.29 Total return++ (0.72)% 35.86% 1.75% 20.22% 17.11% 13.54% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $353,646 $186,649 $5,960 $5,128 $4,259 $115 Ratio of operating expenses to average net assets 1.38% 1.49%(a) 1.55%+ 1.81%+ 1.73% 0.00%+ Ratio of net investment income to average net assets 1.64% 1.86% 1.11%+ 1.21%+ 0.26% 1.83%+ Portfolio turnover rate -- 12%(b) 44% 88% 29% 50% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.48% 1.59%(a) 1.64%+ 1.82%+ 1.93% 57.40%+
* The financial information for the fiscal periods through May 22, 1998 reflect the financial information for the Emerald International Equity Fund's Retail Shares, which were reorganized into the International Value Fund Investor A Shares as of May 22, 1998. ** International Value Fund Investor A Shares commenced operations on December 27, 1995. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure.
Nations International Value Fund For a Share outstanding throughout each period Year ended Year ended Period ended Investor B Shares 03/31/01 03/31/00# 03/31/99*# Operating performance: Net asset value, beginning of period $18.64 $14.40 $14.33 Net investment income 0.16 0.22 0.06 Net realized and unrealized gain/(loss) on investments (0.40) 4.66 0.76 Net increase/(decrease) in net asset value from operations (0.24) 4.88 0.82 Distributions: Dividends from net investment income (0.13) (0.15) (0.13) Distributions from net realized capital gains (1.20) (0.49) (0.62) Total dividends and distributions (1.33) (0.64) (0.75) Net asset value, end of period $17.07 $18.64 $14.40 Total return++ (1.42)% 34.51% 1.25% ============================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $80,655 $50,999 $4,296 Ratio of operating expenses to average net assets 2.13% 2.24%(a) 2.30%+ Ratio of net investment income to average net assets 0.89% 1.11% 0.36%+ Portfolio turnover rate -- 12%(b) 44% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.23% 2.34%(a) 2.39%+
* International Value Fund Investor B Shares commenced operations on May 22, 1998. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure. 237
Nations International Value Fund For a Share outstanding throughout each period Year ended Year ended Period ended Investor C Shares 03/31/01 03/31/00# 03/31/99*# Operating performance: Net asset value, beginning of period $18.65 $14.41 $13.33 Net investment income 0.16 0.21 0.06 Net realized and unrealized gain/(loss) on investments (0.41) 4.69 1.77 Net increase/(decrease) in net asset value from operations (0.25) 4.90 1.83 Distributions: Dividends from net investment income (0.13) (0.17) (0.13) Distributions from net realized capital gains (1.20) (0.49) (0.62) Total dividends and distributions (1.33) (0.66) (0.75) Net asset value, end of period $17.07 $18.65 $14.41 Total return++ (1.45)% 34.64% 3.98% ======================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $48,784 $13,725 $182 Ratio of operating expenses to average net assets 2.13% 2.24%(a) 2.30%+ Ratio of net investment income to average net assets 0.89% 1.11% 0.36%+ Portfolio turnover rate -- 12%(b) 44% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.23% 2.34%(a) 2.39%+
* International Value Fund Investor C Shares commenced operations on June 15, 1998. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure.
Nations International Equity Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor A Shares 03/31/01# 03/31/00# 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $16.51 $13.97 $14.67 $13.01 $13.39 Net investment income/(loss) 0.07 0.06 0.08 0.07 0.05 Net realized and unrealized gain/(loss) on investments (4.38) 4.86 0.40 1.94 0.11 Net increase/(decrease) in net asset value from operations (4.31) 4.92 0.48 2.01 0.16 Distributions: Dividends from net investment income (0.09) (0.05) (0.11) (0.15) (0.09) Distributions in excess of net investment income -- -- -- (0.04) (0.00)* Distributions from net realized capital gains (1.01) (2.33) (1.07) (0.16) (0.42) Distributions in excess of net realized capital gains (0.15) -- -- -- (0.03) Total dividends and distributions (1.25) (2.38) (1.18) (0.35) (0.54) Net asset value, end of year $10.95 $16.51 $13.97 $14.67 $13.01 Total return++ (27.54)% 39.54% 3.59% 15.77% 1.08% ============================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $46,770 $43,111 $12,785 $13,477 $9,443 Ratio of operating expenses to average net assets 1.40% 1.39% 1.38% 1.39% 1.41% Ratio of net investment income/(loss) to average net assets 0.64% 0.44% 0.54% 0.51% 0.37% Portfolio turnover rate -- 129%## 146% 64% 36% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.41% 1.43% 1.38% 1.39% 1.41%
* Amount represents less than $0.01 per share. ++ 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 results prior to conversion to a master-feeder structure. 238
Nations International Equity Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor B Shares 03/31/01# 03/31/00# 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $16.06 $13.75 $14.56 $12.83 $13.27 Net investment income/(loss) 0.00 (0.05) (0.03) (0.03) (0.05) Net realized and unrealized gain/(loss) on investments (4.27) 4.72 0.38 1.92 0.10 Net increase/(decrease) in net asset value from operation (4.27) 4.67 0.35 1.89 0.05 Distributions: Dividends from net investment income (0.07) (0.03) (0.09) -- (0.04) Distributions in excess of net investment income -- -- -- -- (0.00)* Distributions from net realized capital gains (1.01) (2.33) (1.07) (0.16) (0.42) Distributions in excess of net realized capital gains (0.15) -- -- -- (0.03) Total dividends and distributions (1.23) (2.36) (1.16) (0.16) (0.49) Net asset value, end of year $10.56 $16.06 $13.75 $14.56 $12.83 Total return++ (28.11)% 38.14% 2.65% 14.93% 0.28% ======================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's): $20,747 $32,073 $28,266 $34,119 $36,698 Ratio of operating expenses to average net assets 2.15% 2.14% 2.13% 2.14% 2.16% Ratio of net investment income/(loss) to average net assets (0.11)% (0.31)% (0.21)% (0.24)% (0.38)% Portfolio turnover rate -- 129%## 146% 64% 36% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.16% 2.18% 2.13% 2.14% 2.16%
* Amount represents less than $0.01 per share. ++ 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 results prior to conversion to a master-feeder structure.
Nations International Equity Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor C Shares 03/31/01# 03/31/00# 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $15.72 $13.52 $14.34 $12.74 $13.13 Net investment income/(loss) (0.02) (0.03) (0.03) (0.01) 0.02 Net realized and unrealized gain/(loss) on investments (4.17) 4.60 0.37 1.89 0.10 Net increase/(decrease) in net asset value from operations (4.19) 4.57 0.34 1.88 0.12 Distributions: Dividends from net investment income (0.07) (0.04) (0.09) (0.10) (0.06) Distributions in excess of net investment income -- -- -- (0.02) (0.00)* Distributions from net realized capital gains (1.01) (2.33) (1.07) (0.16) (0.42) Distributions in excess of net realized capital gains (0.15) -- -- -- (0.03) Total dividends and distributions (1.23) (2.37) (1.16) (0.28) (0.51) Net asset value, end of year $10.30 $15.72 $13.52 $14.34 $12.74 Total return++ (28.22)% 38.12% 2.63% 15.05% 0.77% ============================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,166 $987 $824 $933 $988 Ratio of operating expenses to average net assets 2.15% 2.14% 2.13% 1.97% 1.66% Ratio of net investment income/(loss) to average net assets (0.11)% (0.31)% (0.21)% (0.07)% 0.12% Portfolio turnover rate -- 129%## 146% 64% 36% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.16% 2.18% 2.13% 1.97% 1.66%
* Amount represents less than $0.01 per share. ++ 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 results prior to conversion to a master-feeder structure. 239
Nations Marsico International For a Share outstanding throughout the period Opportunities Fund Period ended Investor A Shares 03/31/01#* Operating performance: Net asset value, beginning of period $10.00 Net investment income/(loss) (0.01) Net realized and unrealized gain/(loss) on investments (1.98) Net increase/(decrease) in net asset value from operations (1.99) Net asset value, end of period $8.01 Total return++ (19.90)% ====================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $2,797 Ratio of operating expenses to average net assets 1.72%+ Ratio of net investment income/(loss) to average net assets (0.13)%+ Portfolio turnover rate 442% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 6.53%+
* Marsico International Opportunities Fund Investor A Shares commenced operations on August 1, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income/(loss) has been calculated using the monthly average shares method.
Nations Marsico International For a Share outstanding throughout the period Opportunities Fund Period ended Investor B Shares 03/31/01#* Operating performance: Net asset value, beginning of period $10.00 Net investment income/(loss) (0.08) Net realized and unrealized gain/(loss) on investments (1.95) Net increase/(decrease) in net asset value from operations (2.03) Net asset value, end of period $7.97 Total return++ (20.30)% ===================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $2,031 Ratio of operating expenses to average net assets 2.47%+ Ratio of net investment income/(loss) to average net assets (0.88)%+ Portfolio turnover rate 442% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 7.28%+
* Marsico International Opportunities Fund Investor B Shares commenced operations on August 1, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income/(loss) has been calculated using the monthly average shares method. 240
Nations Marsico International For a Share outstanding throughout the period Opportunities Fund Period ended Investor C Shares 03/31/01#* Operating performance: Net asset value, beginning of period $10.00 Net investment income/(loss) (0.09) Net realized and unrealized gain/(loss) on investments (1.94) Net increase/(decrease) in net asset value from operations (2.03) Net asset value, end of period $7.97 Total return++ (20.30)% =================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $974 Ratio of operating expenses to average net assets 2.47%+ Ratio of net investment income/(loss) to average net assets (0.88)%+ Portfolio turnover rate 442% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 7.28%+
* Marsico International Opportunities Fund Investor C Shares commenced operations on August 1, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income/(loss) has been calculated using the monthly average shares method.
Nations Emerging Markets Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor A Shares 03/31/01# 03/31/00# 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $15.65 $8.09 $10.57 $11.39 $10.32 Net investment income/(loss) (0.04) (0.09) 0.10 0.01 (0.01) Net realized and unrealized gain/(loss) on investments (6.75) 7.65 (2.52) (0.75) 1.21 Net increase/(decrease) in net asset value from operations (6.79) 7.56 (2.42) (0.74) 1.20 Distributions: Dividends from net investment income (0.02) -- (0.06) (0.08) (0.02) Distributions in excess of net investment income (0.00)## -- -- -- (0.05) Distributions from net realized capital gains -- -- -- -- (0.06) Total dividends and distributions (0.02) -- (0.06) (0.08) (0.13) Net asset value, end of year $8.84 $15.65 $8.09 $10.57 $11.39 Total return++ (43.38)% 93.33% (22.90)% (6.60)% 11.74% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $3,851 $3,087 $951 $652 $894 Ratio of operating expenses to average net assets 2.05% 2.15% 2.03%(a) 1.82% 1.99% Ratio of operating expenses to average net assets including interest expense 2.09% 2.16% (b) -- -- Ratio of net investment income/(loss) to average net assets (0.65)% (0.65)% 1.41% 0.11% (0.12)% Portfolio turnover rate 97% 61% 71% 63% 31% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.11% 2.79% 2.23%(a) 1.82% 1.99%
++ 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 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%. 241
Nations Emerging Markets Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor B Shares 03/31/01# 03/31/00# 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $15.32 $7.99 $10.49 $11.31 $10.26 Net investment income/(loss) (0.17) (0.16) 0.05 (0.07) (0.09) Net realized and unrealized gain/(loss) on investments (6.53) 7.49 (2.50) (0.75) 1.20 Net increase/(decrease) in net asset value from operations (6.70) 7.33 (2.45) (0.82) 1.11 Distributions: Dividends from net investment income -- -- (0.05) -- -- Distributions from net realized capital gains -- -- -- -- (0.06) Total dividends and distributions -- -- (0.05) -- (0.06) Net asset value, end of year $8.62 $15.32 $7.99 $10.49 $11.31 Total return++ (43.73)% 91.74% (23.42)% (7.25)% 10.88% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,728 $3,468 $1,579 $1,247 $1,499 Ratio of operating expenses to average net assets 2.80% 2.90% 2.78%(a) 2.57% 2.74% Ratio of operating expenses to average net assets including interest expense 2.84% 2.91% (b) -- -- Ratio of net investment income/(loss) to average net assets (1.40)% (1.40)% 0.66% (0.64)% (0.87)% Portfolio turnover rate 97% 61% 71% 63% 31% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.86% 3.54% 2.98%(a) 2.57% 2.74%
++ 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 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%.
Nations Emerging Markets Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor C Shares 03/31/01# 03/31/00# 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $15.31 $7.98 $10.47 $11.34 $10.27 Net investment income/(loss) (0.16) (0.14) 0.05 (0.05) (0.04) Net realized and unrealized gain/(loss) on investments (6.54) 7.47 (2.49) (0.75) 1.20 Net increase/(decrease) in net asset value from operations (6.70) 7.33 (2.44) (0.80) 1.16 Distributions: Dividends from net investment income -- -- (0.05) (0.07) (0.01) Distributions in excess of net investment income -- -- -- -- (0.02) Distributions from net realized capital gains -- -- -- -- (0.06) Total dividends and distributions -- -- (0.05) (0.07) (0.09) Net asset value, end of year $8.61 $15.31 $7.98 $10.47 $11.34 Total return++ (43.73)% 91.73% (23.37)% (7.17)% 11.34% ================================================================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $65 $120 $86 $293 $226 Ratio of operating expenses to average net assets 2.80% 2.90% 2.78%(a) 2.40% 2.24% Ratio of operating expenses to average net assets including interest expense 2.84% 2.91% (b) -- -- Ratio of net investment income/(loss) to average net assets (1.40)% (1.40)% 0.66% (0.47)% (0.37)% Portfolio turnover rate 97% 61% 71% 63% 31% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.86% 3.54% 2.98%(a) 2.40% 2.24%
++ 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 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%. 242
Nations LargeCap Index Fund For a Share outstanding throughout each year Year ended Year ended Investor A Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $28.76 $24.94 Net investment income 0.17 0.19 Net realized and unrealized gain/(loss) on investments (6.52) 4.08 Net increase/(decrease) in net asset value from operations (6.35) 4.27 Distributions: Dividends from net investment income (0.17) (0.19) Distributions from net realized capital gains --## (0.26) Total dividends and distributions (0.17) (0.45) Net asset value, end of year $22.24 $28.76 Total return++ (22.18)% 17.32% =================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $27,417 $28,943 Ratio of operating expenses to average net assets 0.60%(a)(b) 0.60%(a)(b) Ratio of operating expenses to average net assets including interest expense -- -- Ratio of net investment income to average net assets 0.63% 0.71% Portfolio turnover rate 8% 7% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.93%(a) 0.96%(a) Year ended Year ended Year ended Investor A Shares 03/31/99 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $22.31 $15.87 $13.58 Net investment income 0.19 0.21 0.25 Net realized and unrealized gain/(loss) on investments 3.63 7.05 2.32 Net increase/(decrease) in net asset value from operations 3.82 7.26 2.57 Distributions: Dividends from net investment income (0.20) (0.23) (0.23) Distributions from net realized capital gains (0.99) (0.59) (0.05) Total dividends and distributions (1.19) (0.82) (0.28) Net asset value, end of year $24.94 $22.31 $15.87 Total return++ 18.00% 46.58% 19.06% ====================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $13,827 $4,595 $2,574 Ratio of operating expenses to average net assets 0.60%(a) 0.60%(a) 0.60%(a) Ratio of operating expenses to average net assets including interest expense -- 0.61% -- Ratio of net investment income to average net assets 0.92% 1.14% 1.66% Portfolio turnover rate 4% 26% 5% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.96%(a) 0.91%(a) 0.95%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset 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%.
Nations MidCap Index Fund For a Share outstanding throughout the period Period ended Investor A Shares 03/31/01* Operating performance: Net asset value, beginning of period $9.55 Net investment income/(loss) 0.05 Net realized and unrealized gain/(loss) on investments (0.24) Net increase/(decrease) in net asset value from operations (0.19) Distributions: Dividends from net investment income (0.06) Distributions from net realized capital gains (0.89) Total dividends and distributions (0.95) Net asset value, end of period $8.41 Total return++ (2.84)% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $215 Ratio of operating expenses to average net assets 0.60%(a)+ Ratio of operating expenses including interest expense to average net assets 0.61%(a)+ Ratio of net investment income/(loss) to average net assets 0.57%+ Portfolio turnover rate 69% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.00%(a)+
* MidCap Index Investor A Shares commenced operations on May 31, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. 243 Nations SmallCap Index Fund For a Share outstanding throughout each period
Year ended Year ended Year ended Year ended Period ended Investor A Shares 03/31/01# 03/31/00# 03/31/99# 03/31/98 03/31/97* Operating performance: Net asset value, beginning of period $13.52 $11.03 $14.08 $9.82 $10.00 Net investment income 0.04 0.01 0.03 0.03 0.03 Net realized and unrealized gain/(loss) on investments (0.32) 2.49 (2.91) 4.57 (0.18) Net increase/(decrease) in net asset value from operations (0.28) 2.50 (2.88) 4.60 (0.15) Distributions: Dividends from net investment income (0.02) (0.01) (0.03) (0.03) (0.03) Distributions from net realized capital gains -- -- (0.14) (0.31) -- Total dividends and distributions (0.02) (0.01) (0.17) (0.34) (0.03) Net asset value, end of period $13.22 $13.52 $11.03 $14.08 $9.82 Total return++ (2.06)% 22.67% (20.67)% 47.35% (1.52)% ==================================================================================================================================== Ratio to average net assets/supplemental data: Net assets, end of period (in 000's) $6,517 $7,610 $9,782 $13,768 $334 Ratio of operating expenses to average net assets 0.66%(a)(b) 0.75%(a) 0.75%(a)(b) 0.75%(a)(b) 0.75%+ Ratio of operating expenses to average net assets including interest expense -- 0.76%(a) -- -- -- Ratio of net investment income to average net assets 0.31% 0.10% 0.27% 0.27% 0.80%+ Portfolio turnover rate 65% 53% 65% 62% 18% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.04%(a) 1.02%(a) 1.07%(a) 1.27%(a) 1.46%+
* SmallCap Index Fund Investor A Shares commenced operations on October 15, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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 0.01%.
Nations Managed Index Fund For a Share outstanding throughout each period Year ended Year ended Year ended Year ended Period ended Investor A Shares 03/31/01# 03/31/00# 03/31/99# 03/31/98 03/31/97* Operating performance: Net asset value, beginning of period $22.04 $19.39 $17.14 $11.89 $10.00 Net investment income 0.08 0.11 0.14 0.14 0.12 Net realized and unrealized gain/(loss) on investments (4.47) 2.78 2.39 5.40 1.89 Net increase/(decrease) in net asset value from operations (4.39) 2.89 2.53 5.54 2.01 Distributions: Dividends from net investment income (0.07) (0.11) (0.13) (0.14) (0.12) Distributions from net realized capital gains (2.69) (0.13) (0.15) (0.15) -- Total dividends and distributions (2.76) (0.24) (0.28) (0.29) (0.12) Net asset value, end of period $14.89 $22.04 $19.39 $17.14 $11.89 Total return++ (21.75)% 15.04% 14.97% 47.21% 20.12% =============================================================================================================================== Ratio to average net assets/supplemental data: Net assets, end of period (in 000's) $32,402 $51,433 $51,439 $25,447 $3,038 Ratio of operating expenses to average net assets 0.75%(a)(b) 0.75%(a)(b) 0.75%(a) 0.75%(a)(b) 0.75%+(a) Ratio of net investment income to average net assets 0.42% 0.55% 0.78% 1.01% 1.67%+ Portfolio turnover rate 97% 64% 35% 30% 17% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.95%(a) 0.97%(a) 0.98%(a) 1.05%(a) 1.30%+(a)
* Managed Index Fund Investor A Shares commenced operations on July 31, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 244
Nations Short-Term Income Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor A Shares 03/31/01 03/31/00 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $9.51 $9.79 $9.77 $9.68 $9.76 Net investment income 0.56 0.54 0.54 0.54 0.56 Net realized and unrealized gain/(loss) on investments 0.30 (0.28) 0.02 0.09 (0.08) Net increase/(decrease) in net asset value from operations 0.86 0.26 0.56 0.63 0.48 Distributions: Dividends from net investment income (0.56) (0.54) (0.54) (0.54) (0.56) Total dividends and distributions (0.56) (0.54) (0.54) (0.54) (0.56) Net asset value, end of year $9.81 $9.51 $9.79 $9.77 $9.68 Total return++ 9.28% 2.76% 5.85% 6.67% 5.04% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $7,658 $11,831 $14,652 $13,688 $6,169 Ratio of operating expenses to average net assets 0.76%(a) 0.73%(a) 0.70%(a) 0.76%(a)(b) 0.75%(b) Ratio of net investment income to average net assets 5.79% 5.63% 5.50% 5.55% 5.77% Portfolio turnover rate 42% 62% 64% 66% 172% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.86%(a) 0.88%(a) 1.05%(a) 1.06%(a) 1.05%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%.
Nations Short-Term Income Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor B Shares 03/31/01 03/31/00 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $9.51 $9.79 $9.77 $9.68 $9.76 Net investment income 0.48 0.51 0.52 0.53 0.55 Net realized and unrealized gain/(loss) on investments 0.29 (0.28) 0.02 0.09 (0.08) Net increase/(decrease) in net asset value from operations 0.77 0.23 0.54 0.62 0.47 Distributions: Dividends from net investment income (0.48) (0.51) (0.52) (0.53) (0.55) Total dividends and distributions (0.48) (0.51) (0.52) (0.53) (0.55) Net asset value, end of year $9.80 $9.51 $9.79 $9.77 $9.68 Total return++ 8.36% 2.40% 5.70% 6.51% 4.89% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $2,515 $2,914 $5,825 $4,602 $5,536 Ratio of operating expenses to average net assets 1.51%(a) 1.05%(a) 0.85%(a) 0.91%(a)(b) 0.90%(b) Ratio of net investment income to average net assets 5.04% 5.31% 5.35% 5.40% 5.62% Portfolio turnover rate 42% 62% 64% 66% 172% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.61%(a) 1.63%(a) 1.80%(a) 1.21%(a) 1.20%
++ Total return represents aggregate total return for the periods indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 245
Nations Short-Term Income Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor C Shares 03/31/01 03/31/00 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $9.51 $9.79 $9.77 $9.68 $9.76 Net investment income 0.48 0.47 0.52 0.53 0.55 Net realized and unrealized gain/(loss) on investments 0.29 (0.28) 0.02 0.09 (0.08) Net increase/(decrease) in net asset value from operations 0.77 0.19 0.54 0.62 0.47 Distributions: Dividends from net investment income (0.48) (0.47) (0.52) (0.53) (0.55) Total dividends and distributions (0.48) (0.47) (0.52) (0.53) (0.55) Net asset value, end of year $9.80 $9.51 $9.79 $9.77 $9.68 Total return++ 8.37% 1.97% 5.64% 6.51% 4.89% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $833 $987 $1,744 $2,992 $4,063 Ratio of operating expenses to average net assets 1.51%(a) 1.50%(a) 1.01%(a) 0.91%(a)(b) 0.90%(b) Ratio of net investment income to average net assets 5.04% 4.86% 5.19% 5.40% 5.62% Portfolio turnover rate 42% 62% 64% 66% 172% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.61%(a) 1.63%(a) 1.80%(a) 1.21%(a) 1.20%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%.
Nations Short-Intermediate Government Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor A Shares 03/31/01 03/31/00 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $3.94 $4.10 $4.12 $3.99 $4.07 Net investment income 0.22 0.22 0.21 0.22 0.22 Net realized and unrealized gain/(loss) on investments 0.21 (0.16) (0.02) 0.13 (0.08) Net increase/(decrease) in net asset value from operations 0.43 0.06 0.19 0.35 0.14 Distributions: Dividends from net investment income (0.22) (0.22) (0.21) (0.22) (0.22) Total dividends and distributions (0.22) (0.22) (0.21) (0.22) (0.22) Net asset value, end of year $4.15 $3.94 $4.10 $4.12 $3.99 Total return++ 11.31% 1.43% 4.76% 8.89% 3.51% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $44,244 $45,341 $44,793 $49,478 $42,468 Ratio of operating expenses to average net assets 0.82%(a) 0.80%(a) 0.78%(a) 0.81% 0.83%(a)(b) Ratio of net investment income to average net assets 5.54% 5.39% 5.16% 5.33% 5.53% Portfolio turnover rate 108% 177% 242% 538% 529% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.84%(a) 0.90%(a) 1.03%(a) 1.01% 1.03%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 246
Nations Short-Intermediate Government Fund For a Share outstanding through each year Year ended Year ended Year ended Year ended Year ended Investor B Shares 03/31/01 03/31/00 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $3.94 $4.10 $4.12 $3.99 $4.07 Net investment income 0.19 0.19 0.19 0.20 0.20 Net realized and unrealized gain/(loss) on investments 0.21 (0.16) (0.02) 0.13 (0.08) Net increase/(decrease) in net asset value from operations 0.40 0.03 0.17 0.33 0.12 Distributions: Dividends from net investment income (0.19) (0.19) (0.19) (0.20) (0.20) Total dividends and distributions (0.19) (0.19) (0.19) (0.20) (0.20) Net asset value, end of year $4.15 $3.94 $4.10 $4.12 $3.99 Total return++ 10.46% 0.70% 4.14% 8.35% 3.10% ================================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $8,199 $8,400 $9,591 $9,815 $10,788 Ratio of operating expenses to average net assets 1.59%(a) 1.51%(a) 1.38%(a) 1.34% 1.23%(a)(b) Ratio of net investment income to average net assets 4.77% 4.68% 4.56% 4.80% 5.13% Portfolio turnover rate 108% 177% 242% 538% 529% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.59%(a) 1.65%(a) 1.78%(a) 1.54% 1.43%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%.
Nations Short-Intermediate Government Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor C Shares 03/31/01 03/31/00 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $3.93 $4.09 $4.12 $3.99 $4.07 Net investment income 0.19 0.19 0.19 0.20 0.21 Net realized and unrealized gain/(loss) on investments 0.21 (0.16) (0.03) 0.13 (0.08) Net increase/(decrease) in net asset value from operations 0.40 0.03 0.16 0.33 0.13 Distributions: Dividends from net investment income (0.19) (0.19) (0.19) (0.20) (0.21) Total dividends and distributions (0.19) (0.19) (0.19) (0.20) (0.21) Net asset value, end of year $4.14 $3.93 $4.09 $4.12 $3.99 Total return++ 10.49% 0.74% 4.05% 8.45% 3.21% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,079 $661 $1,190 $1,808 $8,334 Ratio of operating expenses to average net assets 1.59%(a) 1.54%(a) 1.34%(a) 1.31% 1.13%(a)(b) Ratio of net investment income to average net assets 4.77% 4.65% 4.60% 4.83% 5.23% Portfolio turnover rate 108% 177% 242% 538% 529% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.59%(a) 1.65%(a) 1.78%(a) 1.51% 1.33%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 247
Nations Government Securities Fund For a Share outstanding throughout each year Year ended Year ended Investor A Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $9.37 $9.86 Net investment income 0.57 0.57 Net realized and unrealized gain/(loss) on investments 0.49 (0.50) Net increase/(decrease) in net asset value from operations 1.06 0.07 Distributions: Dividends from net investment income (0.57) (0.56) Distributions from capital -- -- Total dividends and distributions (0.57) (0.56) Net asset value, end of year $9.86 $9.37 Total return++ 11.70% 0.80% =================================================================================================== Ratios to average net assets/ supplemental data: Net assets, end of year (in 000's) $57,641 $57,485 Ratio of operating expenses to average net assets 1.00%(a) 1.03%(b) Ratio of net investment income to average net assets 5.96% 5.92% Portfolio turnover rate 183% 348% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.11%(a) 1.15% Year ended Year ended Year ended Investor A Shares 03/31/99# 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $9.90 $9.39 $9.67 Net investment income 0.56 0.52 0.58 Net realized and unrealized gain/(loss) on investments (0.05) 0.51 (0.30) Net increase/(decrease) in net asset value from operations 0.51 1.03 0.28 Distributions: Dividends from net investment income (0.55) (0.52) (0.56) Distributions from capital -- -- (0.00)## Total dividends and distributions (0.55) (0.52) (0.56) Net asset value, end of year $9.86 $9.90 $9.39 Total return++ 5.16% 11.37% 2.92% ============================================================================================================== Ratios to average net assets/ supplemental data: Net assets, end of year (in 000's) $19,167 $8,509 $9,852 Ratio of operating expenses to average net assets 0.98%(a) 1.10%(a)(b) 1.05% Ratio of net investment income to average net assets 5.45% 5.38% 6.03% Portfolio turnover rate 600% 303% 468% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.09%(a) 1.24%(a) 1.19%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01. (a) The effect of the custodial expense offset 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%.
Nations Government Securities Fund For a Share outstanding throughout each year Year ended Year ended Investor B Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $9.38 $9.86 Net investment income 0.50 0.49 Net realized and unrealized gain/(loss) on investments 0.49 (0.48) Net increase/(decrease) in net asset value from operations 0.99 0.01 Distributions: Dividends from net investment income (0.50) (0.49) Distributions from capital -- -- Total dividends and distributions (0.50) (0.49) Net asset value, end of year $9.87 $9.38 Total return++ 10.86% 0.22% =================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $27,544 $26,988 Ratio of operating expenses to average net assets 1.75%(a) 1.72%(b) Ratio of net investment income to average net assets 5.21% 5.23% Portfolio turnover rate 183% 348% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.86%(a) 1.90% Year ended Year ended Year ended Investor B Shares 03/31/99# 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $9.90 $9.39 $9.67 Net investment income 0.49 0.47 0.54 Net realized and unrealized gain/(loss) on investments (0.04) 0.51 (0.30) Net increase/(decrease) in net asset value from operations 0.45 0.98 0.24 Distributions: Dividends from net investment income (0.49) (0.47) (0.52) Distributions from capital -- -- (0.00)## Total dividends and distributions (0.49) (0.47) (0.52) Net asset value, end of year $9.86 $9.90 $9.39 Total return++ 4.53% 10.78% 2.51% ========================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $30,109 $32,391 $38,807 Ratio of operating expenses to average net assets 1.58%(a) 1.63%(a)(b) 1.45% Ratio of net investment income to average net assets 4.85% 4.85% 5.63% Portfolio turnover rate 600% 303% 468% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.84%(a) 1.77%(a) 1.59%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01. (a) The effect of the custodial expense offset 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%. 248
Nations Government Securities Fund For a Share outstanding throughout each year Year ended Year ended Investor C Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $9.34 $9.86 Net investment income 0.52 0.49 Net realized and unrealized gain/(loss) on investments 0.48 (0.52) Net increase/(decrease) in net asset value from operations 1.00 (0.03) Distributions: Dividends from net investment income (0.50) (0.49) Distributions from capital -- -- Total dividends and distributions (0.50) (0.49) Net asset value, end of year $9.84 $9.34 Total return++ 11.03% (0.22)% ====================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,213 $238 Ratio of operating expenses to average net assets 1.75%(a) 1.78%(b) Ratio of net investment income to average net assets 5.21% 5.17% Portfolio turnover rate 183% 348% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.86%(a) 1.90% Year ended Year ended Year ended Investor C Shares 03/31/99# 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $9.90 $9.39 $9.67 Net investment income 0.49 0.48 0.55 Net realized and unrealized gain/(loss) on investments (0.04) 0.51 (0.30) Net increase/(decrease) in net asset value from operations 0.45 0.99 0.25 Distributions: Dividends from net investment income (0.49) (0.48) (0.53) Distributions from capital -- -- (0.00)## Total dividends and distributions (0.49) (0.48) (0.53) Net asset value, end of year $9.86 $9.90 $9.39 Total return++ 4.52% 10.84% 2.67% ======================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $213 $735 $1,835 Ratio of operating expenses to average net assets 1.59%(a) 1.58%(a)(b) 1.30% Ratio of net investment income to average net assets 4.84% 4.90% 5.78% Portfolio turnover rate 600% 303% 468% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.84%(a) 1.72%(a) 1.44%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01. (a) The effect of the custodial expense offset 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%.
Nations Intermediate Bond Fund For a Share outstanding throughout each period Year ended Period ended Period ended Year ended Year ended Year ended Investor A Shares*,*** 03/31/01# 03/31/00 05/14/99 02/28/99 02/28/98 02/28/97** Operating performance: Net asset value, beginning of period $9.15 $9.50 $9.52 $9.69 $9.54 $9.75 Net investment income 0.56 0.46 0.10 0.50 0.49 0.52 Net realized and unrealized gain/(loss) on investments 0.40 (0.34) (0.04) (0.03) 0.20 (0.15) Net increase in net asset value from operations 0.96 0.12 0.06 0.47 0.69 0.37 Distributions: Dividends from net investment income (0.56) (0.47) (0.08) (0.53) (0.51) (0.52) Distributions from net realized capital gains -- -- -- (0.11) (0.03) (0.06) Total dividends and distributions (0.56) (0.47) (0.08) (0.64) (0.54) (0.58) Net asset value, end of period $9.55 $9.15 $9.50 $9.52 $9.69 $9.54 Total return++ 10.88% 1.34% 0.66% 4.89% 7.40% 3.92% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $62,617 $45,207 $61,412 $63,404 $41,875 $22,937 Ratio of operating expenses to average net assets 1.03% 1.06%+ 1.09%+ 0.90% 0.90% 0.75% Ratio of net investment income to average net assets 6.06% 5.83%+ 4.90%+ 5.14% 5.50% 5.45% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.06% 1.30%+ 1.12%+ 0.90% 1.21% 2.26%
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Intermediate Bond Fund A Shares, which were reorganized into the Intermediate Bond Investor A Shares, 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 ** As of July 22, 1996 the Fund designated the existing series of shares as "A" shares. *** Seafirst Shares converted into Investor A Shares on June 23, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. 249
Nations Intermediate Bond Fund For a Share outstanding throughout each period Year ended Period ended Investor B Shares 03/31/01# 03/31/00* Operating performance: Net asset value, beginning of period $9.13 $9.52 Net investment income 0.47 0.22 Net realized and unrealized gain/(loss) on investments 0.42 (0.36) Net increase/(decrease) in net asset value from operations 0.89 (0.14) Distributions: Dividends from net investment income (0.51) (0.25) Total dividends and distributions (0.51) (0.25) Net asset value, end of period $9.51 $9.13 Total return ++ 9.99% 1.33% ======================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $1,290 $256 Ratio of operating expenses to average net assets 1.78% 1.81%+ Ratio of net investment income to average net assets 5.31% 5.08%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.81% 2.05%+
* Intermediate Bond Fund Investor B Shares commenced operations on October 20, 1999. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method.
Nations Intermediate Bond Fund For a Share outstanding throughout each period Year ended Period ended Investor C Shares* 03/31/01# 03/31/00 Operating performance: Net asset value, beginning of period $9.32 $9.56 Net investment income 0.47 0.34 Net realized and unrealized gain/(loss) on investments 1.09 (0.23) Net increase in net asset value from operations 1.56 0.11 Distributions: Dividends from net investment income (0.41) (0.35) Distributions from net realized capital gains -- -- Total dividends and distributions (0.41) (0.35) Net asset value, end of period $10.47 $9.32 Total return++ 17.06% 1.18% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $797 $15 Ratio of operating expenses to average net assets 1.78% 1.81%+ Ratio of net investment income to average net assets 5.31% 5.08%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.81% 2.05%+ Period ended Year ended Year ended Period ended Investor C Shares* 05/14/99 02/28/99 02/28/98 02/28/97** Operating performance: Net asset value, beginning of period $9.59 $9.72 $9.54 $9.53 Net investment income 0.09 0.46 0.44 0.31 Net realized and unrealized gain/(loss) on investments (0.04) -- 0.19 0.07 Net increase in net asset value from operations 0.05 0.46 0.63 0.38 Distributions: Dividends from net investment income (0.08) (0.48) (0.42) (0.31) Distributions from net realized capital gains -- (0.11) (0.03) (0.06) Total dividends and distributions (0.08) (0.59) (0.45) (0.37) Net asset value, end of period $9.56 $9.59 $9.72 $9.54 Total return++ 0.47% 4.76% 6.80% 3.73% ========================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $469 $495 $513 $332 Ratio of operating expenses to average net assets 1.57%+ 1.39% 1.39% 1.43%+ Ratio of net investment income to average net assets 4.42%+ 4.67% 4.99% 5.41%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.84%+ 1.65% 1.73% 2.71%+
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Intermediate Bond Fund K Shares, which were reorganized into the Intermediate Bond Investor C Shares, as of May 21, 1999. Prior to May 21, 1999, the Fund's investment adviser was Bank of America National Trust and Savings Association. Effective May 21, 1999, its investment adviser became Banc of America Advisors, LLC and its investment sub-adviser became Banc of America Capital Management, LLC. ** Intermediate Bond Fund, Investor C Shares commenced operations on November 20, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. 250
Nations Bond Fund For a Share outstanding throughout each year Year ended Year ended Investor A Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $9.37 $9.93 Net investment income 0.60 0.57 Net realized and unrealized gain/(loss) on investments 0.41 (0.52) Net increase/(decrease) in net asset value from operations 1.01 0.05 Distributions: Dividends from net investment income (0.60) (0.57) Distributions from net realized capital gains (0.00) (0.04) Distributions from capital (0.00) -- Total dividends and distributions (0.60) (0.61) Net asset value, end of year $9.78 $9.37 Total return++ 11.11% 0.74% ================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $27,220 $23,420 Ratio of operating expenses to average net assets 0.92%(a) 0.90% Ratio of net investment income to average net assets 6.28% 5.97% Portfolio turnover rate 120% 63% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.92%(a) 0.94% Year ended Year ended Year ended Investor A Shares 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $10.03 $9.62 $9.93 Net investment income 0.57 0.56 0.56 Net realized and unrealized gain/(loss) on investments (0.04) 0.41 (0.20) Net increase/(decrease) in net asset value from operations 0.53 0.97 0.36 Distributions: Dividends from net investment income (0.57) (0.56) (0.56) Distributions from net realized capital gains (0.06) -- (0.11) Distributions from capital -- -- (0.00)## Total dividends and distributions (0.63) (0.56) (0.67) Net asset value, end of year $9.93 $10.03 $9.62 Total return++ 5.40% 10.30% 3.70% ======================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $32,119 $26,054 $6,345 Ratio of operating expenses to average net assets 0.88%(a) 0.92%(a)(b) 0.91%(a) Ratio of net investment income to average net assets 5.66% 5.66% 5.78% Portfolio turnover rate 107% 244% 368% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.03%(a) 1.03%(a) 1.01%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01. (a) The effect of the custodial expense offset 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%.
Nations Bond Fund For a Share outstanding throughout each year Year ended Year ended Investor B Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $9.37 $9.93 Net investment income 0.52 0.50 Net realized and unrealized gain/(loss) on investments 0.41 (0.52) Net increase/(decrease) in net asset value from operations 0.93 (0.02) Distributions: Dividends from net investment income (0.52) (0.50) Distributions from net realized capital gains (0.00) (0.04) Distributions from capital (0.00) -- Total dividends and distributions (0.52) (0.54) Net asset value, end of year $9.78 $9.37 Total return++ 10.29% 0.05% ======================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $6,994 $5,637 Ratio of operating expenses to average net assets 1.67%(a) 1.59% Ratio of net investment income to average net assets 5.53% 5.28% Portfolio turnover rate 120% 63% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.67%(a) 1.69% Year ended Year ended Year ended Investor B Shares 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $10.03 $9.62 $9.93 Net investment income 0.51 0.51 0.52 Net realized and unrealized gain/(loss) on investments (0.04) 0.41 (0.20) Net increase/(decrease) in net asset value from operations 0.47 0.92 0.32 Distributions: Dividends from net investment income (0.51) (0.51) (0.52) Distributions from net realized capital gains (0.06) -- (0.11) Distributions from capital -- -- (0.00)## Total dividends and distributions (0.57) (0.51) (0.63) Net asset value, end of year $9.93 $10.03 $9.62 Total return++ 4.76% 9.73% 3.23% ============================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $5,440 $2,662 $2,109 Ratio of operating expenses to average net assets 1.48%(a) 1.47%(a)(b) 1.36%(a) Ratio of net investment income to average net assets 5.06% 5.11% 5.33% Portfolio turnover rate 107% 244% 368% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.78%(a) 1.58%(a) 1.46%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01. (a) The effect of the custodial expense offset 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%. 251 Nations Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor C Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $9.37 $9.93 Net investment income 0.52 0.48 Net realized and unrealized gain/(loss) on investments 0.41 (0.52) Net increase/(decrease) in net asset value from operations 0.93 (0.04) Distributions: Dividends from net investment income (0.52) (0.48) Distributions from net realized capital gains (0.00) (0.04) Distributions from capital (0.00) -- Total dividends and distributions (0.52) (0.52) Net asset value, end of year $9.78 $9.37 Total return++ 10.28% (0.24)% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,321 $934 Ratio of operating expenses to average net assets 1.67%(a) 1.67% Ratio of net investment income to average net assets 5.53% 5.20% Portfolio turnover rate 120% 63% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.67%(a) 1.69%
Year ended Year ended Year ended Investor C Shares 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $10.03 $9.62 $9.93 Net investment income 0.51 0.52 0.53 Net realized and unrealized gain/(loss) on investments (0.04) 0.41 (0.20) Net increase/(decrease) in net asset value from operations 0.47 0.93 0.33 Distributions: Dividends from net investment income (0.51) (0.52) (0.53) Distributions from net realized capital gains (0.06) -- (0.11) Distributions from capital -- -- (0.00)## Total dividends and distributions (0.57) (0.52) (0.64) Net asset value, end of year $9.93 $10.03 $9.62 Total return++ 4.90% 9.87% 3.38% ============================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,137 $943 $1,068 Ratio of operating expenses to average net assets 1.40%(a) 1.42%(a)(b) 1.21%(a) Ratio of net investment income to average net assets 5.14% 5.16% 5.48% Portfolio turnover rate 107% 244% 368% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.78%(a) 1.53%(a) 1.31%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01. (a) The effect of the custodial expense offset 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%.
Nations Strategic Income Fund For a Share outstanding throughout each year Year ended Year ended Investor A Shares 03/31/01# 03/31/00 Operating performance: Net asset value, beginning of year $9.52 $10.31 Net investment income 0.63 0.65 Net realized and unrealized gain/(loss) on investments 0.36 (0.79) Net increase/(decrease) in net asset value from operations 0.99 (0.14) Distributions: Dividends from net investment income (0.63) (0.65) Distributions from net realized capital gains -- (0.00)## Total dividends and distributions (0.63) (0.65) Net asset value, end of year $9.88 $9.52 Total return++ 10.80% (1.30)% =============================================================================================-===== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $29,102 $30,870 Ratio of operating expenses to average net assets 0.97% 0.96%(a) Ratio of net investment income to average net assets 6.51% 6.55% Portfolio turnover rate 238% 107% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.09% 1.15%(a) Year ended Year ended Year ended Investor A Shares 03/31/99# 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $10.55 $10.11 $10.42 Net investment income 0.63 0.63 0.66 Net realized and unrealized gain/(loss) on investments (0.14) 0.44 (0.18) Net increase/(decrease) in net asset value from operations 0.49 1.07 0.48 Distributions: Dividends from net investment income (0.63) (0.63) (0.66) Distributions from net realized capital gains (0.10) -- (0.13) Total dividends and distributions (0.73) (0.63) (0.79) Net asset value, end of year $10.31 $10.55 $10.11 Total return++ 4.74% 10.80% 4.71% =================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $12,954 $11,946 $11,662 Ratio of operating expenses to average net assets 0.95%(a) 0.98%(a) 1.00%(a) Ratio of net investment income to average net assets 6.02% 6.02% 6.48% Portfolio turnover rate 94% 203% 278% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.05%(a) 1.08%(a) 1.10%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. 252
Nations Strategic Income Fund For a Share outstanding throughout each year Year ended Year ended Investor B Shares 03/31/01# 03/31/00 Operating performance: Net asset value, beginning of year $ 9.52 $ 10.31 Net investment income 0.56 0.59 Net realized and unrealized gain/(loss) on investments 0.37 (0.79) Net increase/(decrease) in net asset value fro operations 0.93 (0.20) Distributions: Dividends from net investment income (0.56) (0.59) Distributions from net realized capital gains -- (0.00)## Total dividends and distributions (0.56) (0.59) Net asset value, end of year $ 9.89 $ 9.52 Total return++ 10.08% (1.98)% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $50,251 $55,946 Ratio of operating expenses to average net assets 1.72% 1.65%(a) Ratio of net investment income to average net assets 5.76% 5.86% Portfolio turnover rate 238% 107% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.84% 1.90%(a) Year ended Year ended Year ended Investor B Shares 03/31/99# 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 10.55 $ 10.11 $ 10.42 Net investment income 0.57 0.57 0.61 Net realized and unrealized gain/(loss) on investments (0.14) 0.44 (0.18) Net increase/(decrease) in net asset value from operations 0.43 1.01 0.43 Distributions: Dividends from net investment income (0.57) (0.57) (0.61) Distributions from net realized capital gains (0.10) -- (0.13) Total dividends and distributions (0.67) ( 0.57) (0.74) Net asset value, end of year $ 10.31 $ 10.55 $ 10.11 Total return++ 4.11% 10.18% 4.18% =================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $67,651 $65,248 $70,631 Ratio of operating expenses to average net assets 1.55%(a) 1.55%(a) 1.50%(a) Ratio of net investment income to average net assets 5.42% 5.45% 5.98% Portfolio turnover rate 94% 203% 278% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.80%(a) 1.65%(a) 1.60%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%.
Nations Strategic Income Fund For a Share outstanding throughout each year Year ended Year ended Investor C Shares 03/31/01# 03/31/00 Operating performance: Net asset value, beginning of year $ 9.52 $ 10.31 Net investment income 0.56 0.58 Net realized and unrealized gain/(loss) on investments 0.36 (0.79) Net increase/(decrease) in net asset value from operations 0.92 (0.21) Distributions: Dividends from net investment income (0.56) (0.58) Distributions from net realized capital gains -- (0.00)## Total dividends and distributions (0.56) (0.58) Net asset value, end of year $ 9.88 $ 9.52 Total return++ 9.98% (2.04)% ============================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,527 $1,202 Ratio of operating expenses to average net assets 1.72% 1.71%(a) Ratio of net investment income to average net assets 5.76% 5.80% Portfolio turnover rate 238% 107% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.84% 1.90%(a) Year ended Year ended Year ended Investor C Shares 03/31/99# 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 10.55 $ 10.11 $ 10.42 Net investment income 0.57 0.58 0.63 Net realized and unrealized gain/(loss) on investments (0.14) 0.44 (0.18) Net increase/(decrease) in net asset value from operations 0.43 1.02 0.45 Distributions: Dividends from net investment income (0.57) (0.58) (0.63) Distributions from net realized capital gains (0.10) -- (0.13) Total dividends and distributions (0.67) ( 0.58) (0.76) Net asset value, end of year $ 10.31 $ 10.55 $ 10.11 Total return++ 4.09% 10.27% 4.44% =================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,474 $2,090 $3,343 Ratio of operating expenses to average net assets 1.56%(a) 1.46%(a) 1.25%(a) Ratio of net investment income to average net assets 5.41% 5.54% 6.23% Portfolio turnover rate 94% 203% 278% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.80%(a) 1.56%(a) 1.35%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. 253 Nations High Yield Bond Fund For a Share outstanding throughout each period
Year ended Period ended Investor A Shares 03/31/01# 03/31/00*# Operating performance: Net asset value, beginning of period $ 9.88 $ 10.00 Net investment income 0.96 0.08 Net realized and unrealized gain/(loss) on investments (0.58) (0.12) Net increase/(decrease) in net asset value from operations 0.38 (0.04) Distributions: Dividends from net investment income (0.99) (0.08) Distributions in excess of net investment income (0.05) -- Total dividends and distributions (1.04) (0.08) Net asset value, end of period $ 9.22 $ 9.88 Total return++ 3.99% (0.33)% =============================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $8,344 $ 371 Ratio of operating expenses to average net assets 1.18% 1.18%+ Ratio of net investment income to average net assets 10.72% 6.78%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.70% 12.91%+
* High Yield Bond Fund Investor A Shares commenced operations on February 14, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. Nations High Yield Bond Fund For a Share outstanding throughout each period
Year ended Period ended Investor B Shares 03/31/01# 03/31/00*# Operating performance: Net asset value, beginning of period $ 9.88 $ 10.00 Net investment income 0.92 0.07 Net realized and unrealized gain/(loss) on investments (0.62) (0.12) Net increase/(decrease) in net asset value from operations 0.30 (0.05) Distributions: Dividends from net investment income (0.93) (0.07) Distributions in excess of net investment income (0.04) -- Total dividends and distributions (0.97) (0.07) Net asset value, end of period $ 9.21 $ 9.88 Total return++ 3.29% (0.47)% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $22,106 $3,426 Ratio of operating expenses to average net assets 1.93% 1.93%+ Ratio of net investment income to average net assets 9.97% 6.03%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.45% 13.66%+
* High Yield Bond Fund Investor B Shares commenced operations on February 17, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. 254 Nations High Yield Bond Fund For a Share outstanding throughout each period
Year ended Period ended Investor C Shares 03/31/01# 03/31/00*# Operating performance: Net asset value, beginning of period $ 9.87 $ 10.02 Net investment income 0.90 0.04 Net realized and unrealized gain/(loss) on investments (0.61) (0.12) Net increase/(decrease) in net asset value from operations 0.29 (0.08) Distributions: Dividends from net investment income (0.93) (0.07) Distributions in excess of net investment income (0.04) -- Total dividends and distributions (0.97) (0.07) Net asset value, end of period $ 9.19 $ 9.87 Total return++ 3.20% (0.76)% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $1,891 $ 59 Ratio of operating expenses to average net assets 1.93% 1.93%+ Ratio of net investment income to average net assets 9.97% 6.03%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.45% 13.66%+
* High Yield Bond Fund Investor C Shares commenced operations on March 8, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. Nations Short-Term Municipal Income Fund For a Share outstanding throughout each year
Year ended Year ended Investor A Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 9.94 $ 10.10 Net investment income 0.41 0.39 Net realized and unrealized gain/(loss) on investments 0.21 (0.16) Net increase in net asset value from operations 0.62 0.23 Distributions: Dividends from net investment income (0.42) (0.39) Total dividends and distributions (0.42) (0.39) Net asset value, end of year $ 10.14 $ 9.94 Total return++ 6.34% 2.35% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $23,613 $22,415 Ratio of operating expenses to average net assets 0.65%(a) 0.63%(a) Ratio of net investment income to average net assets 4.16% 3.93% Portfolio turnover rate 38% 90% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.91% 1.02% Year ended Year ended Year ended Investor A Shares 03/31/99# 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.05 $ 9.95 $ 9.98 Net investment income 0.39 0.40 0.42 Net realized and unrealized gain/(loss) on investments 0.05 0.10 (0.03) Net increase in net asset value from operations 0.44 0.50 0.39 Distributions: Dividends from net investment income (0.39) (0.40) (0.42) Total dividends and distributions (0.39) (0.40) (0.42) Net asset value, end of year $ 10.10 $ 10.05 $ 9.95 Total return++ 4.50% 5.12% 3.96% ============================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $35,805 $23,580 $8,417 Ratio of operating expenses to average net assets 0.60%(a) 0.60%(a) 0.60%(a) Ratio of net investment income to average net assets 3.91% 3.97% 4.16% Portfolio turnover rate 53% 94% 80% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.05% 0.97% 1.04%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average share method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 255 Nations Short-Term Municipal Income Fund For a Share outstanding throughout each year
Year ended Year ended Investor B Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 9.94 $ 10.10 Net investment income 0.34 0.36 Net realized and unrealized gain/(loss) on investments 0.20 (0.16) Net increase/(decrease) in net asset value from operations 0.54 0.20 Distributions: Dividends from net investment income (0.34) (0.36) Total dividends and distributions (0.34) (0.36) Net asset value, end of year $ 10.14 $ 9.94 Total return++ 5.56% 1.99% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $3,463 $7,030 Ratio of operating expenses to average net assets 1.40%(a) 0.94%(a) Ratio of net investment income to average net assets 3.41% 3.62% Portfolio turnover rate 38% 90% Ratio of operating expenses to average net assets without waivers and/or expense reimburements 1.66% 1.77% Year ended Year ended Year ended Investor B Shares 03/31/99# 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.05 $ 9.95 $ 9.98 Net investment income 0.38 0.39 0.40 Net realized and unrealized gain/(loss) on investments 0.05 0.10 (0.03) Net increase/(decrease) in net asset value from operations 0.43 0.49 0.37 Distributions: Dividends from net investment income (0.38) (0.39) (0.40) Total dividends and distributions (0.38) (0.39) (0.40) Net asset value, end of year $ 10.10 $ 10.05 $ 9.95 Total return++ 4.34% 4.96% 3.78% ============================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $13,931 $13,753 $10,655 Ratio of operating expenses to average net assets 0.75%(a) 0.75%(a) 0.75%(a) Ratio of net investment income to average net assets 3.76% 3.82% 4.01% Portfolio turnover rate 53% 94% 80% Ratio of operating expenses to average net assets without waivers and/or expense reimburements 1.80% 1.12% 1.19%
++ 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. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. # Per share net investment income has been calculated using the monthly average share method.
Nations Short-Term Municipal Income Fund For a Share outstanding throughout each year Year ended Year ended Investor C Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 9.94 $ 10.10 Net investment income 0.34 0.32 Net realized and unrealized gain/(loss) on investments 0.20 (0.16) Net increase in net asset value from operations 0.54 0.16 Distributions: Dividends from net investment income (0.34) (0.32) Total dividends and distributions (0.34) (0.32) Net asset value, end of year $ 10.14 $ 9.94 Total return++ 5.55% 1.57% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,417 $1,616 Ratio of operating expenses to average net assets 1.40%(a) 1.40%(a) Ratio of net investment income to average net assets 3.41% 3.16% Portfolio turnover rate 38% 90% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.66% 1.77% Year ended Year ended Year ended Investor C Shares 03/31/99# 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.05 $ 9.95 $ 9.98 Net investment income 0.40 0.39 0.40 Net realized and unrealized gain/(loss) on investments 0.02 0.10 (0.03) Net increase in net asset value from operations 0.42 0.49 0.37 Distributions: Dividends from net investment income (0.37) (0.39) (0.40) Total dividends and distributions (0.37) (0.39) (0.40) Net asset value, end of year $ 10.10 $ 10.05 $ 9.95 Total return++ 4.29% 4.99% 3.79% ============================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $2,583 $1,388 $1,080 Ratio of operating expenses to average net assets 0.83%(a) 0.75%(a) 0.75%(a) Ratio of net investment income to average net assets 3.68% 3.82% 4.01% Portfolio turnover rate 53% 94% 80% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.80% 1.12% 1.19%
++ 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. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. # Per share net investment income has been calculated using the monthly average share method. 256
Nations Intermediate Municipal Bond Fund For a Share outstanding throughout each year Year ended Year ended Investor A Shares 03/31/01 03/31/00# Operating performance: Net asset value, beginning of year $ 9.78 $ 10.30 Net investment income 0.46 0.45 Net realized and unrealized gain/(loss) on investments 0.36 (0.50) Net increase/(decrease) in net asset value from operations 0.82 (0.05) Distributions: Dividends from net investment income (0.45) (0.45) Distributions from net realized capital gains -- (0.02) Total dividends and distributions (0.45) (0.47) Net asset value, end of year $ 10.15 $ 9.78 Total return++ 8.54% (0.49)% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $20,728 $19,782 Ratio of operating expenses to average net assets 0.75%(a) 0.73%(a) Ratio of net investment income to average net assets 4.48% 4.52% Portfolio turnover rate 17% 30% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.93% 0.95% Year ended Year ended Year ended Investor A Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.30 $ 10.01 $ 10.03 Net investment income 0.45 0.46 0.46 Net realized and unrealized gain/(loss) on investments 0.07 0.33 (0.02) Net increase/(decrease) in net asset value from operations 0.52 0.79 0.44 Distributions: Dividends from net investment income (0.45) (0.46) (0.46) Distributions from net realized capital gains (0.07) (0.04) -- Total dividends and distributions (0.52) (0.50) (0.46) Net asset value, end of year $ 10.30 $ 10.30 $ 10.01 Total return++ 5.12% 7.99% 4.42% ============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $16,149 $6,487 $2,067 Ratio of operating expenses to average net assets 0.70%(a) 0.70%(a) 0.70%(a) Ratio of net investment income to average net assets 4.35% 4.45% 4.54% Portfolio turnover rate 40% 47% 21% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.93% 0.94% 1.01%
++ 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. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%.
Nations Intermediate Municipal Bond Fund For a Share outstanding throughout each year Year ended Year ended Investor B Shares 03/31/01 03/31/00# Operating performance: Net asset value, beginning of year $ 9.78 $ 10.30 Net investment income 0.37 0.38 Net realized and unrealized gain/(loss) on investments 0.37 (0.50) Net increase/(decrease) in net asset value from operations 0.74 (0.12) Distributions: Dividends from net investment income (0.37) (0.38) Distributions from net realized capital gains -- (0.02) Total dividends and distributions (0.37) (0.40) Net asset value, end of year $ 10.15 $ 9.78 Total return++ 7.74% (1.18)% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $2,563 $2,733 Ratio of operating expenses to average net assets 1.50%(a) 1.42%(a) Ratio of net investment income to average net assets 3.73% 3.83% Portfolio turnover rate 17% 30% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.68% 1.70% Year ended Year ended Year ended Investor B Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.30 $ 10.01 $ 10.03 Net investment income 0.39 0.41 0.43 Net realized and unrealized gain/(loss) on investments 0.07 0.33 (0.02) Net increase/(decrease) in net asset value from operations 0.46 0.74 0.41 Distributions: Dividends from net investment income (0.39) (0.41) (0.43) Distributions from net realized capital gains (0.07) (0.04) -- Total dividends and distributions (0.46) (0.45) (0.43) Net asset value, end of year $ 10.30 $ 10.30 $ 10.01 Total return++ 4.49% 7.50% 4.12% ============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $2,556 $2,023 $1,481 Ratio of operating expenses to average net assets 1.30%(a) 1.20%(a) 1.00%(a) Ratio of net investment income to average net assets 3.75% 3.95% 4.24% Portfolio turnover rate 40% 47% 21% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.68% 1.44% 1.31%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 257
Nations Intermediate Municipal Bond Fund For a Share outstanding throughout each year Year ended Year ended Investor C Shares 03/31/01 03/31/00# Operating performance: Net asset value, beginning of year $ 9.78 $ 10.30 Net investment income 0.37 0.38 Net realized and unrealized gain/(loss) on investments 0.38 (0.50) Net increase/(decrease) in net asset value from operations 0.75 (0.12) Distributions: Dividends from net investment income (0.37) (0.38) Distributions from net realized capital gains -- (0.02) Total dividends and distributions (0.37) (0.40) Net asset value, end of year $ 10.16 $ 9.78 Total return++ 7.84% (1.19)% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 528 $ 539 Ratio of operating expenses to average net assets 1.50%(a) 1.50%(a) Ratio of net investment income to average net assets 3.73% 3.75% Portfolio turnover rate 17% 30% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.68% 1.70% Year ended Year ended Year ended Investor C Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.30 $ 10.01 $ 10.03 Net investment income 0.40 0.42 0.43 Net realized and unrealized gain/(loss) on investments 0.09 0.33 (0.02) Net increase/(decrease) in net asset value from operations 0.49 0.75 0.41 Distributions: Dividends from net investment income (0.42) (0.42) (0.43) Distributions from net realized capital gains (0.07) (0.04) -- Total dividends and distributions (0.49) (0.46) (0.43) Net asset value, end of year $ 10.30 $ 10.30 $ 10.01 Total return++ 4.80% 7.62% 4.11% ============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,511 $1,590 $ 756 Ratio of operating expenses to average net assets 1.21%(a) 1.20%(a) 1.00%(a) Ratio of net investment income to average net assets 3.84% 3.95% 4.24% Portfolio turnover rate 40% 47% 21% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.68% 1.44% 1.31%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%.
Nations Municipal Income Fund For a Share outstanding throughout each year Year ended Year ended Investor A Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 10.68 $ 11.48 Net investment income 0.53 0.52 Net realized and unrealized gain/(loss) on investments 0.46 (0.79) Net increase/(decrease) in net asset value from operations 0.99 (0.27) Distributions: Dividends from net investment income (0.53) (0.52) Distributions from net realized capital gains -- (0.01) Total dividends and distributions (0.53) (0.53) Net asset value, end of year $ 11.14 $ 10.68 Total return++ 9.55% (2.28)% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $38,591 $35,937 Ratio of operating expenses to average net assets 0.83%(a) 0.83%(a) Ratio of net investment income to average net assets 4.90% 4.76% Portfolio turnover rate 18% 36% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.04% 1.07% Year ended Year ended Year ended Investor A Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 11.46 $ 10.89 $ 10.84 Net investment income 0.52 0.54 0.57 Net realized and unrealized gain/(loss) on investments 0.07 0.62 0.05 Net increase/(decrease) in net asset value from operations 0.59 1.16 0.62 Distributions: Dividends from net investment income (0.52) (0.54) (0.57) Distributions from net realized capital gains (0.05) (0.05) -- Total dividends and distributions (0.57) (0.59) (0.57) Net asset value, end of year $ 11.48 $ 11.46 $ 10.89 Total return++ 5.21% 10.89% 5.82% ============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $28,625 $19,226 $15,075 Ratio of operating expenses to average net assets 0.80%(a) 0.80%(a) 0.80%(a) Ratio of net investment income to average net assets 4.51% 4.77% 5.21% Portfolio turnover rate 11% 38% 25% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.05% 1.04% 1.11%
++ 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. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. # Per share net investment income has been calculated using the monthly average shares method. 258
Nations Municipal Income Fund For a Share outstanding throughout each year Year ended Year ended Investor B Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 10.69 $ 11.48 Net investment income 0.45 0.44 Net realized and unrealized gain/(loss) on investments 0.44 (0.78) Net increase/(decrease) in net asset value from operations 0.89 (0.34) Distributions: Dividends from net investment income (0.45) (0.44) Distributions from net realized capital gains -- (0.01) Total dividends and distributions (0.45) (0.45) Net asset value, end of year $ 11.13 $ 10.69 Total return++ 8.62% (2.99)% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $8,930 $8,795 Ratio of operating expenses to average net assets 1.60%(a) 1.53%(a) Ratio of net investment income to average net assets 4.13% 4.06% Portfolio turnover rate 18% 36% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.79% 1.82% Year ended Year ended Year ended Investor B Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 11.46 $ 10.89 $ 10.84 Net investment income 0.44 0.48 0.51 Net realized and unrealized gain/(loss) on investments 0.08 0.62 0.05 Net increase/(decrease) in net asset value from operations 0.52 1.10 0.56 Distributions: Dividends from net investment income (0.45) (0.48) (0.51) Distributions from net realized capital gains (0.05) (0.05) -- Total dividends and distributions (0.50) (0.53) (0.51) Net asset value, end of year $ 11.48 $ 11.46 $ 10.89 Total return++ 4.53% 10.23% 5.24% ============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $13,810 $15,383 $14,615 Ratio of operating expenses to average net assets 1.45%(a) 1.42%(a) 1.35%(a) Ratio of net investment income to average net assets 3.86% 4.15% 4.66% Portfolio turnover rate 11% 38% 25% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.80% 1.66% 1.66%
++ 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. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. # Per share net investment income has been calculated using the monthly average shares method.
Nations Municipal Income Fund For a Share outstanding throughout each year Year ended Year ended Investor C Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 10.69 $ 11.48 Net investment income 0.45 0.44 Net realized and unrealized gain/(loss) on investments 0.45 (0.78) Net increase/(decrease) in net asset value from operations 0.90 (0.34) Distributions: Dividends from net investment income (0.45) (0.44) Distributions from net realized capital gains -- (0.01) Total dividends and distributions (0.45) (0.45) Net asset value, end of year $ 11.14 $ 10.69 Total return++ 8.71% (3.03)% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,318 $1,418 Ratio of operating expenses to average net assets 1.60%(a) 1.60%(a) Ratio of net investment income to average net assets 4.13% 3.99% Portfolio turnover rate 18% 36% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.79% 1.82% Year ended Year ended Year ended Investor C Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 11.46 $ 10.89 $ 10.84 Net investment income 0.46 0.49 0.53 Net realized and unrealized gain/(loss) on investments 0.07 0.62 0.05 Net increase/(decrease) in net asset value from operations 0.53 1.11 0.58 Distributions: Dividends from net investment income (0.46) (0.49) (0.53) Distributions from net realized capital gains (0.05) (0.05) -- Total dividends and distributions (0.51) (0.54) (0.53) Net asset value, end of year $ 11.48 $ 11.46 $ 10.89 Total return++ 4.64% 10.37% 5.50% =============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $2,150 $2,444 $1,713 Ratio of operating expenses to average net assets 1.36%(a) 1.33%(a) 1.10%(a) Ratio of net investment income to average net assets 3.95% 4.24% 4.91% Portfolio turnover rate 11% 38% 25% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.80% 1.57% 1.41%
++ 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. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. # Per share net investment income has been calculated using the monthly average shares method. 259 [GRAPHIC] This glossary includes explanations of the important terms that may be used in this prospectus. Some of the terms explained may apply to Nations Funds not included in this prospectus. [GRAPHIC] Terms used in this prospectus Amortized cost method - under Rule 2a-7 of the 1940 Act, the method of calculating an investment company's net asset value whereby portfolio securities are valued at the Fund's acquisition cost as adjusted for amortization of premium or accretion of discount rather than at their current market value. Asset-backed security - a debt security that gives an investor an interest in a pool of assets that is collateralized or "backed" by one or more kinds of assets, including automobile loans or credit card receivables, generally issued by banks, credit card companies or other lenders. Asset-backed securities typically make periodic payments, which may be interest or a combination of interest and a portion of the principal of the underlying assets. Average dollar-weighted maturity - the average length of time until the debt securities held by a Fund reach maturity. In general, the longer the average dollar-weighted maturity, the more a Fund's share price will fluctuate in response to changes in interest rates. Bank obligation - a money market instrument issued by a domestic or U.S. branch of a foreign bank, including certificates of deposit, time deposits and bankers' acceptances. Capital gain or loss - the difference between the purchase price of a security and its selling price. An investor realizes a capital gain when it sells a security for more than it paid for it. An investor realizes a capital loss when it sells a security for less than it paid for it. Cash equivalents - short-term, interest-bearing instruments which can easily be converted into cash, including U.S. government obligations, bank obligations, and certain asset-backed securities, foreign government securities and commercial paper issued by U.S. and foreign issuers which, at the time of investment, is rated at least Prime-2 by Moody's Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch). Collateralized mortgage obligation (CMO) - a type of mortgage-backed security. CMO payment obligations are covered by interest and/or principal payments from a pool of mortgages. In addition, the underlying assets of a CMO are typically separated into classes, called tranches, based on maturity. Each tranche pays a different rate of interest. CMOs are not generally issued by the U.S. government, its agencies or instrumentalities. Commercial paper - a short-term corporate obligation. Commercial paper is typically considered a money market instrument. Common stock - a security that represents part equity ownership in a company. Common stock typically allows an investor to vote at shareholder meetings and to share in the company's profits by receiving dividends. 260 Convertible debt - a debt security that can be exchanged for common stock (or another type of security) on a specified basis and date. Convertible security - a security that can be exchanged for common stock (or another type of security) at a specified rate. Convertible securities include convertible debt, rights and warrants. Crossing networks - an electronic system where anonymous parties can match buy and sell transactions. These transactions don't affect the market, and transaction costs are extremely low. CSFB Convertible Securities Index - 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. CSFB Global High Yield Index - the Credit Suisse First Boston Global High Yield Index is an unmanaged, trader priced portfolio constructed to mirror the high yield debt market. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Debt security - a security issued by a governmental body or company (the issuer) to help fund their operations or major projects. The issuer pays interest at a specified rate on a specified date or dates, and repays the principal when the security matures. Short-term debt securities include money market instruments such as treasury bills. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Depositary receipts - evidence of the deposit of a security with a custodian bank. American Depositary Receipts (ADRs), for example, are certificates traded in U.S. markets representing an interest of a foreign company. They were created to make it possible for foreign issuers to meet U.S. security registration requirements. Other examples include ADSs, GDRs and EDRs. Derivatives - A derivative is a financial contract whose value is based upon, or "derived" from, an underlying financial asset (such as a stock or a bond), a commodity (such as gold), a market index (such as the S&P 500) or a reference rate (such as the prime lending interest rate). Examples of derivative instruments include futures, options, index-, equity-, commodity- and currency-linked securities, warrants and swap contracts. For a detailed description of the derivatives described here, see the SAI. Diversified - A diversified fund, as defined by the 1940 Act, must have at least 75% of its total assets in cash and cash equivalents, government securities, securities of other investment companies, or other securities. For purposes of this calculation, the fund may not count securities of a single issuer that comprise more than 5% of the fund's assets. 261 Dividend yield - rate of return of dividends paid on a common or preferred stock. It equals the amount of the annual dividend on a stock expressed as a percentage of the stock's current market value. Duration - a security's or portfolio's sensitivity to changes in interest rates. For example, if interest rates rise by one percentage point, the share price of a fund with a duration of five years would decline by about 5%. If interest rates fall by one percentage point, the fund's share price would rise by about 5%. Equity security - an investment that gives an investor an equity ownership right in a company. Equity securities (or "equities") include common and preferred stock, rights and warrants. First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds and has the highest short-term rating from a nationally recognized statistical rating organization (NRSRO), or if unrated, is determined by the Fund's portfolio management team to be of comparable quality, or is a money market fund or a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Foreign security - a debt or equity security determined by a Fund's portfolio management team to be foreign based on an issuer's domicile, its principle place of business, the source of its revenues or other factors. Forward foreign currency contracts - a forward foreign currency contract includes an obligation to purchase or sell a foreign currency at a specified future date. Forward purchase agreement - a contract obligating one party to buy and another party to sell an equity security, commodity, currency or other financial instrument at a specific future date. Fundamental analysis - a method of securities analysis that tries to evaluate the intrinsic, or "true," value of a particular stock. It includes a study of the overall economy, industry conditions and the financial condition and management of a company. Futures contract - a contract to buy or sell underlying instruments at a specified price on a specified future date. The price is typically set through a futures exchange. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to NRSROs such as S&P and Moody's. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by a Fund's Board. Please see the SAI for more information about credit ratings. High yield debt security - debt securities that, at the time of purchase, are rated "BB" or below by S&P or "Ba" or below by Moody's, or that are unrated and determined by the portfolio management team to be of comparable quality. 262 Interest rate swap - an agreement between two parties to exchange periodic interest payments based on a predetermined principal amount. Investment grade - a debt security that has been given a medium to high credit rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating by other NRSROs) based on the issuer's ability to pay interest and repay principal on time. The portfolio management team may consider an unrated debt security to be investment grade if the team believes it is of comparable quality. Please see the SAI for more information about credit ratings. Lehman 3-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of two to three years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman 7-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Aggregate Bond Index - an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government Bond Index - an unmanaged index of government bonds with an average maturity of approximately nine years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government/Corporate Bond Index - an unmanaged index of U.S. government, U.S. Treasury and agency securities, and corporate and Yankee bonds. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Intermediate Government Bond Index - an unmanaged index of U.S. government agency and U.S. Treasury securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Intermediate Government/Corporate Bond Index - an unmanaged index of all publicly issued investment grade corporate, U.S. Treasury, and U.S. government and agency securities with maturities of 1 to 10 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Municipal Bond Index - a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Liquidity - a measurement of how easily a security can be bought or sold at a price that is close to its market value. 263 Merrill Lynch 1-3 Year Treasury Index - an unmanaged index of U.S. Treasury bonds with maturities of 1 to 3 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Money market instrument - a short-term debt security that is considered to mature in 13 months or less. Money market instruments include U.S. Treasury obligations, U.S. government obligations, certificates of deposit, bankers' acceptances, commercial paper, repurchase agreements and certain municipal securities. Mortgage-backed security or Mortgage-related security - a debt security that gives you an interest in, and is backed by, a pool of residential mortgages issued by the U.S. government or by financial institutions. The underlying mortgages may be guaranteed by the U.S. government or one of its agencies, authorities or instrumentalities. Mortgage-backed securities typically make monthly payments, which are a combination of interest and a portion of the principal of the underlying mortgages. MSCI EAFE Index - Morgan Stanley Capital International Europe, Australasia and Far East Index is an unmanaged, capitalization-weighted index. The index reflects the relative size of each market consisting of securities listed on exchanges in European, Australasian and Far Eastern markets and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investment. It is not available for investment. MSCI World Index - Morgan Stanley Capital International World Index is an unmanaged index consisting of securities listed on exchanges in the major European and Asian countries, Australia and the U.S. and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investing. It is not available for investment. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public or private projects and services. "General obligations" are typically backed by the issuer's full taxing and revenue-raising powers. "Revenue securities" depend on the income earned by a specific project or authority, like road or bridge tolls, user fees for water or revenues from a utility. Interest income from municipal securities that pay for "public" projects and services is exempt from federal income taxes and is generally exempt from state taxes if an investor lives in the state that issued the security. If an investor lives in the municipality that issued the security, interest income may also be exempt from local taxes. Non-diversified - a fund that holds securities of fewer issuers than other kinds of funds. Non-diversified funds tend to have greater price swings than more diversified funds because events affecting one or more of its securities may have a disproportionately large effect on the fund. NRSRO - A nationally recognized statistical rating organization, such as S&P or Moody's. Options - An option is the right to buy or sell a security based on an agreed upon price at a specified time. For example, an option may give the holder of a stock the right to sell the stock to another party, allowing the seller to profit if the price has fallen below the agreed price. Options may also be based on the movement of an index such as the S&P 500. 264 Over-the-counter market - a market where dealers trade securities through a telephone or computer network rather than through a public stock exchange. Preferred stock - a type of equity security that gives you a limited ownership right in a company, with certain preferences or priority over common stock. Preferred stock generally pays a fixed annual dividend. If the company goes bankrupt, preferred shareholders generally receive their share of the company's remaining assets before common shareholders and after bondholders and other creditors. Ownership of preferred stock typically does not come with certain voting rights that come with common stock. Pre-refunded bond - a bond that is repaid before its maturity date. The repayment is generally financed by a new issue. Issuers generally pre-refund bonds during periods of lower interest rates to reduce their interest costs. Price-to-earnings ratio (P/E ratio) - the current price of a share divided by its actual or estimated earnings per share. The P/E ratio is one measure of the value of a company. Private placement - a private placement is the sale of stocks, bonds or other investments directly to a qualified investor without having to register the offering with the SEC or other comparable foreign regulatory authorities. Qualified investors are typically large institutional investors or high net worth individuals. Securities acquired through private placements generally may not be resold. Quantitative analysis - an analysis of financial information about a company or security to identify securities that have the potential for growth or are otherwise suitable for a fund to buy. Real Estate Investment Trust (REIT) - a portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls, and real-estate-related loans or interests. Repurchase agreement - a short-term (often overnight) investment arrangement. The investor agrees to buy certain securities from the borrower and the borrower promises to buy them back at a specified date and price. The difference between the purchase price paid by the investor and the repurchase price paid by the borrower represents the investor's return. Repurchase agreements are popular because they provide low-risk returns and can allow a fund to remain fully invested. Reverse repurchase agreement - a repurchase agreement in which an investor sells a security to another party, like a bank or dealer, in return for cash, and agrees to buy the security back at a specified date and price. Reverse repurchase agreements are, in effect, loans to a fund. Right - a temporary privilege allowing investors who already own a common stock to buy additional shares directly from the company at a specified price or formula. 265 Russell 1000 Index - 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. The Russell 3000 Index is a listing of 3000 corporations by the Frank Russell Company that is intended to be representative of the U.S. economy. The Russell 1000 is considered a "large cap" index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 2000 Index - 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. 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. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 3000 Growth Index - an unmanaged index comprised of securities in the Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies based on total market capitalization, with a greater than average growth orientation. Companies in the Russell 3000 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. S&P 500(1) - Standard & Poor's 500 Composite Stock Price Index, an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P/BARRA Value Index(1) - an unmanaged index of a subset of stocks from the S&P 500 that have low price-to-book ratios relative to the S&P 500 as a whole. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P/IFC Investables Index - an unmanaged index that tracks more than 1,400 stocks in 25 emerging markets in Asia, Latin America, Eastern Europe, Africa and the Middle East. The index is weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 266 S&P MidCap 400(1) - an unmanaged index of 400 domestic stocks chosen for market size, liquidity and industry representation. The index is weighted by market value, and is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SmallCap 600(1) - Standard & Poor's SmallCap 600 Index, an unmanaged index of 600 common stocks, weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SuperComposite 1500(1) - an unmanaged index created by Standard & Poors combining the companies represented in three other indices -- the S&P 500, MidCap 400, and SmallCap 600. The index represents 87% of the total capitalization of U.S. equity markets. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds, but is not a first-tier security. Senior security - a debt security that allows holders to receive their share of a company's remaining assets in a bankruptcy before other bondholders, creditors, and common and preferred shareholders. Settlement date - the date on which an order is settled either by payment or delivery of securities. Total return swap - an agreement between two parties to exchange periodic interest payments for the total return of an equity or fixed income instrument. Trade date - the effective date of a purchase, sale or exchange transaction, or other instructions sent to us. The trade date is determined by the day and time we receive the order or instructions in a form that's acceptable to us. U.S. government obligations - a wide range of debt securities issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities. U.S. Treasury obligation - a debt security issued by the U.S. Treasury. Warrant - a certificate that gives you the right to buy common shares at a specified price within a specified period of time. Zero-coupon bond - a bond that makes no periodic interest payments. Zero coupon bonds are sold at a deep discount to their face value and mature at face value. The difference between the face value at maturity and the purchase price represents the return. (1)S&P and BARRA have not reviewed any stock included in the S&P SuperComposite 1500, S&P 500, S&P SmallCap 600, S&P MidCap 400 Index or BARRA Value Index for its investment merit. S&P and BARRA determine and calculate their indices independently of the Funds and are not a sponsor or affiliate of the Funds. S&P and BARRA give no information and make no statements about the suitability of investing in the Funds or the ability of their indices to track stock market performance. S&P and BARRA make no guarantees about the indices, any data included in them and the suitability of the indices or their data for any purpose. "Standard and Poor's," "S&P 500" and "S&P 600" are trademarks of The McGraw-Hill Companies, Inc. 267 [GRAPHIC] Where to find more information You'll find more information about Nations Funds Stock, International/Global Stock, Index, Government & Corporate Bond and Municipal Bond Funds in the following documents: Annual and semi-annual reports The annual and semi-annual reports contain information about Fund investments and performance, the financial statements and the independent accountants' reports. The annual report also includes a discussion about the market conditions and investment strategies that had a significant effect on each Fund's performance during the period covered. [GRAPHIC] Statement of Additional Information The SAI contains additional information about the Funds and their policies. The SAI is legally part of this prospectus (it's incorporated by reference). A copy has been filed with the SEC. You can obtain a free copy of these documents, request other information about the Funds and make shareholder inquiries by contacting Nations Funds: By telephone: 1.800.321.7854 By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nations-funds.com Information about the Funds can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. The reports and other information about the Funds are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. SEC file numbers: Nations Fund Trust, 811-04305 Nations Reserves, 811-6030 Nations Fund, Inc., 811-04614 Nations Funds Trust, 811-09645 COMBOPROIX-8/01 [NATIONS FUNDS LOGO] [GRAPHIC] Nations Global Value Fund Prospectus -- Investor A, B and C Shares August 1, 2001 The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. - ----------------- Not FDIC Insured - ----------------- May Lose Value - ----------------- No Bank Guarantee - ----------------- [NATIONS FUNDS LOGO] An overview of the Fund - -------------------------------------------------------------------------------- [GRAPHIC] Terms used in this prospectus In this prospectus, we, us and our refer to the Nations Funds family (Nations Funds or Nations Funds Family). Some other important terms we've used may be new to you. These are printed in italics where they first appear in a section and are described in Terms used in this prospectus. [GRAPHIC] You'll find Terms used in this prospectus on page 34. Your investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, N. A. (Bank of America), the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Your investment may lose money. Affiliates of Bank of America are paid for the services they provide to the Fund. This booklet, which is called a prospectus, tells you about one Nations Funds Global Stock Fund -- Nations Global Value Fund. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. About the Fund Nations Global Value Fund invests primarily in equity securities of U.S. and non-U.S. companies. Foreign securities have the potential to provide you with higher returns than many other kinds of investments, but they also involve special risks not associated with investing in the U.S. stock market, which you need to be aware of before you invest. There's always the risk that you'll lose money or you may not earn as much as you expect. Is this Fund right for you? Not every fund is right for every investor. When you're choosing a fund to invest in, you should consider things like your investment goals, how much risk you can accept and how long you're planning to hold your investment. Nations Global Value Fund may be suitable for you if: o you have longer-term investment goals o it's part of a balanced portfolio o you want to try to protect your portfolio against a loss of buying power that inflation can cause over time It may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with foreign securities o you have short-term investment goals o you're looking for a regular stream of income You'll find a discussion of the Fund's principal investments, strategies and risks in the Fund description that starts on page 4. For more information If you have any questions about the Fund, please call us at 1.800.321.7854 or contact your investment professional. You'll find more information about the Fund in the Statement of Additional Information (SAI). The SAI includes more detailed information about the Fund's investments, policies, performance and management, among other things. Please turn to the back cover to find out how you can get a copy. 2 What's inside - -------------------------------------------------------------------------------- [GRAPHIC] Banc of America Advisors, LLC Banc of America Advisors, LLC (BA Advisors) is the investment adviser to the Fund. BA Advisors is responsible for the overall management and supervision of the investment management of the Fund. BA Advisors and Nations Funds have engaged a sub-adviser, which is responsible for the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BA Advisors and the sub-adviser starting on page 10. [GRAPHIC] About the Fund Nations Global Value Fund 4 Sub-adviser: Brandes Investment Partners, L.P. - ----------------------------------------------------------------- Other important information 8 - ----------------------------------------------------------------- How the Fund is managed 10 [GRAPHIC] About your investment Information for investors Choosing a share class 13 About Investor A Shares 14 Front-end sales charge 14 Contingent deferred sales charge 15 About Investor B Shares 15 Contingent deferred sales charge 15 About Investor C Shares 17 Contingent deferred sales charge 17 When you might not have to pay a sales charge 17 Buying, selling and exchanging shares 21 How orders are processed 23 How selling and servicing agents are paid 29 Distributions and taxes 31 - ----------------------------------------------------------------- Terms used in this prospectus 34 - ----------------------------------------------------------------- Where to find more information back cover 3 [GRAPHIC] About the sub-adviser Brandes Investment Partners, L.P. (Brandes) is this Fund's sub-adviser. Brandes' Large Cap Investment Committee makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about Brandes on page 11. Nations Global Value Fund [GRAPHIC] Investment objective The Fund seeks long-term capital appreciation by investing primarily in equity securities of domestic and foreign issuers, including issuers in emerging markets countries. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in equity securities of domestic and foreign companies that have a market capitalization of more than $1 billion at the time of investment and that are believed to be undervalued. The Fund typically invests in at least three countries, including the United States, at any one time. The Fund primarily invests in equity securities and may, with respect to its foreign investments, invest in the foregoing and/or depositary receipts. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. [GRAPHIC] What is the Graham and Dodd approach to investing? Benjamin Graham is widely regarded as the founder of this classic value approach to investing and a pioneer in modern security analysis. In his 1934 book, Security Analysis, co-written by David Dodd, Graham introduced the idea that stocks should be chosen by identifying the "true" long-term -- or intrinsic -- value of a company based on measurable data. Benjamin Graham and David Dodd have never had any affiliation with the Fund. The management team follows this approach, looking at each stock as though it's a business that's for sale. By buying stocks at what it believes are favorable prices, the team looks for the potential for appreciation over the business cycle, and for a margin of safety against price declines. The management team uses the "Graham and Dodd" value approach to selecting securities and managing the Fund. The team invests in a company when its current price appears to be below its "true" long-term -- or intrinsic -- value. The team uses fundamental analysis to determine intrinsic value, and will look at a company's earnings, book value, cash flow, capital structure, and management record, as well as its industry and its position in the industry. This analysis includes a review of company reports, filings with the SEC, computer databases, industry publications, general and business publications, brokerage firm research reports and other information sources, as well as interviews with company management. The team may sell a security when its price reaches the target set by the team, when there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, and for other reasons. 4 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Limits on investments To help manage risk, the Fund has certain limits on its investments. These limits apply at the time an investment is made: o The Fund will normally invest no more than 5% of its assets in a single security. o It may not invest more than the greater of: o 20% of its assets in a single country or industry, or o 150% of the weighting of a single country or industry in the MSCI World Index (limited to less than 25% of its assets in a single industry, other than U.S. government securities). o It generally may not invest more than 20% of its assets in emerging markets or developing countries. [GRAPHIC] Risks and other things to consider Nations Global Value Fund has the following risks: o Investment strategy risk - The team chooses stocks it believes are undervalued or out of favor with the expectation that these stocks will eventually rise in value. There is a risk that the value of these investments will not rise as high or as quickly as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Foreign investment risk - Because the Fund invests in foreign securities, it can be affected by the risks of foreign investing. Funds that invest in foreign securities may be affected by changes in currency exchange rates and the costs of converting currencies; foreign government controls on foreign investment, repatriation of capital, and currency and exchange; foreign taxes; inadequate supervision and regulation of some foreign markets; difficulty selling some investments which may increase volatility; different settlement practices or delayed settlements in some markets; difficulty getting complete or accurate information about foreign companies; less strict accounting, auditing and financial reporting standards than those in the U.S.; political, economic or social instability; and difficulty enforcing legal rights outside the U.S. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Emerging markets risk - Securities issued by companies in developing or emerging market countries, like those in Eastern Europe, the Middle East, Asia or Africa, may be more sensitive to the risks of foreign investing. In particular, these countries may experience instability resulting from rapid social, political and economic development. Many of these countries are dependent on international trade, which makes them sensitive to world commodity prices and economic downturns in other countries. Some emerging countries have a higher risk of currency devaluations, and some countries may experience long periods of high inflation or rapid changes in inflation rates. 5 [GRAPHIC] For information about the performance of other global stock accounts managed by Brandes, see How the Funds are managed. [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses (Expenses that are deducted from the Fund's assets) Management fees 0.90% 0.90% 0.90% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses(4) 0.50% 0.50% 0.50% ----- ------ ------ Total annual Fund operating expenses(5) 1.65% 2.40% 2.40% ===== ====== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4)Other expenses are based on estimates for the current fiscal year. (5)The Fund's investment adviser and/or some of its other service providers have agreed to limit total annual operating expenses to the levels shown above until July 31, 2002. There is no guarantee that these limitations will continue after this date. The investment adviser is entitled to reimbursement from the Fund of any fees waived or expenses reimbursed under this agreement if such reimbursements do not cause the Fund's expenses to exceed existing expense limitations. 6 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years Investor A Shares $733 $1,066 Investor B Shares $743 $1,048 Investor C Shares $343 $ 748 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years Investor B Shares $243 $748 Investor C Shares $243 $748 7 [GRAPHIC] Other important information You'll find specific information about the Fund's principal investments, strategies and risks in the description starting on page 4. The following are some other risks and information you should consider before you invest: o Changing investment objective and policies - The investment objective and certain investment policies of the Fund can be changed without shareholder approval. Other investment policies may be changed only with shareholder approval. o Holding other kinds of investments - The Fund may hold investments that aren't part of its principal investment strategies. Please refer to the SAI for more information. The management team can also choose not to invest in specific securities described in this prospectus and in the SAI. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. o Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Fund may invest up to 25% of its assets in Nations Money Market Funds. BA Advisors and its affiliates are entitled to receive fees from the Nations Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Fund for services provided directly. BA Advisors may waive fees which it is entitled to receive from either the Nations Money Market Funds or the Fund. o Investing defensively - The Fund may temporarily hold investments that are not part of its investment objective or its principal investment strategies to try to protect it during a market or economic downturn or because of political or other conditions. The Fund may not achieve its investment objective while it is investing defensively. o Securities lending program - The Fund may lend portfolio securities to approved broker-dealers or other financial institutions on a fully collateralized basis in order to earn additional income. There may be delays in receiving additional collateral after the loan is made or in recovering the securities loaned. 8 o Bank of America and its affiliates - Bank of America and its affiliates currently provide services to the Fund, including investment advisory, investment sub-advisory, co-administration and brokerage services, and are paid for providing these services. Bank of America and its affiliates also may, at times, provide other services and be compensated for them, including transfer agency, interfund lending and securities lending services, or make loans to the Fund. Finally, Bank of America or its affiliates may serve as counterparties in transactions with Nations Funds where permitted by law or regulation, and may receive compensation in that capacity. o Portfolio turnover - A fund that replaces -- or turns over -- more than 100% of its investments in a year is considered to trade frequently. Frequent trading can result in larger distributions of short-term capital gains to shareholders. These gains are taxable at higher rates than long-term capital gains. Frequent trading can also mean higher brokerage and other transaction costs, which could reduce the Fund's returns. The Fund generally buys securities for capital appreciation, investment income, or both, and doesn't engage in short-term trading. The annual portfolio turnover rate for Nations Global Value Fund is expected to be no more than 100%. 9 [GRAPHIC] How the Fund is managed [GRAPHIC] Banc of America Advisors, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Investment adviser BA Advisors is the investment adviser to over 75 mutual fund portfolios in the Nations Funds Family, including the Fund described in this prospectus. BA Advisors is a registered investment adviser. It's a wholly-owned subsidiary of Bank of America, which is owned by Bank of America Corporation. Nations Funds pays BA Advisors an annual fee for its investment advisory services. The fee is calculated as a percentage of the average daily net assets of the Fund and is paid monthly. BA Advisors uses part of this money to pay the investment sub-adviser for the services it provides to the Fund. BA Advisors has agreed to waive fees and/or reimburse expenses for the Fund until July 31, 2002. You'll find a discussion of any waiver and/or reimbursement in the Fund description. There is no assurance that BA Advisors will continue to waive and/or reimburse any fees and/or expenses after this date. The following chart shows the maximum advisory fees BA Advisors can receive: Annual investment advisory fee, as a % of average daily net assets Maximum advisory fee Nations Global Value Fund 0.90% Investment sub-adviser Nations Funds and BA Advisors engage one or more investment sub-advisers for the Fund to make day-to-day investment decisions for the Fund. BA Advisors retains ultimate responsibility (subject to Board oversight) for overseeing the sub-advisers and evaluates the Fund's needs and available sub-advisers' skills and abilities on an ongoing basis. Based on its evaluations, BA Advisors may at times recommend to the Fund's Board that the Fund: o change, add or terminate one or more sub-advisers; o continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or o materially change a sub-advisory agreement with a sub-adviser. Applicable law requires the Fund to obtain shareholder approval in order to act on most of these types of recommendations, even if the Fund's Board has approved the proposed action and believes that the action is in shareholders' best interests. BA Advisors and the Fund have applied for relief from the SEC to permit the Fund to act on many of BA Advisors' recommendations with approval only by the Fund's Board and not by Fund shareholders. BA Advisors or the Fund would inform the Fund's shareholders of any actions taken in reliance on this relief. Until BA Advisors and the Fund obtain the relief, the Fund will continue to submit these matters to shareholders for their approval to the extent required by applicable law. 10 [GRAPHIC] Brandes Investment Partners, L.P. 11988 El Camino Real Suite 500 San Diego, California 92130 Brandes Investment Partners, L.P. Founded in 1974, Brandes is an investment advisory firm with 56 investment professionals who manage more than $50 billion in assets. Brandes uses a value-oriented approach to managing international investments, seeking to build wealth by buying high quality, undervalued stocks. Brandes is the investment sub-adviser to Nations Global Value Fund. Brandes' Large Cap Investment Committee is responsible for making the day-to-day investment decisions for the Fund. Performance of other international/global stock accounts managed by Brandes Nations Global Value Fund commenced its operations on April 16, 2001. The tables below are designed to show you how a composite of similar equity accounts managed by Brandes performed over various periods in the past. The accounts comprising the Brandes Global Equity composite have investment objectives, policies and strategies that are substantially similar to Nations Global Value Fund. The Brandes Global Equity composite includes all accounts managed by Brandes that are substantially similar to Nations Global Value Fund. The table below shows the returns for the Brandes Global Equity composite compared with the MSCI World Index for the periods ending March 31, 2001 and December 31 of prior years. The returns of the Brandes Global Equity composite reflect deductions of account fees and expenses, and assume all dividends and distributions have been reinvested. The returns of the MSCI World Index assume all dividends and distributions have been reinvested. Average annual total returns as of March 31, 2001 Brandes Global Equity MSCI World Composite (%) Index (%) one year 23.32% (25.10)% three years 12.05% 0.93% five years 19.48% 8.21% ten years 18.58% 9.37% 11 Annual total returns as of December 31 Brandes Global Equity MSCI World Composite (%) Index (%) 2000 23.16% (13.18)% 1999 20.92% 24.93% 1998 13.08% 24.34% 1997 28.14% 15.76% 1996 22.38% 13.48% 1995 20.81% 20.72% 1994 (2.34)% 5.08% 1993 39.71% 22.50% 1992 12.23% (5.23)% 1991 37.07% 18.29% 1990 (11.79)% (17.02)% 1989 13.04% 16.61% 1988 26.02% 23.29% 1987 (2.57)% 16.16% 1986 20.77% 41.89% 1985 35.55% 40.57% 1984 7.09% 4.72% 1983 39.91% 21.93% 1982 29.86% 9.71% 1981 13.56% (4.78)% 1980 34.28% 25.67% This information is designed to demonstrate the historical track record of Brandes. It does not indicate how the Fund has performed or will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's expenses. The performance reflected in the composite has been calculated in compliance with the AIMR Performance Presentation Standards which differ from the method used by the SEC. The Brandes composite includes global equity accounts managed by Brandes. The accounts don't pay the same expenses that mutual funds pay and aren't subject to the diversification rules, tax restrictions and investment limits under the 1940 Act or Subchapter M of the Internal Revenue Code. Returns could have been lower if the composite had been subject to these expenses and regulations. The aggregate returns of the accounts in the composite may not reflect the returns of any particular account of Brandes. [GRAPHIC] Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 Other service providers The Fund is distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. Stephens may pay commissions, distribution (12b-1) and shareholder servicing fees, and/or other compensation to companies for selling shares and providing services to investors. BA Advisors is also co-administrator of the Fund, and assists in overseeing the administrative operations of the Fund. The Fund pays BA Advisors and Stephens a combined fee of 0.22% for their services, plus certain out-of-pocket expenses. The fee is calculated as an annual percentage of the average daily net assets of the Fund, and is paid monthly. [GRAPHIC] PFPC Inc. 400 Bellevue Parkway Wilmington, Delaware 19809 PFPC Inc. (PFPC) is the transfer agent for the Fund's shares. Its responsibilities include processing purchases, sales and exchanges, calculating and paying distributions, keeping shareholder records, preparing account statements and providing customer service. 12 About your investment - -------------------------------------------------------------------------------- [GRAPHIC] We've used the term, investment professional, to refer to the person who has assisted you with buying Nations Funds. Selling agent or servicing agent (sometimes referred to as a selling agent) means the company that employs your investment professional. Selling and servicing agents include banks, brokerage firms, mutual fund dealers and other financial institutions, including affiliates of Bank of America. [GRAPHIC] For more information about how to choose a share class, contact your investment professional or call us at 1.800.321.7854. [GRAPHIC] Before you invest, please note that, over time, distribution (12b-1) and shareholder servicing fees will increase the cost of your investment, and may cost you more than any sales charges you may pay. For more information, see How selling and servicing agents are paid. [GRAPHIC] Choosing a share class Before you can invest in the Fund, you'll need to choose a share class. There are three classes of shares of the Fund offered by this prospectus. Each class has its own sales charges and fees. The table below compares the charges and fees and other features of the share classes.
Investor A Investor B Investor C Shares Shares Shares Maximum amount no limit $250,000 no limit you can buy Maximum front-end 5.75% none none sales charge Maximum deferred none(1) 5.00%(2) 1.00%(3) sales charge Maximum annual 0.25% 0.75% 0.75% distribution distribution distribution distribution and shareholder (12b-1)/service fee (12b-1) fee and (12b-1) fee and servicing fees 0.25% service fee 0.25% service fee Conversion feature none yes none
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. The share class you choose will depend on how much you're investing, how long you're planning to stay invested, and how you prefer to pay the sales charge. The total cost of your investment over the time you expect to hold your shares will be affected by the distribution (12b-1) and shareholder servicing fees, as well as by the amount of any front-end sales charge or contingent deferred sales charge (CDSC) that applies and when you're required to pay the charge. You should think about these things carefully before you invest. Investor A Shares have a front-end sales charge, which is deducted when you buy your shares. This means that a smaller amount is invested in the Fund, unless you qualify for a waiver or reduction of the sales charge. However, Investor A Shares have lower ongoing distribution (12b-1) and/or shareholder servicing fees than Investor B and Investor C Shares. This means that Investor A Shares can be expected to pay relatively higher dividends per share. 13 Investor B Shares have limits on how much you can invest. When you buy Investor B or Investor C Shares, the full amount is invested in the Fund. However, you may pay a CDSC when you sell your shares. Over time, Investor B and Investor C Shares can incur distribution (12b-1) and shareholder servicing fees that are equal to or more than the front-end sales charge, and the distribution (12b-1) and shareholder servicing fees you would pay for Investor A Shares. Although the full amount of your purchase is invested in the Fund, any positive investment return on this money may be partially or fully offset by the expected higher annual expenses of Investor B and Investor C Shares. You should also consider the conversion feature for Investor B Shares, which is described in About Investor B Shares. [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by the Fund every business day. [GRAPHIC] About Investor A Shares There is no limit to the amount you can invest in Investor A Shares. You generally will pay a front-end sales charge when you buy your shares, or in some cases, a CDSC when you sell your shares. Front-end sales charge You'll pay a front-end sales charge when you buy Investor A Shares, unless: o you qualify for a waiver of the sales charge. You can find out if you qualify for a waiver in the section, When you might not have to pay a sales charge - Front end sales charges o you're reinvesting distributions The sales charge you'll pay depends on the amount you're investing -- generally, the larger the investment, the smaller the percentage sales charge.
Amount retained Sales charge Sales charge by selling agents as a % of the as a % of the as a % of the offering price net asset value offering price Amount you bought per share per share per share $0-$49,999 5.75% 6.10% 5.00% $50,000-$99,999 4.50% 4.71% 3.75% $100,000-$249,999 3.50% 3.63% 2.75% $250,000-$499,999 2.50% 2.56% 2.00% $500,000-$999,999 2.00% 2.04% 1.75% $1,000,000 or more 0.00% 0.00% 1.00%(1)
(1)1.00% on the first $3,000,000, 0.50% on the next $47,000,000, 0.25% on amounts over $50,000,000. Stephens pays the amount retained by selling agents on investments of $1,000,000 or more, but may be reimbursed when a CDSC is deducted if the shares are sold within eighteen months from the time they were bought. Please see How selling and servicing agents are paid for more information. 14 Contingent deferred sales charge If you own or buy $1,000,000 or more of Investor A Shares, there is one situation when you'll pay a CDSC: o If you buy your shares on or after August 1, 1999 and sell them within 18 months of buying them, you'll pay a CDSC of 1.00%. The CDSC is calculated from the day your purchase is accepted (the trade date). We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. You won't pay a CDSC on any increase in net asset value since you bought your shares, or on any shares you receive from reinvested distributions. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. [GRAPHIC] About Investor B Shares You can buy up to $250,000 of Investor B Shares. You don't pay a sales charge when you buy Investor B Shares, but you may have to pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC when you sell your Investor B Shares, unless: o you bought the shares on or after January 1, 1996 and before August 1, 1997 o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge - Contingent deferred sales charges The CDSC you pay depends on when you bought your shares, how much you bought in some cases, and how long you held them.
If you sell your shares during the following year: You'll pay a CDSC of: - ------------------------------------------------------------------------------------------------------ Shares you bought Shares Shares on or after you you bought Shares you bought between 1/1/1996 bought after 8/1/1997 and 11/15/1998 and before before 11/15/1998 in the following amounts: 8/1/1997 1/1/1996 ------------ ------------------------------------ ------------- --------- $250,000- $500,000- $0-$249,999 $499,999 $999,999 the first year you own them 5.0% 5.0% 3.0% 2.0% none 5.0% the second year you own them 4.0% 4.0% 2.0% 1.0% none 4.0% the third year you own them 3.0% 3.0% 1.0% none none 3.0% the fourth year you own them 3.0% 3.0% none none none 2.0% the fifth year you own them 2.0% 2.0% none none none 2.0% the sixth year you own them 1.0% 1.0% none none none 1.0% after six years of owning them none none none none none none
15 The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor B Shares. Please see How selling and servicing agents are paid for more information. About the conversion feature Investor B Shares generally convert automatically to Investor A Shares according to the following schedule: Will convert to Investor A Shares Investor B Shares you bought after you've owned them for after November 15, 1998 eight years between August 1, 1997 and November 15, 1998 $0-$249,000 nine years $250,000-$499,999 six years $500,000-$999,999 five years before August 1, 1997 nine years The conversion feature allows you to benefit from the lower operating costs of Investor A Shares, which can help increase total returns. Here's how the conversion works: o We won't convert your shares if you tell your investment professional, selling agent or the transfer agent within 90 days before the conversion date that you don't want your shares to be converted. Remember, it's in your best interest to convert your shares because Investor A Shares have lower expenses. o Shares are converted at the end of the month in which they become eligible for conversion. Any shares you received from reinvested distributions on those shares will convert to Investor A Shares at the same time. o You'll receive the same dollar value of Investor A Shares as the Investor B Shares that were converted. No sales charge or other charges apply. o Investor B Shares that you received from an exchange of Investor B Shares of another Nations Fund will convert based on the day you bought the original shares. Your conversion date may be later if you exchanged to or from a Nations Money Market Fund. o Conversions are free from federal tax. 16 [GRAPHIC] About Investor C Shares There is no limit to the amount you can invest in Investor C Shares. You don't pay a sales charge when you buy Investor C Shares, but you may pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC of 1.00% when you sell Investor C Shares within one year of buying them, unless: o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge - Contingent deferred sales charges The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor C Shares. Please see How selling and servicing agents are paid for more information. [GRAPHIC] Please contact your investment professional for more information about reductions and waivers of sales charges. You should tell your investment professional that you may qualify for a reduction or a waiver before buying shares. We can change or cancel these terms at any time. Any change or cancellation applies only to future purchases. When you might not have to pay a sales charge Front-end sales charges (Investor A Shares) There are three ways you can lower the front-end sales charge you pay on Investor A Shares: o Combine purchases you've already made Rights of accumulation allow you to combine the value of Investor A, Investor B and Investor C Shares you already own with Investor A Shares you're buying to calculate the sales charge. The sales charge is based on the total value of the shares you already own, or the original purchase cost, whichever is higher, plus the value of the shares you're buying. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify for rights of accumulation. o Combine purchases you plan to make By signing a letter of intent, you can combine the value of shares you already own with the value of shares you plan to buy over a 13-month period to calculate the sales charge. o You can choose to start the 13-month period up to 90 days before you sign the letter of intent. o Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. o If you don't buy as much as you planned within the period, you must pay the difference between the charges you've paid and the charges that actually apply to the shares you've bought. 17 o Your first purchase must be at least 5% of the minimum amount for the sales charge level that applies to the total amount you plan to buy. o If the purchase you've made later qualifies for a reduced sales charge through the 90-day backdating provisions, we'll make an adjustment for the lower charge when the letter of intent expires. Any adjustment will be used to buy additional shares at the reduced sales charge. o Combine purchases with family members You can receive a quantity discount by combining purchases of Investor A Shares that you, your spouse and children under age 21 make on the same day. Some distributions or payments from the dissolution of certain qualified plans also qualify for the quantity discount. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: o full-time employees and retired employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries and the immediate families of these people o banks, trust companies and thrift institutions, acting as fiduciaries o individuals receiving a distribution from a Bank of America trust or other fiduciary account may use the proceeds of that distribution to buy Investor A Shares without paying a front-end sales charge, as long as the proceeds are invested in the Fund within 90 days of the date of distribution. o Nations Funds' Trustees, Directors and employees of its investment sub-advisers o registered broker/dealers that have entered into a Nations Funds dealer agreement with Stephens may buy Investor A Shares without paying a front-end sales charge for their investment account only o registered personnel and employees of these broker/dealers and their family members may buy Investor A Shares without paying a front-end sales charge according to the internal policies and procedures of the employing broker/dealer as long as these purchases are made for their own investment purposes o employees or partners of any service provider to the Fund o investors who buy through accounts established with certain fee-based investment advisers or financial planners, wrap fee accounts and other managed agency/asset allocation accounts o shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at net asset value 18 The following plans can buy Investor A Shares without paying a front-end sales charge: o pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the Internal Revenue Code of 1986, as amended (the tax code) o employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must: o have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or o sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or o be an employer-sponsored plan with at least 100 eligible participants, or o be a participant in an alliance program that has signed an agreement with the Fund or a selling agent o certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors You can also buy Investor A Shares without paying a sales charge if you buy the shares within 120 days of selling the same Fund. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. Contingent deferred sales charges (Investor A, Investor B and Investor C Shares) You won't pay a CDSC on the following transactions: o shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner o distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors o the following retirement plan distributions: o lump-sum or other distributions from a qualified corporate or self-employed retirement plan following the retirement (or following attainment of age 59 1/2 in the case of a "key employee" of a "top heavy" plan) o distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 o a tax-free return of an excess contribution to an IRA o distributions from a qualified retirement plan that aren't subject to the 10% additional federal withdrawal tax under Section 72(t)(2) of the tax code 19 o payments made to pay medical expenses which exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least 12 weeks o shares sold under our right to liquidate a shareholder's account, including instances where the aggregate net asset value of Investor A, Investor B or Investor C Shares held in the account is less than the minimum account size o if you exchange Investor B or Investor C Shares of a Nations Fund that were bought through a Bank of America employee benefit plan for Investor A Shares of a Nations Fund o withdrawals made under the Automatic Withdrawal Plan described in Buying, selling and exchanging shares, if the total withdrawals of Investor A, Investor B or Investor C Shares made in a year are less than 12% of the total value of those shares in your account. A CDSC may only apply to Investor A Shares if you bought more than $1,000,000 We'll also waive the CDSC on the sale of Investor A or Investor C Shares bought before September 30, 1994 by current or retired employees of Bank of America Corporation (and its predecessors) and its affiliates, or by current or former trustees or directors of the Nations Funds or other management companies managed by Bank of America. You won't pay a CDSC on the sale of Investor B or Investor C Shares if you reinvest any of the proceeds in the same Fund within 120 days of the sale. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. 20 [GRAPHIC] Buying, selling and exchanging shares [GRAPHIC] When you sell shares of a mutual fund, the fund is effectively "buying" them back from you. This is called a redemption. You can invest in the Fund through your selling agent or directly from Nations Funds. We encourage you to consult with an investment professional who can open an account for you with a selling agent and help you with your investment decisions. Once you have an account, you can buy, sell and exchange shares by contacting your investment professional or selling agent. They will look after any paperwork that's needed to complete a transaction and send your order to us. You should also ask your selling agent about its limits, fees and policies for buying, selling and exchanging shares, which may be different from those described here, and about its related programs and services. The table on the next page summarizes some key information about buying, selling and exchanging shares. You'll find sales charges and other fees that apply to these transactions in Choosing a share class. The Fund also offers other classes of shares, with different features and expense levels, which you may be eligible to buy. Please contact your investment professional, or call us at 1.800.321.7854 if you have any questions or you need help placing an order. 21
Ways to buy, sell or How much you can buy, exchange sell or exchange Other things to know ---------------------- ---------------------------------------- ---------------------------------------------- Buying shares In a lump sum minimum initial investment: There is no limit to the amount you can o $1,000 for regular accounts invest in Investor A and C Shares. You can o $500 for traditional and Roth IRA invest up to $250,000 in Investor B Shares. accounts o $250 for certain fee-based accounts o no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: o $100 for all accounts Using our minimum initial investment: You can buy shares twice a month, monthly Systematic o $100 or quarterly, using automatic transfers from Investment Plan minimum additional investment: your bank account. o $50 - --------------------- ---------------------- ---------------------------------------- ---------------------------------------------- Selling shares In a lump sum o you can sell up to $50,000 of your We'll deduct any CDSC from the amount shares by telephone, otherwise there you're selling and send you or your selling are no limits to the amount you can agent the balance, usually within three sell business days of receiving your order. o other restrictions may apply to If you paid for your shares with a check that withdrawals from retirement plan wasn't certified, we'll hold the sale proceeds accounts when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared. Using our Automatic o minimum $25 per withdrawal Your account balance must be at least Withdrawal Plan $10,000 to set up the plan. You can make withdrawals twice a month, monthly, quarterly, bi-annually or annually. We'll send your money by check or deposit it directly to your bank account. No CDSC is deducted if you withdraw 12% or less of the value of your shares in a class. - --------------------- ---------------------- ---------------------------------------- ---------------------------------------------- Exchanging shares In a lump sum o minimum $1,000 per exchange You can exchange your Investor A Shares for Investor A shares of any other Nations Fund, except Index Funds. You won't pay a front-end sales charge, CDSC or redemption fee on the shares you're exchanging. You can exchange your Investor B Shares for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You can exchange your Investor C Shares for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of a Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Using our Automatic o minimum $25 per exchange You must already have an investment in the Exchange Feature Funds into which you want to exchange. You can make exchanges monthly or quarterly.
22 [GRAPHIC] A business day is any day that the New York Stock Exchange (NYSE) is open. A business day ends at the close of regular trading on the NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes early, the business day ends as of the time the NYSE closes. The NYSE is closed on weekends and on the following national holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. How shares are priced All transactions are based on the price of the Fund's shares -- or its net asset value per share. We calculate net asset value per share for each class of the Fund at the end of each business day. First, we calculate the net asset value for each class of the Fund by determining the value of the Fund's assets in the class and then subtracting its liabilities. Next, we divide this amount by the number of shares that investors are holding in the class. Valuing securities in the Fund The value of the Fund's assets is based on the total market value of all of the securities it holds. The prices reported on stock exchanges and securities markets around the world are usually used to value securities in the Fund. If prices aren't readily available, or the value of a security has been materially affected by events occurring after a foreign exchange closes, we'll base the price of a security on its fair value. When the Fund uses fair value to price securities it may value those securities higher or lower than another fund that uses market quotations to price the same securities. We use the amortized cost method, which approximates market value, to value short-term investments maturing in 60 days or less. International markets may be open on days when U.S. markets are closed. The value of foreign securities owned by the Fund could change on days when Fund shares may not be bought or sold. How orders are processed Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents before the end of a business day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive that day's net asset value per share. Orders received after the end of a business day will receive the next business day's net asset value per share. The business day that applies to your order is also called the trade date. We may refuse any order to buy or exchange shares. If this happens, we'll return any money we've received to your selling agent. Telephone orders You can place orders to buy, sell or exchange by telephone if you complete the telephone authorization section of our account application and send it to us. Here's how telephone orders work: o If you sign up for telephone orders after you open your account, you must have your signature guaranteed. o Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. o We'll take reasonable steps to confirm that telephone instructions are genuine. For example, we require proof of your identification before we will act on instructions received by telephone and may record telephone conversations. If we and our service providers don't take these steps, we may be liable for any losses from unauthorized or fraudulent instructions. o Telephone orders may be difficult to complete during periods of significant economic or market change. 23 [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by the Fund every business day. [GRAPHIC] Buying shares Here are some general rules for buying shares: o You buy Investor A Shares at the offering price per share. You buy Investor B and Investor C Shares at net asset value per share. o If we don't receive your money within three business days of receiving your order, we'll refuse the order. o Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. o Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. Minimum initial investment The minimum initial amount you can buy is usually $1,000. If you're buying shares through one of the following accounts or plans, the minimum initial amount you can buy is: o $500 for traditional and Roth individual retirement accounts (IRAs) o $250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts o $100 using our Systematic Investment Plan o There is no minimum for 401(k) plans, simplified employee pension plans (SEPs), salary reduction-simplified employee pension plans (SAR-SEPs), Savings Incentives Match Plans for Employees (SIMPLE IRAs), salary reduction-IRAs (SAR-IRAs) or other similar kinds of accounts. However, if the value of your account falls below $1,000 for 401(k) plans or $500 for the other plans within one year after you open your account, we may sell your shares. We'll give you 60 days notice in writing if we're going to do this Minimum additional investment You can make additional purchases of $100, or $50 if you use our Systematic Investment Plan. Systematic Investment Plan You can make regular purchases of $50 or more using automatic transfers from your bank account to the Funds you choose. You can contact your investment professional or us to set up the plan. Here's how the plan works: o You can buy shares twice a month, monthly or quarterly. o You can choose to have us transfer your money on or about the 15th or the last day of the month. o Some exceptions may apply to employees of Bank of America and its affiliates, and to plans set up before August 1, 1997. For details, please contact your investment professional. 24 [GRAPHIC] For more information about telephone orders, see How orders are processed. [GRAPHIC] Selling shares Here are some general rules for selling shares: o We'll deduct any CDSC from the amount you're selling and send you the balance. o If you're selling your shares through a selling agent, we'll normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. Your selling agent is responsible for depositing the sale proceeds to your account on time. o If you're selling your shares directly through us, we'll normally send the sale proceeds by mail or electronic transfer them to your bank account within three business days after the Fund receives your order. o You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. o If you paid for your shares with a check that wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared, whichever is later. o If you hold any shares in certificate form, you must sign the certificates (or send a signed stock power with them) and send them to PFPC. Your signature must be guaranteed unless you've made other arrangements with us. We may ask for any other information we need to prove that the order is properly authorized. o Under certain circumstances allowed under the Investment Company Act of 1940 (1940 Act), we can pay you in securities or other property when you sell your shares. o We can delay payment of the sale proceeds for up to seven days. o Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. We may sell your shares: o if the value of your account falls below $500. We'll give you 60 days notice in writing if we're going to do this o if your selling agent tells us to sell your shares under arrangements made between the selling agent and you o under certain other circumstances allowed under the 1940 Act 25 Automatic Withdrawal Plan The Automatic Withdrawal Plan lets you withdraw $25 or more twice a month, monthly, quarterly, bi-annually or annually. You can contact your investment professional or us to set up the plan. Here's how the plan works: o Your account balance must be at least $10,000 to set up the plan. o If you set up the plan after you've opened your account, your signature must be guaranteed. o You can choose to have us transfer your money on or about the 10th or 25th of the month. o You won't pay a CDSC on Investor A, Investor B or Investor C Shares if you withdraw 12% or less of the value of those shares in a year. Otherwise, we'll deduct any CDSC from the withdrawals. o We'll send you a check or deposit the money directly to your bank account. o You can cancel the plan by giving your selling agent or us 30 days notice in writing. It's important to remember that if you withdraw more than your investment in the Fund is earning, you'll eventually use up your original investment. [GRAPHIC] You should make sure you understand the investment objective and principal investment strategies of the Fund you're exchanging into. Please read its prospectus carefully. [GRAPHIC] Exchanging shares You can sell shares of the Fund to buy shares of another Nations Fund. This is called an exchange. You might want to do this if your investment goals or tolerance for risk changes. Here's how exchanges work: o You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. o The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. o You may only make exchanges into a Fund that is legally sold in your state of residence. o You generally may only make an exchange into a Fund that is accepting investments. o We may limit the number of exchanges you can make within a specified period of time. o We may change or cancel your right to make an exchange by giving the amount of notice required by regulatory authorities (generally 60 days for a material change or cancellation). o You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. 26 Exchanging Investor A Shares You can exchange Investor A Shares of the Fund for Investor A Shares of any other Nations Fund except Index Funds. Here are some rules for exchanging Investor A Shares: o You won't pay a front-end sales charge on the shares of the Fund you're exchanging. o You won't pay a CDSC, if applicable, on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC at that time will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. o You won't pay a redemption fee on the shares you're exchanging. Any redemption fee will be deducted when you sell the shares you received from the exchange. Any redemption fee will be paid to the original Fund. Exchanging Investor B Shares You can exchange Investor B Shares of the Fund for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Investor C Shares of a Nations Money Market Fund through an exchange of Investor B Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Investor C Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. 27 Exchanging Investor C Shares You can exchange Investor C Shares of the Fund for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of the Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Daily Shares of a Nations Money Market Fund through an exchange of Investor C Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Daily Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. Automatic Exchange Feature The Automatic Exchange Feature lets you exchange $25 or more of Investor A, Investor B or Investor C Shares every month or every quarter. You can contact your investment professional or us to set up the plan. Here's how automatic exchanges work: o Send your request to PFPC in writing or call 1.800.321.7854. o If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. o You must already have an investment in the Fund you want to exchange. o You can choose to have us transfer your money on or about the 1st or the 15th day of the month. o The rules for making exchanges apply to automatic exchanges. 28 [GRAPHIC] How selling and servicing agents are paid Selling and servicing agents usually receive compensation based on your investment in the Fund. The kind and amount of the compensation depends on the share class in which you invest. Selling agents typically pay a portion of the compensation they receive to their investment professionals. Commissions Your selling agent may receive an up-front commission (reallowance) when you buy shares of the Fund. The amount of this commission depends on which share class you choose: o up to 5.00% of the offering price per share of Investor A Shares. The commission is paid from the sales charge we deduct when you buy your shares o up to 4.00% of the net asset value per share of Investor B Shares. The commission is not deducted from your purchase -- we pay your selling agent directly o up to 1.00% of the net asset value per share of Investor C Shares. The commission is not deducted from your purchase -- we pay your selling agent directly If you buy Investor B or Investor C Shares you will be subject to higher distribution (12b-1) and shareholder servicing fees and may be subject to a CDSC when you sell your shares. [GRAPHIC] The financial institution or intermediary that buys shares for you is also sometimes referred to as a selling agent. The distribution fee is often referred to as a "12b-1" fee because it's paid through a plan approved under Rule 12b-1 under the 1940 Act. Your selling agent may charge other fees for services provided to your account. Distribution (12b-1) and shareholder servicing fees Stephens and selling and servicing agents may be compensated for selling shares and providing services to investors under distribution and shareholder servicing plans. The amount of the fee depends on the class of shares you own:
Maximum annual distribution (12b-1) and shareholder servicing fees (as an annual % of average daily net assets) Investor A Shares 0.25% combined distribution (12b-1) and shareholder servicing fee Investor B Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee Investor C Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee
Fees are calculated daily and paid monthly. Because these fees are paid out of the Fund's assets on an ongoing basis, they will increase the cost of your investment over time, and may cost you more than any sales charges you may pay. The Fund pays these fees to Stephens and/or to eligible selling and servicing agents and financial institutions, including BA Advisors or its affiliates, for as long as the plans continue. We may reduce or discontinue payments at any time. 29 Other compensation Selling and servicing agents may also receive: o a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Fund o additional amounts on all sales of shares: o up to 1.00% of the offering price per share of Investor A Shares o up to 1.00% of the net asset value per share of Investor B Shares o up to 1.00% of the net asset value per share of Investor C Shares o non-cash compensation like trips to sales seminars, tickets to sporting events, theater or other entertainment, opportunities to participate in golf or other outings and gift certificates for meals or merchandise This compensation, which is not paid by the Fund, is discretionary and may be available only to selected selling and servicing agents. For example, Stephens sometimes sponsors promotions involving Banc of America Investment Services, Inc., an affiliate of BA Advisors, and certain other selling or servicing agents. Selected selling or servicing agents also may receive compensation for opening or servicing a minimum number of accounts. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Fund for services they provide. 30 [GRAPHIC] Distributions and taxes [GRAPHIC] The power of compounding Reinvesting your distributions buys you more shares of the Fund -- which lets you take advantage of the potential for compound growth. Putting the money you earn back into your investment means it, in turn, may earn even more money. Over time, the power of compounding has the potential to significantly increase the value of your investment. There is no assurance, however, that you'll earn more money if you reinvest your distributions. About distributions A mutual fund can make money two ways: o It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. o A fund can also have capital gain if the value of its investments increases. If a fund sells an investment at a gain, the gain is realized. If a fund continues to hold the investment, any gain is unrealized. A mutual fund is not subject to federal income tax as long as it distributes its net investment income and realized capital gain to its shareholders. The Fund intends to pay out a sufficient amount of its income and capital gain to its shareholders so the Fund won't have to pay any federal income tax. When the Fund makes this kind of a payment, it's split among all shares, and is called a distribution. The Fund distributes any net realized capital gain at least once a year. The Fund distributes net investment income annually. Any distribution you receive is based on the number of shares you hold on the record date, which is usually the day the distribution is declared (daily dividend Funds) or the day before the distribution is declared (all other Funds). Shares are eligible to receive net investment income distributions from the settlement date (daily dividend Funds), trade date (all other Funds) or realized capital gain from the trade date of the purchase up to and including the day before the shares are sold. Different share classes of the Fund usually pay different net investment income distribution amounts, because each class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. We'll automatically reinvest distributions in additional shares of the same Fund unless you tell us you want to receive your distributions in cash. You can do this by writing to us at the address on the back cover or by calling us at 1.800.321.7854. We generally pay cash distributions within five business days after the end of the month, quarter or year in which the distribution was made. If you sell all of your shares, we'll normally pay any distribution that applies to those shares in cash within five business days after the sale was made. 31 If you buy shares of the Fund shortly before it makes a distribution, you will, in effect, receive part of your purchase back in the distribution, which is subject to tax. Similarly, if you buy shares of the Fund when it holds securities with unrealized capital gain, you will, in effect, receive part of your purchase back if and when the Fund sells those securities and realizes and distributes the gain. This distribution is also subject to tax. The Fund has built up, or has the potential to build up, high levels of unrealized capital gain. [GRAPHIC] This information is a summary of how federal income taxes may affect your investment in the Fund. It is not intended as a substitute for careful tax planning. You should consult with your own tax adviser about your situation, including any foreign, state and local taxes that may apply. [GRAPHIC] For more information about taxes, please see the SAI. How taxes affect your investment Distributions that come from net investment income, net short-term capital gain and certain other items generally are taxable to you as ordinary income. A portion of such distributions to corporate shareholders may qualify for the dividends-received deduction. Distributions that come from net capital long-term gain generally are taxable to you as long-term capital gain. In general, all distributions are taxable to you when paid, whether they are paid in cash or automatically reinvested in additional shares of the Fund. However, any distributions declared to shareholders of record in October, November or December of one year and distributed in January of the following year will be taxable as if they had been paid to you on December 31 of the first year. We'll send you a notice every year that tells you how much you've received in distributions during the year and their federal tax status. Foreign, state and local taxes may also apply to these distributions. Foreign taxes Mutual funds that maintain most of their portfolio in foreign securities have special tax considerations. You'll generally be required to: o include in your gross income your proportional amount of foreign taxes paid by the fund o treat this amount as foreign taxes you paid directly o either deduct this amount when calculating your income, or subject to certain conditions and limitations, claim this amount as a foreign tax credit against your federal income tax liability This special rate will apply to the Fund if, at the end of a tax year, most of its securities consist of foreign securities and the Fund makes a special election. In general, if you are an individual, each year you can claim up to $300 ($600 if you're filing jointly) of foreign taxes paid (or deemed paid) by you as a foreign tax credit against your federal income tax liability. 32 U.S. government obligations If you invest in U.S. government obligations directly, interest on those obligations is free from state and local and individual income taxes. Distributions you receive that come from interest each Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. Withholding tax We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts to be paid for in securities and exchanges) if: o you haven't given us a correct Taxpayer Identification Number (TIN) and haven't certified that the TIN is correct and withholding doesn't apply o the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records o the IRS informs us that you're otherwise subject to backup withholding The IRS may also impose penalties against you if you don't give us a correct TIN. Amounts we withhold are applied to your federal income tax liability. You may receive a refund from the IRS if the withholding tax results in an overpayment of taxes. We're also normally required by federal law to withhold tax on distributions (other than capital gain distributions) paid to foreign shareholders. Taxation of redemptions and exchanges Your redemptions (including redemptions paid in securities) and exchanges of Fund shares will usually result in a taxable capital gain or loss, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. 33 [GRAPHIC] This glossary includes explanations of the important terms that may be used in this prospectus. Some of the terms explained may apply to Nations Funds not included in this prospectus. [GRAPHIC] Terms used in this prospectus Amortized cost method - under Rule 2a-7 of the 1940 Act, the method of calculating an investment company's net asset value whereby portfolio securities are valued at the Fund's acquisition cost as adjusted for amortization of premium or accretion of discount rather than at their current market value. Asset-backed security - a debt security that gives an investor an interest in a pool of assets that is collateralized or "backed" by one or more kinds of assets, including automobile loans or credit card receivables, generally issued by banks, credit card companies or other lenders. Asset-backed securities typically make periodic payments, which may be interest or a combination of interest and a portion of the principal of the underlying assets. Average dollar-weighted maturity - the average length of time until the debt securities held by a Fund reach maturity. In general, the longer the average dollar-weighted maturity, the more a Fund's share price will fluctuate in response to changes in interest rates. Bank obligation - a money market instrument issued by a domestic or U.S. branch of a foreign bank, including certificates of deposit, time deposits and bankers' acceptances. Capital gain or loss - the difference between the purchase price of a security and its selling price. An investor realizes a capital gain when it sells a security for more than it paid for it. An investor realizes a capital loss when it sells a security for less than it paid for it. Cash equivalents - short-term, interest-bearing instruments which can easily be converted into cash, including U.S. government obligations, bank obligations, and certain asset-backed securities, foreign government securities and commercial paper issued by U.S. and foreign issuers which, at the time of investment, is rated at least Prime-2 by Moody's Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch). Collateralized mortgage obligation (CMO) - a type of mortgage-backed security. CMO payment obligations are covered by interest and/or principal payments from a pool of mortgages. In addition, the underlying assets of a CMO are typically separated into classes, called tranches, based on maturity. Each tranche pays a different rate of interest. CMOs are not generally issued by the U.S. government, its agencies or instrumentalities. Commercial paper - a short-term corporate obligation. Commercial paper is typically considered a money market instrument. Common stock - a security that represents part equity ownership in a company. Common stock typically allows an investor to vote at shareholder meetings and to share in the company's profits by receiving dividends. Convertible debt - a debt security that can be exchanged for common stock (or another type of security) on a specified basis and date. 34 Convertible security - a security that can be exchanged for common stock (or another type of security) at a specified rate. Convertible securities include convertible debt, rights and warrants. Crossing networks - an electronic system where anonymous parties can match buy and sell transactions. These transactions don't affect the market, and transaction costs are extremely low. CSFB Convertible Securities Index - 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. Debt security - a security issued by a governmental body or company (the issuer) to help fund their operations or major projects. The issuer pays interest at a specified rate on a specified date or dates, and repays the principal when the security matures. Short-term debt securities include money market instruments such as treasury bills. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Depositary receipts - evidence of the deposit of a security with a custodian bank. American Depositary Receipts (ADRs), for example, are certificates traded in U.S. markets representing an interest of a foreign company. They were created to make it possible for foreign issuers to meet U.S. security registration requirements. Other examples include ADSs, GDRs and EDRs. Derivatives - A derivative is a financial contract whose value is based upon, or "derived" from, an underlying financial asset (such as a stock or a bond), a commodity (such as gold), a market index (such as the S&P 500) or a reference rate (such as the prime lending interest rate). Examples of derivative instruments include futures, options, index-, equity-, commodity- and currency-linked securities, warrants and swap contracts. For a detailed description of the derivatives described here, see the SAI. Diversified - A diversified fund, as defined by the 1940 Act, must have at least 75% of its total assets in cash and cash equivalents, government securities, securities of other investment companies, or other securities. For purposes of this calculation, the fund may not count securities of a single issuer that comprise more than 5% of the fund's assets. Dividend yield - rate of return of dividends paid on a common or preferred stock. It equals the amount of the annual dividend on a stock expressed as a percentage of the stock's current market value. Duration - a security's or portfolio's sensitivity to changes in interest rates. For example, if interest rates rise by one percentage point, the share price of a fund with a duration of five years would decline by about 5%. If interest rates fall by one percentage point, the fund's share price would rise by about 5%. Equity security - an investment that gives an investor an equity ownership right in a company. Equity securities (or "equities") include common and preferred stock, rights and warrants. 35 First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds and has the highest short-term rating from a nationally recognized statistical rating organization (NRSRO), or if unrated, is determined by the Fund's portfolio management team to be of comparable quality, or is a money market fund or a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Foreign security - a debt or equity security determined by a Fund's portfolio management team to be foreign based on an issuer's domicile, its principle place of business, the source of its revenues or other factors. Forward foreign currency contracts - a forward foreign currency contract includes an obligation to purchase or sell a foreign currency at a specified future date. Forward purchase agreement - a contract obligating one party to buy and another party to sell an equity security, commodity, currency or other financial instrument at a specific future date. Fundamental analysis - a method of securities analysis that tries to evaluate the intrinsic, or "true," value of a particular stock. It includes a study of the overall economy, industry conditions and the financial condition and management of a company. Futures contract - a contract to buy or sell underlying instruments at a specified price on a specified future date. The price is typically set through a futures exchange. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to NRSROs such as S&P and Moody's. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by a Fund's Board. Please see the SAI for more information about credit ratings. High yield debt security - debt securities that, at the time of purchase, are rated "BB" or below by S&P or "Ba" or below by Moody's, or that are unrated and determined by the portfolio management team to be of comparable quality. Interest rate swap - an agreement between two parties to exchange periodic interest payments based on a predetermined principal amount. Investment grade - a debt security that has been given a medium to high credit rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating by other NRSROs) based on the issuer's ability to pay interest and repay principal on time. The portfolio management team may consider an unrated debt security to be investment grade if the team believes it is of comparable quality. Please see the SAI for more information about credit ratings. 36 Lehman Aggregate Bond Index - an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government/Corporate Bond Index - an unmanaged index of U.S. government, U.S. Treasury and agency securities, and corporate and Yankee bonds. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Liquidity - a measurement of how easily a security can be bought or sold at a price that is close to its market value. Money market instrument - a short-term debt security that is considered to mature in 13 months or less. Money market instruments include U.S. Treasury obligations, U.S. government obligations, certificates of deposit, bankers' acceptances, commercial paper, repurchase agreements and certain municipal securities. Mortgage-backed security or Mortgage-related security - a debt security that gives you an interest in, and is backed by, a pool of residential mortgages issued by the U.S. government or by financial institutions. The underlying mortgages may be guaranteed by the U.S. government or one of its agencies, authorities or instrumentalities. Mortgage-backed securities typically make monthly payments, which are a combination of interest and a portion of the principal of the underlying mortgages. MSCI EAFE Index - Morgan Stanley Capital International Europe, Australasia and Far East Index is an unmanaged, capitalization-weighted index. The index reflects the relative size of each market consisting of securities listed on exchanges in European, Australasian and Far Eastern markets and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investment. It is not available for investment. MSCI World Index - Morgan Stanley Capital International World Index is an unmanaged index consisting of securities listed on exchanges in the major European and Asian countries, Australia and the U.S. and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investing. It is not available for investment. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public or private projects and services. "General obligations" are typically backed by the issuer's full taxing and revenue-raising powers. "Revenue securities" depend on the income earned by a specific project or authority, like road or bridge tolls, user fees for water or revenues from a utility. Interest income from municipal securities that pay for "public" projects and services is exempt from federal income taxes and is generally exempt from state taxes if an investor lives in the state that issued the security. If an investor lives in the municipality that issued the security, interest income may also be exempt from local taxes. 37 Non-diversified - a fund that holds securities of fewer issuers than other kinds of funds. Non-diversified funds tend to have greater price swings than more diversified funds because events affecting one or more of its securities may have a disproportionately large effect on the fund. NRSRO - A nationally recognized statistical rating organization, such as S&P or Moody's. Options - An option is the right to buy or sell a security based on an agreed upon price at a specified time. For example, an option may give the holder of a stock the right to sell the stock to another party, allowing the seller to profit if the price has fallen below the agreed price. Options may also be based on the movement of an index such as the S&P 500. Over-the-counter market - a market where dealers trade securities through a telephone or computer network rather than through a public stock exchange. Preferred stock - a type of equity security that gives you a limited ownership right in a company, with certain preferences or priority over common stock. Preferred stock generally pays a fixed annual dividend. If the company goes bankrupt, preferred shareholders generally receive their share of the company's remaining assets before common shareholders and after bondholders and other creditors. Ownership of preferred stock typically does not come with certain voting rights that come with common stock. Pre-refunded bond - a bond that is repaid before its maturity date. The repayment is generally financed by a new issue. Issuers generally pre-refund bonds during periods of lower interest rates to reduce their interest costs. Price-to-earnings ratio (P/E ratio) - the current price of a share divided by its actual or estimated earnings per share. The P/E ratio is one measure of the value of a company. Private placement - a private placement is the sale of stocks, bonds or other investments directly to a qualified investor without having to register the offering with the SEC or other comparable foreign regulatory authorities. Qualified investors are typically large institutional investors or high net worth individuals. Securities acquired through private placements generally may not be resold. Quantitative analysis - an analysis of financial information about a company or security to identify securities that have the potential for growth or are otherwise suitable for a fund to buy. Real Estate Investment Trust (REIT) - a portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls, and real-estate-related loans or interests. Repurchase agreement - a short-term (often overnight) investment arrangement. The investor agrees to buy certain securities from the borrower and the borrower promises to buy them back at a specified date and price. The difference between the purchase price paid by the investor and the repurchase price paid by the borrower represents the investor's return. Repurchase agreements are popular because they provide low-risk returns and can allow a fund to remain fully invested. 38 Reverse repurchase agreement - a repurchase agreement in which an investor sells a security to another party, like a bank or dealer, in return for cash, and agrees to buy the security back at a specified date and price. Reverse repurchase agreements are, in effect, loans to a fund. Right - a temporary privilege allowing investors who already own a common stock to buy additional shares directly from the company at a specified price or formula. Russell 1000 Index - 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. The Russell 3000 Index is a listing of 3000 corporations by the Frank Russell Company that is intended to be representative of the U.S. economy. The Russell 1000 is considered a "large cap" index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 2000 Index - 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. 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. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 3000 Growth Index - an unmanaged index comprised of securities in the Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies based on total market capitalization, with a greater than average growth orientation. Companies in the Russell 3000 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. S&P 500(1) - Standard & Poor's 500 Composite Stock Price Index, an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 39 S&P/BARRA Value Index(1) - an unmanaged index of a subset of stocks from the S&P 500 that have low price-to-book ratios relative to the S&P 500 as a whole. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P/IFC Investables Index - an unmanaged index that tracks more than 1,400 stocks in 25 emerging markets in Asia, Latin America, Eastern Europe, Africa and the Middle East. The index is weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P MidCap 400(1) - an unmanaged index of 400 domestic stocks chosen for market size, liquidity and industry representation. The index is weighted by market value, and is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SmallCap 600(1) - Standard & Poor's SmallCap 600 Index, an unmanaged index of 600 common stocks, weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SuperComposite 1500(1) - an unmanaged index created by Standard & Poors combining the companies represented in three other indices -- the S&P 500, MidCap 400, and SmallCap 600. The index represents 87% of the total capitalization of U.S. equity markets. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds, but is not a first-tier security. Senior security - a debt security that allows holders to receive their share of a company's remaining assets in a bankruptcy before other bondholders, creditors, and common and preferred shareholders. Settlement date - the date on which an order is settled either by payment or delivery of securities. Total return swap - an agreement between two parties to exchange periodic interest payments for the total return of an equity or fixed income instrument. Trade date - the effective date of a purchase, sale or exchange transaction, or other instructions sent to us. The trade date is determined by the day and time we receive the order or instructions in a form that's acceptable to us. U.S. government obligations - a wide range of debt securities issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities. U.S. Treasury obligation - a debt security issued by the U.S. Treasury. 40 Warrant - a certificate that gives you the right to buy common shares at a specified price within a specified period of time. Zero-coupon bond - a bond that makes no periodic interest payments. Zero coupon bonds are sold at a deep discount to their face value and mature at face value. The difference between the face value at maturity and the purchase price represents the return. (1) S&P and BARRA have not reviewed any stock included in the S&P SuperComposite 1500, S&P 500, S&P SmallCap 600, S&P MidCap 400 Index or BARRA Value Index for its investment merit. S&P and BARRA determine and calculate their indices independently of the Funds and are not a sponsor or affiliate of the Funds. S&P and BARRA give no information and make no statements about the suitability of investing in the Funds or the ability of their indices to track stock market performance. S&P and BARRA make no guarantees about the indices, any data included in them and the suitability of the indices or their data for any purpose. "Standard and Poor's," "S&P 500" and "S&P 600" are trademarks of The McGraw-Hill Companies, Inc. 41 (THIS PAGE INTENTIONALLY LEFT BLANK) (THIS PAGE INTENTIONALLY LEFT BLANK) [GRAPHIC] Where to find more information You'll find more information about Nations Global Value Fund in the following documents: Annual and semi-annual reports The annual and semi-annual reports contain information about Fund investments and performance, the financial statements and the independent accountants' reports. The annual report also includes a discussion about the market conditions and investment strategies that had a significant effect on the Fund's performance during the period covered. [GRAPHIC] Statement of Additional Information The SAI contains additional information about the Fund and its policies. The SAI is legally part of this prospectus (it's incorporated by reference). A copy has been filed with the SEC. You can obtain a free copy of these documents, request other information about the Fund and make shareholder inquiries by contacting Nations Funds: By telephone: 1.800.321.7854 By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nations-funds.com Information about the Fund can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1.202.942.8090. The reports and other information about the Fund are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. SEC file number: Nations Funds Trust, 811-09645 GLOBALPROIX - 8/01 [NATIONS FUNDS LOGO] [GRAPHIC] State Municipal Bond Funds Prospectus -- Investor A, B and C Shares August 1, 2001 Nations California Municipal Bond Fund Nations Florida Intermediate Municipal Bond Fund Nations Florida Municipal Bond Fund Nations Georgia Intermediate Municipal Bond Fund Nations Georgia Municipal Bond Fund Nations Kansas Municipal Income Fund Nations Maryland Intermediate Municipal Bond Fund Nations Maryland Municipal Bond Fund Nations North Carolina Intermediate Municipal Bond Fund Nations North Carolina Municipal Bond Fund Nations South Carolina Intermediate Municipal Bond Fund Nations South Carolina Municipal Bond Fund Nations Tennessee Intermediate Municipal Bond Fund Nations Tennessee Municipal Bond Fund Nations Texas Intermediate Municipal Bond Fund Nations Texas Municipal Bond Fund Nations Virginia Intermediate Municipal Bond Fund Nations Virginia Municipal Bond Fund The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Not FDIC Insured - ----------------- May Lose Value - ----------------- No Bank Guarantee - ----------------- [Nations Funds Logo] An overview of the Funds - -------------------------------------------------------------------------------- [GRAPHIC] Terms used in this prospectus In this prospectus, we, us and our refer to the Nations Funds family (Nations Funds or Nations Funds Family). Some other important terms we've used may be new to you. These are printed in italics where they first appear in a section and are described in Terms used in this prospectus. [GRAPHIC] You'll find Terms used in this prospectus on page 166. Your investment in these Funds is not a bank deposit and is not insured or guaranteed by Bank of America, N. A. (Bank of America), the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Your investment may lose money. Affiliates of Bank of America are paid for the services they provide to the Funds. This booklet, which is called a prospectus, tells you about Nations Funds State Municipal Bond Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. About the Funds These Funds invest most of their assets in securities issued by one state and its public authorities and local governments, and are generally intended for residents of that state. Each Fund focuses on the potential to earn income that is generally free from federal and state income tax by investing primarily in municipal securities. Municipal securities have the potential to increase in value because when interest rates fall, the value of these securities tends to rise. When interest rates rise, however, the value of these securities tends to fall. Other things can also affect the value of municipal securities. There's always a risk that you'll lose money, or you may not earn as much as you expect. Because they invest primarily in securities issued by one state and its public authorities and local governments, the Funds are considered to be non-diversified. This means the value of a Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. Choosing the right Funds for you Not every Fund is right for every investor. When you're choosing a Fund to invest in, you should consider things like your investment goals, how much risk you can accept and how long you're planning to hold your investment. The State Municipal Bond Funds may be suitable for you if: o you're looking for income o you want to reduce taxes on your investment o you have longer-term investment goals They may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with fixed income securities 2 Comparing the Funds There are two groups of State Municipal Bond Funds in the Nations Funds Family: Intermediate Municipal Bond Funds and Long-Term Municipal Bond Funds. The main difference between the two groups is their portfolio duration -- a measure used to estimate how much a Fund's securities will fluctuate in response to a change in interest rates. The Long-Term Municipal Bond Funds, which have longer portfolio durations, generally have the potential to earn more income than the Intermediate Municipal Bond Funds, but they also generally have more risk because their prices tend to change more when interest rates change. The table below is designed to help you understand the differences between these two groups of Funds only and their relative income and risk potential -- you should not use it to compare these Funds with other mutual funds or other kinds of investments. A Fund's income and risk potential can change over time.
Income Risk Duration potential potential Intermediate Municipal Bond Funds 3 to 6 yrs moderate moderate Kansas Municipal Income Fund 3 to 8 yrs moderate moderate Long-Term Municipal Bond Funds more than 6 yrs high high
You'll find a discussion of each Fund's principal investments, strategies and risks in the Fund descriptions that start on page 6. For more information If you have any questions about the Funds, please call us at 1.800.321.7854 or contact your investment professional. You'll find more information about the Funds in the Statement of Additional Information (SAI). The SAI includes more detailed information about each Fund's investments, policies, performance and management, among other things. Please turn to the back cover to find out how you can get a copy. 3 What's inside - -------------------------------------------------------------------------------- [GRAPHIC] Banc of America Advisors, LLC Banc of America Advisors, LLC (BA Advisors) is the investment adviser to each of the Funds. BA Advisors is responsible for the overall management and supervision of the investment management of each Fund. BA Advisors and Nations Funds have engaged a sub-adviser -- Banc of America Capital Management, LLC (BACAP), which is responsible for the day-to-day investment decisions for each of the Funds. [GRAPHIC] You'll find more about BA Advisors and BACAP starting on page 114. [GRAPHIC] About the Funds
Nations California Municipal Bond Fund 6 Sub-adviser: BACAP ----------------------------------------------------------------- Nations Florida Intermediate Municipal Bond Fund 12 Sub-adviser: BACAP ----------------------------------------------------------------- Nations Florida Municipal Bond Fund 18 Sub-adviser: BACAP ----------------------------------------------------------------- Nations Georgia Intermediate Municipal Bond Fund 24 Sub-adviser: BACAP ----------------------------------------------------------------- Nations Georgia Municipal Bond Fund 30 Sub-adviser: BACAP ----------------------------------------------------------------- Nations Kansas Municipal Income Fund 36 Sub-adviser: BACAP ----------------------------------------------------------------- Nations Maryland Intermediate Municipal Bond Fund 41 Sub-adviser: BACAP ----------------------------------------------------------------- Nations Maryland Municipal Bond Fund 47 Sub-adviser: BACAP ----------------------------------------------------------------- Nations North Carolina Intermediate Municipal Bond Fund 53 Sub-adviser: BACAP ----------------------------------------------------------------- Nations North Carolina Municipal Bond Fund 59 Sub-adviser: BACAP ----------------------------------------------------------------- Nations South Carolina Intermediate Municipal Bond Fund 65 Sub-adviser: BACAP ----------------------------------------------------------------- Nations South Carolina Municipal Bond Fund 71 Sub-adviser: BACAP ----------------------------------------------------------------- Nations Tennessee Intermediate Municipal Bond Fund 77 Sub-adviser: BACAP ------------------------------------------------------------------ Nations Tennessee Municipal Bond Fund 83 Sub-adviser: BACAP ----------------------------------------------------------------- Nations Texas Intermediate Municipal Bond Fund 89 Sub-adviser: BACAP ----------------------------------------------------------------- Nations Texas Municipal Bond Fund 95 Sub-adviser: BACAP ----------------------------------------------------------------- Nations Virginia Intermediate Municipal Bond Fund 101 Sub-adviser: BACAP ----------------------------------------------------------------- Nations Virginia Municipal Bond Fund 107 Sub-adviser: BACAP
4
Other important information 113 ----------------------------------------------------------------- How the Funds are managed 114 [GRAPHIC] About your investment Information for investors Choosing a share class 116 About Investor A Shares 118 Front-end sales charge 118 Contingent deferred sales charge 119 About Investor B Shares 119 Contingent deferred sales charge 119 About Investor C Shares 121 Contingent deferred sales charge 121 When you might not have to pay a sales charge 122 Buying, selling and exchanging shares 125 How orders are processed 127 How selling and servicing agents are paid 133 Distributions and taxes 135 ----------------------------------------------------------------- Financial highlights 137 ----------------------------------------------------------------- Terms used in this prospectus 166 ----------------------------------------------------------------- Where to find more information back cover
5 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 115. [GRAPHIC] This Fund at a glance o Who should consider investing: Residents of California o Duration: More than 6 years o Income potential: High o Risk potential: High [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations California Municipal Bond Fund [GRAPHIC] Investment objective The Fund seeks as high a level of current interest income free of federal income tax and California state individual income tax as is consistent with prudent investment management and preservation of capital. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and California state individual income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than seven years, and its duration will be more than six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 6 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations California Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 7 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and California state individual income tax, but may be subject to the federal alternative minimum tax, and other state and localtaxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by California and its municipalities, is more vulnerable to unfavorable developments in California than funds that invest in municipal bonds of many different states. Although California has a larger and more diverse economy than most other states, its economy continues to be driven by, among other industries, agriculture, tourism, high technology and manufacturing. Adverse conditions affecting California generally could have an impact on California municipal securities. 8 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART]
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 11.5% 8.56% 12.50% -6.08% 16.50% 3.75% 8.51% 6.54% 6.18% 12.36%
*Year-to-date return as of June 30, 2001: 1.01% Best and worst quarterly returns during this period
Best: 1st quarter 1995: 6.72% Worst: 1st quarter 1994: -5.19%
[GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Municipal Bond Index, a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years 10 years Inception* Investor A Shares 6.99% 4.34% 6.26% 7.38% Investor B Shares 6.58% -- -- 2.98% Investor C Shares 10.53% -- -- 5.73% Lehman Municipal Bond Index 11.68% 5.84% 7.32% 8.87%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are March 30, 1984, July 15, 1998 and July 29, 1999, respectively. The return for the index shown is from inception of Investor A Shares. 9 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 4.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.50% 0.50% 0.50% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.32% 0.32% 0.32% ------- -------- -------- Total annual Fund operating expenses 1.07% 1.82% 1.82% Fee waivers and/or reimbursements (0.22)% (0.22)% (0.22)% ------- -------- -------- Total net expenses5 0.85% 1.60% 1.60% ======= ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 10 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $558 $779 $1,018 $1,702 Investor B Shares $663 $851 $1,165 $1,922 Investor C Shares $263 $551 $ 965 $2,119
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $163 $551 $965 $1,922 Investor C Shares $163 $551 $965 $2,119
11 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 115. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Florida State Municipal Bond Funds. o Who should consider investing: Residents of Florida o Duration: 3 to 6 years o Income potential: Moderate o Risk potential: Moderate [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. [GRAPHIC] Nations Florida Intermediate Municipal Bond Fund Investment objective The Fund seeks high current income exempt from federal income and the Florida state intangibles taxes consistent with moderate fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and Florida state intangibles tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between three and 10 years, and its duration will be between three and six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 12 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Florida Intermediate Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities of the state of Florida, its public authorities and local governments. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the portfolio management team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 13 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and Florida state intangibles tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Florida and its municipalities, is more vulnerable to unfavorable developments in Florida than funds that invest in municipal bonds of many different states. For example, the state's economy relies on various industries including retirement migration, tourism and agriculture, which have historically driven the economy, as well as high technology jobs, service sector jobs and international trade which complement the three traditional industries. Adverse conditions affecting these industries could have an impact on Florida municipal securities. 14 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART]
1993 1994 1995 1996 1997 1998 1999 2000 11.13% -4.30% 14.08% 3.53% 6.99% 5.16% -0.90% 8.01%
*Year-to-date return as of June 30, 2001: 2.53% Best and worst quarterly returns during this period
Best: 1st quarter 1995: 5.80% Worst: 1st quarter 1994: -4.29%
[GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman 7-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 4.45% 3.82% 4.89% Investor B Shares 4.20% 3.96% 4.45% Investor C Shares 6.39% 3.98% 4.83% Lehman 7-Year Municipal Bond Index 9.09% 5.41% 6.07%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are December 14, 1992, June 7, 1993 and December 17, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 15 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 3.25% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 3.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.40% 0.40% 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.31% 0.31% 0.31% ------ -------- -------- Total annual Fund operating expenses 0.96% 1.71% 1.71% Fee waivers and/or reimbursements (0.21)% (0.21)% (0.21)% ------ -------- -------- Total net expenses(5) 0.75% 1.50% 1.50% ====== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 16 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $399 $601 $819 $1,448 Investor B Shares $453 $718 $909 $1,803 Investor C Shares $253 $518 $909 $2,002
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $153 $518 $909 $1,803 Investor C Shares $153 $518 $909 $2,002
17 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 115. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Florida State Municipal Bond Funds. o Who should consider investing: Residents of Florida o Duration: More than 6 years o Income potential: High o Risk potential: High [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations Florida Municipal Bond Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal income and the Florida state intangibles taxes with the potential for principal fluctuation associated with investments in long-term municipal securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade long-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and Florida state intangibles tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than seven years, and its duration will be more than six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 18 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Florida Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities of the state of Florida, its public authorities and local governments. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 19 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and Florida state intangibles tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Florida and its municipalities, is more vulnerable to unfavorable developments in Florida than funds that invest in municipal bonds of many different states. For example, the state's economy relies on various industries including retirement migration, tourism and agriculture, which have historically driven the economy, as well as high technology jobs, service sector jobs and international trade which complement the three traditional industries. Adverse conditions affecting these industries could have an impact on Florida municipal securities. 20 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART]
1994 1995 1996 1997 1998 1999 2000 - -8.23% 19.65% 2.96% 8.72% 5.63% -2.78% 11.06%
*Year-to-date return as of June 30, 2001: 2.62% Best and worst quarterly returns during this period Best: 1st quarter 1995: 8.16% Worst: 1st quarter 1994: -8.00%
[GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Municipal Bond Index, a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 5.75% 3.99% 4.17% Investor B Shares 6.12% 4.14% 4.21% Investor C Shares 9.10% 4.38% 7.02% Lehman Municipal Bond Index 11.68% 5.84% 6.00%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are December 10, 1993, October 22, 1993 and November 3, 1994, respectively. The return for the index shown is from inception of Investor A Shares. 21 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 4.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.50% 0.50% 0.50% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.33% 0.33% 0.33% ------ -------- ------- Total annual Fund operating expenses 1.08% 1.83% 1.83% Fee waivers and/or reimbursements (0.23)% (0.23)% (0.23)% ------ -------- ------- Total net expenses(5) 0.85% 1.60% 1.60% ====== ======== =======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 22 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $558 $781 $1,022 $1,712 Investor B Shares $663 $853 $1,169 $1,932 Investor C Shares $263 $553 $ 969 $2,129
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $163 $553 $969 $1,932 Investor C Shares $163 $553 $969 $2,129
23 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 115. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Georgia State Municipal Bond Funds. o Who should consider investing: Residents of Georgia o Duration: 3 to 6 years o Income potential: Moderate o Risk potential: Moderate [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. Nations Georgia Intermediate Municipal Bond Fund [GRAPHIC] Investment objective The Fund seeks high current income exempt from federal and Georgia state income taxes consistent with moderate fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and Georgia state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between three and 10 years, and its duration will be between three and six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 24 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Georgia Intermediate Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. 25 o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and Georgia state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Georgia and its municipalities, is more vulnerable to unfavorable developments in Georgia than funds that invest in municipal bonds of many different states. For example, the state's economy relies on various industries such as textiles, apparel, automobile production, real estate and construction. Adverse conditions affecting these industries could have an impact on Georgia municipal securities. 26 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART]
1993 1994 1995 1996 1997 1998 1999 2000 10.88% -4.79% 14.07% 3.45% 6.97% 5.38% -1.55% 8.03%
*Year-to-date return as of June 30, 2001: 3.19% Best and worst quarterly returns during this period Best: 1st quarter 1995: 5.52% Worst: 1st quarter 1994: -4.62%
[GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman 7-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 4.50% 3.72% 5.21% Investor B Shares 4.23% 3.83% 4.31% Investor C Shares 6.23% 3.81% 4.91% Lehman 7-Year Municipal Bond Index 9.09% 5.41% 6.86%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are May 4, 1992, June 7, 1993 and June 17, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 27 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 3.25% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 3.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.40% 0.40% 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.33% 0.33% 0.33% ------ -------- -------- Total annual Fund operating expenses 0.98% 1.73% 1.73% Fee waivers and/or reimbursements (0.23)% (0.23)% (0.23)% ------ -------- -------- Total net expenses(5) 0.75% 1.50% 1.50% ====== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell thm within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 28 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $399 $605 $828 $1,469 Investor B Shares $453 $723 $917 $1,823 Investor C Shares $253 $523 $917 $2,022
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $153 $523 $917 $1,823 Investor C Shares $153 $523 $917 $2,022
29 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 115. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Georgia State Municipal Bond Funds. o Who should consider investing: Residents of Georgia o Duration: More than 6 years o Income potential: High o Risk potential: High [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. [GRAPHIC] Nations Georgia Municipal Bond Fund Investment objective The Fund seeks high current income exempt from federal and Georgia state income taxes with the potential for principal fluctuation associated with investments in long-term municipal securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade long-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and Georgia state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than seven years, and its duration will be more than six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 30 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Georgia Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 31 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and Georgia state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Georgia and its municipalities, is more vulnerable to unfavorable developments in Georgia than funds that invest in municipal bonds of many different states. For example, the state's economy relies on various industries such as textiles, apparel, automobile production, real estate and construction. Adverse conditions affecting these industries could have an impact on Georgia municipal securities. 32 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART]
1994 1995 1996 1997 1998 1999 2000 - -8.61% 19.44% 3.19% 8.55% 6.27% -3.74% 11.04%
*Year-to-date return as of June 30, 2001: 2.59% Best and worst quarterly returns during this period Best: 1st quarter 1995: 7.95% Worst: 1st quarter 1994: -7.42%
[GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other costs of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Municipal Bond Index, a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 5.74% 3.92% 4.08% Investor B Shares 6.22% 4.14% 4.16% Investor C Shares 9.10% 4.36% 6.97% Lehman Municipal Bond Index 11.68% 5.84% 5.75%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are December 30, 1993, October 21, 1993 and November 3, 1994, respectively. The return for the index shown is from inception of Investor A Shares. 33 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 4.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.50% 0.50% 0.50% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.58% 0.58% 0.58% ------ -------- -------- Total annual Fund operating expenses 1.33% 2.08% 2.08% Fee waivers and/or reimbursements (0.48)% (0.48)% (0.48)% ------ -------- -------- Total net expenses(5) 0.85% 1.60% 1.60% ====== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 34 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $558 $832 $1,127 $1,963 Investor B Shares $663 $906 $1,275 $2,180 Investor C Shares $263 $606 $1,075 $2,372
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $163 $606 $1,075 $2,180 Investor C Shares $163 $606 $1,075 $2,372
35 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 115. [GRAPHIC] This Fund at a glance o Who should consider investing: Residents of Kansas o Duration: 3 to 8 years o Income potential: Moderate o Risk potential: Moderate [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. [GRAPHIC] Nations Kansas Municipal Income Fund Investment objective The Fund seeks high current income exempt from federal and Kansas state income taxes consistent with moderate fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is free from federal income tax and Kansas state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between three and 10 years, and its duration will be between three and eight years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation or when other investments are more attractive. 36 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Kansas Municipal Income Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 37 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and Kansas state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Kansas and its municipalities, is more vulnerable to unfavorable developments in Kansas than funds that invest in municipal bonds of many different states. For example, the state's economy relies significantly on its agricultural resources. Adverse conditions affecting the resources and the state's agricultural industry could have a significant impact on Kansas municipal securities. [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. 38 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 3.25% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 3.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.50% 0.50% 0.50% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.43% 0.43% 0.43% ------ -------- -------- Total annual Fund operating expenses 1.18% 1.93% 1.93% Fee waivers and/or reimbursements (0.33)% (0.33)% (0.33)% ------ -------- -------- Total net expenses(5) 0.85% 1.60% 1.60% ====== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 39 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $409 $656 $ 923 $1,684 Investor B Shares $463 $774 $1,011 $2,032 Investor C Shares $263 $574 $1,011 $2,227
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $163 $574 $1,011 $2,032 Investor C Shares $163 $574 $1,011 $2,227
40 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 115. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Maryland State Municipal Bond Funds. o Who should consider investing: Residents of Maryland o Duration: 3 to 6 years o Income potential: Moderate o Risk potential: Moderate [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. [GRAPHIC] Nations Maryland Intermediate Municipal Bond Fund Investment objective The Fund seeks high current income exempt from federal and Maryland state income taxes consistent with moderate fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and Maryland state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between three and 10 years, and its duration will be between three and six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 41 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Maryland Intermediate Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 42 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and Maryland state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Maryland and its municipalities, is more vulnerable to unfavorable developments in Maryland than funds that invest in municipal bonds of many different states. For example, the state's economy relies on the service, wholesale and retail trade, government and manufacturing sectors of the economy. Adverse conditions affecting these sectors could have an impact on Maryland municipal securities. 43 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [GRAPHIC]
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 10.17% 7.05% 10.01% -4.70% 13.61% 3.43% 6.55% 5.09% -1.04% 8.28%
*Year-to-date return as of June 30, 2001: 2.67% Best and worst quarterly returns during this period Best: 1st quarter 1995: 5.57% Worst: 1st quarter 1994: -4.53%
[GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman 7-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years 10 years inception* Investor A Shares 4.80% 3.72% 5.37% 5.59% Investor B Shares 4.48% 3.84% -- 4.23% Investor C Shares 6.48% 3.82% -- 4.64% Lehman 7-Year Municipal 9.09% 5.41% 9.30% 8.84% Bond Index
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are September 1, 1990, June 8, 1993 and June 17, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 44 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 3.25% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 3.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.40% 0.40% 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.31% 0.31% 0.31% ------ -------- -------- Total annual Fund operating expenses 0.96% 1.71% 1.71% Fee waivers and/or reimbursements (0.21)% (0.21)% (0.21)% ------ -------- -------- Total net expenses(5) 0.75% 1.50% 1.50% ====== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 45 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $399 $601 $819 $1,448 Investor B Shares $453 $718 $909 $1,803 Investor C Shares $253 $518 $909 $2,002
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $153 $518 $909 $1,803 Investor C Shares $153 $518 $909 $2,002
46 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 115. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Maryland State Municipal Bond Funds. o Who should consider investing: Residents of Maryland o Duration: More than 6 years o Income potential: High o Risk potential: High [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. [GRAPHIC] Nations Maryland Municipal Bond Fund Investment objective The Fund seeks high current income exempt from federal and Maryland state income taxes with the potential for principal fluctuation associated with investments in long-term municipal securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade long-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and Maryland state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than seven years, and its duration will be more than six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 47 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Maryland Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. 48 o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and Maryland state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Maryland and its municipalities, is more vulnerable to unfavorable developments in Maryland than funds that invest in municipal bonds of many different states. For example, the state's economy relies on the service, wholesale and retail trade, government and manufacturing sectors of the economy. Adverse conditions affecting these sectors could have a significant impact on Maryland municipal securities. 49 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART]
1994 1995 1996 1997 1998 1999 2000 -9.25% 19.04% 3.02% 9.00% 5.52% -3.23% 10.69%
*Year-to-date return as of June 30, 2001: 2.61% Best and worst quarterly returns during this period Best: 1st quarter 1995: 8.08% Worst: 1st quarter 1994: -7.92%
[GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Municipal Bond Index, a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 5.44% 4.05% 4.29% Investor B Shares 5.87% 4.22% 4.05% Investor C Shares 8.88% 4.46% 6.88% Lehman Municipal Bond Index 11.68% 5.84% 5.79%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are November 4, 1993, October 21, 1993 and November 3, 1994, respectively. The return for the index shown is from inception of Investor A Shares. 50 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 4.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.50% 0.50% 0.50% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.50% 0.50% 0.50% ------ -------- -------- Total annual Fund operating expenses 1.25% 2.00% 2.00% Fee waivers and/or reimbursements (0.40)% (0.40)% (0.40)% ------ -------- -------- Total net expenses(5) 0.85% 1.60% 1.60% ====== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 51 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $558 $816 $1,093 $1,884 Investor B Shares $663 $889 $1,241 $2,101 Investor C Shares $263 $589 $1,041 $2,295
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $163 $589 $1,041 $2,101 Investor C Shares $163 $589 $1,041 $2,295
52 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 115. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two North Carolina State Municipal Bond Funds. o Who should consider investing: Residents of North Carolina o Duration: 3 to 6 years o Income potential: Moderate o Risk potential: Moderate [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. [GRAPHIC] Nations North Carolina Intermediate Municipal Bond Fund Investment objective The Fund seeks high current income exempt from federal and North Carolina state income taxes consistent with moderate fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and North Carolina state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between three and 10 years, and its duration will be between three and six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 53 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations North Carolina Intermediate Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 54 o Tax considerations - Most of the distributions paid by the Fund come from interest on North Carolina municipal securities, and are generally free from federal income tax and North Carolina state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by North Carolina and its municipalities, is more vulnerable to unfavorable developments in North Carolina than funds that invest in municipal bonds of many different states. For example, the state's economy relies significantly on a combination of industries such as manufacturing, agriculture (tobacco), biotechnology (including pharmaceutical research), educational services, banking and tourism. Also, North Carolina voters have approved the issuance of $3.1 billion of bonds for the state's universities and community colleges which would more than double the state's bonds outstanding. These factors could have a significant impact on North Carolina state and municipal securities. 55 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART]
1993 1994 1995 1996 1997 1998 1999 2000 10.29% -4.27% 13.91% 3.64% 7.01% 5.16% -1.58% 8.32%
*Year-to-date return as of June 30, 2001: 2.60% Best and worst quarterly returns during this period Best: 1st quarter 1995: 5.78% Worst: 1st quarter 1994: -4.07%
[GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman 7-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 4.80% 3.77% 4.73% Investor B Shares 4.52% 3.89% 4.31% Investor C Shares 6.52% 3.87% 4.65% Lehman 7-Year Municipal Bond Index 9.09% 5.41% 6.07%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are December 14, 1992, June 7, 1993 and December 16, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 56 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 3.25% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 3.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.40% 0.40% 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.31% 0.31% 0.31% ------ -------- -------- Total annual Fund operating expenses 0.96% 1.71% 1.71% Fee waivers and/or reimbursements (0.21)% (0.21)% (0.21)% ------ -------- -------- Total net expenses(5) 0.75% 1.50% 1.50% ====== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 57 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $399 $601 $819 $1,448 Investor B Shares $453 $718 $909 $1,803 Investor C Shares $253 $518 $909 $2,002
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $153 $518 $909 $1,803 Investor C Shares $153 $518 $909 $2,002
58 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 115. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two North Carolina State Municipal Bond Funds. o Who should consider investing: Residents of North Carolina o Duration: More than 6 years o Income potential: High o Risk potential: High [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. [GRAPHIC] Nations North Carolina Municipal Bond Fund Investment objective The Fund seeks high current income exempt from federal and North Carolina state income taxes with the potential for principal fluctuation associated with investments in long-term municipal securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade long-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and North Carolina state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than seven years, and its duration will be more than six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 59 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations North Carolina Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 60 o Tax considerations - Most of the distributions paid by the Fund come from interest on North Carolina municipal securities, and are generally free from federal income tax and North Carolina state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by North Carolina and its municipalities, is more vulnerable to unfavorable developments in North Carolina than funds that invest in municipal bonds of many different states. For example, the state's economy relies significantly on a combination of industries such as manufacturing, agriculture (tobacco), biotechnology (including pharmaceutical research), educational services, banking and tourism. Also, North Carolina voters have approved the issuance of $3.1 billion of bonds for the state's universities and community colleges which would more than double the state's bonds outstanding. These factors could have a significant impact on North Carolina state and municipal securities. 61 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS]
1994 1995 1996 1997 1998 1999 2000 - -9.22% 20.14% 2.50% 8.84% 5.96% -3.40% 10.36%
*Year-to-date return as of June 30, 2001: 2.77% Best and worst quarterly returns during this period Best: 1st quarter 1995: 8.40% Worst: 1st quarter 1994: -7.79%
Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Municipal Bond Index, a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 5.09% 3.72% 4.05% Investor B Shares 5.54% 3.90% 4.07% Investor C Shares 8.53% 4.13% 6.88% Lehman Municipal Bond Index 11.68% 5.84% 5.79%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are November 1, 1993, October 21, 1993 and November 3, 1994, respectively. The return for the index shown is from inception of Investor A Shares. 62 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 4.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.50% 0.50% 0.50% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.48% 0.48% 0.48% ------ -------- -------- Total annual Fund operating expenses 1.23% 1.98% 1.98% Fee waivers and/or reimbursements (0.38)% (0.38)% (0.38)% ------ -------- -------- Total net expenses(5) 0.85% 1.60% 1.60% ====== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 63 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $558 $812 $1,085 $1,864 Investor B Shares $663 $885 $1,232 $2,081 Investor C Shares $263 $585 $1,032 $2,276
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $163 $585 $1,032 $2,081 Investor C Shares $163 $585 $1,032 $2,276
64 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 115. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two South Carolina State Municipal Bond Funds. o Who should consider investing: Residents of South Carolina o Duration: 3 to 6 years o Income potential: Moderate o Risk potential: Moderate [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. [GRAPHIC] Nations South Carolina Intermediate Municipal Bond Fund Investment objective The Fund seeks high current income exempt from federal and South Carolina state income taxes consistent with moderate fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and South Carolina state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between three and 10 years, and its duration will be between three and six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 65 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations South Carolina Intermediate Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 66 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and South Carolina state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by South Carolina and its municipalities, is more vulnerable to unfavorable developments in South Carolina than funds that invest in municipal bonds of many different states. Traditionally, South Carolina has primarily relied upon agriculture, manufacturing and related industries and services. However, recent positive growth in the state's economy has been driven by gains in the tourism, business services and international trade industries. Adverse conditions affecting any of these industries could have an impact on South Carolina municipal securities. 67 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS]
1993 1994 1995 1996 1997 1998 1999 2000 9.84% -3.11% 13.45% 3.76% 6.62% 5.33% -1.33% 8.44%
*Year-to-date return as of June 30, 2001: 2.73% Best and worst quarterly returns during this period Best: 1st quarter 1995: 5.18% Worst: 1st quarter 1994: -3.50%
Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman 7-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 4.95% 3.82% 5.13% Investor B Shares 4.64% 3.94% 4.43% Investor C Shares 6.63% 3.92% 4.90% Lehman 7-Year Municipal Bond Index 9.09% 5.41% 6.86%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are May 5, 1992, June 8, 1993 and June 17, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 68 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 3.25% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 3.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.40% 0.40% 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.30% 0.30% 0.30% ------ -------- -------- Total annual Fund operating expenses 0.95% 1.70% 1.70% Fee waivers and/or reimbursements (0.20)% (0.20)% (0.20)% ------ -------- -------- Total net expenses(5) 0.75% 1.50% 1.50% ====== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 69 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $399 $599 $815 $1,437 Investor B Shares $453 $716 $904 $1,793 Investor C Shares $253 $516 $904 $1,992
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $153 $516 $904 $1,793 Investor C Shares $153 $516 $904 $1,992
70 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 115. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two South Carolina State Municipal Bond Funds. o Who should consider investing: Residents of South Carolina o Duration: More than 6 years o Income potential: High o Risk potential: High [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. [GRAPHIC] Nations South Carolina Municipal Bond Fund Investment objective The Fund seeks high current income exempt from federal and South Carolina state income taxes with the potential for principal fluctuation associated with investments in long-term municipal securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade long-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and South Carolina state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than seven years, and its duration will be more than six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 71 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations South Carolina Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 72 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and South Carolina state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by South Carolina and its municipalities, is more vulnerable to unfavorable developments in South Carolina than funds that invest in municipal bonds of many different states. Traditionally, South Carolina has primarily relied upon agriculture, manufacturing and related industries and services. However, recent positive growth in the state's economy has been driven by gains in the tourism, business services and international trade industries. Adverse conditions affecting any of these industries could have an impact on South Carolina municipal securities. 73 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS]
1994 1995 1996 1997 1998 1999 2000 - -6.24% 19.39% 3.26% 8.43% 5.25% -3.42% 11.58%
*Year-to-date return as of June 30, 2001: 3.06% Best and worst quarterly returns during this period
Best: 1st quarter 1995: 7.86% Worst: 1st quarter 1994: -5.68%
Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Municipal Bond Index, a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 6.24% 3.89% 4.68% Investor B Shares 6.86% 4.08% 4.56% Investor C Shares 9.86% 4.32% 6.91% Lehman Municipal Bond Index 11.68% 5.84% 5.79%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are November 8, 1993, October 21, 1993 and November 3, 1994, respectively. The return for the index shown is from inception of Investor A Shares. 74 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 4.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.50% 0.50% 0.50% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.49% 0.49% 0.49% ------ -------- -------- Total annual Fund operating expenses 1.24% 1.99% 1.99% Fee waivers and/or reimbursements (0.39)% (0.39)% (0.39)% ------ -------- -------- Total net expenses(5) 0.85% 1.60% 1.60% ====== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 75 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $558 $814 $1,089 $1,874 Investor B Shares $663 $887 $1,237 $2,091 Investor C Shares $263 $587 $1,037 $2,285
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $163 $587 $1,037 $2,091 Investor C Shares $163 $587 $1,037 $2,285
76 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 115. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Tennessee State Municipal Bond Funds. o Who should consider investing: Residents of Tennessee o Duration: 3 to 6 years o Income potential: Moderate o Risk potential: Moderate [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. [GRAPHIC] Nations Tennessee Intermediate Municipal Bond Fund Investment objective The Fund seeks high current income exempt from federal income tax and the Tennessee Hall Income Tax on unearned income consistent with moderate fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and the Tennessee Hall Income Tax on unearned income. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between three and 10 years, and its duration will be between three and six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 77 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Tennessee Intermediate Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 78 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and the Tennessee Hall Income Tax on unearned income, but may be subject to the federal alternative minimum tax, and state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Tennessee and its municipalities, is more vulnerable to unfavorable developments in Tennessee than funds that invest in municipal bonds of many different states. For example, the state's economic diversity has improved substantially over the last several years with investments announced in new and expanding businesses. Adverse conditions affecting these investments could have an impact on Tennessee municipal securities. 79 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS]
1994 1995 1996 1997 1998 1999 2000 - -4.64% 13.93% 3.72% 6.71% 5.20% -1.46% 7.94%
*Year-to-date return as of June 30, 2001: 3.19% Best and worst quarterly returns during this period Best: 1st quarter 1995: 5.76% Worst: 1st quarter 1994: -4.23%
Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman 7-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 4.46% 3.69% 4.33% Investor B Shares 4.24% 3.82% 4.27% Investor C Shares 5.71% 3.74% 5.37% Lehman 7-Year Municipal Bond Index 9.09% 5.41% 5.74%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are April 2, 1993, June 10, 1993 and November 3, 1994, respectively. The return for the index shown is from inception of Investor A Shares. 80 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 3.25% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 3.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.40% 0.40% 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.44% 0.44% 0.44% ------ -------- -------- Total annual Fund operating expenses 1.09% 1.84% 1.84% Fee waivers and/or reimbursements (0.34)% (0.34)% (0.34)% ------ -------- -------- Total net expenses(5) 0.75% 1.50% 1.50% ====== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 81 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $399 $628 $875 $1,583 Investor B Shares $453 $746 $964 $1,934 Investor C Shares $253 $546 $964 $2,131
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $153 $546 $964 $1,934 Investor C Shares $153 $546 $964 $2,131
82 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 115. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Tennessee State Municipal Bond Funds. o Who should consider investing: Residents of Tennessee o Duration: More than 6 years o Income potential: High o Risk potential: High [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. [GRAPHIC] Nations Tennessee Municipal Bond Fund Investment objective The Fund seeks high current income exempt from federal income tax and the Tennessee Hall Income Tax on unearned income with the potential for principal fluctuation associated with investments in long-term municipal securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade long-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and the Tennessee Hall Income Tax on unearned income. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than seven years, and its duration will be more than six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 83 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Tennessee Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 84 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and the Tennessee Hall Income Tax on unearned income, but may be subject to the federal alternative minimum tax, and state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Tennessee and its municipalities, is more vulnerable to unfavorable developments in Tennessee than funds that invest in municipal bonds of many different states. For example, the state's economic diversity has improved substantially over the last several years with investments announced in new and expanding businesses. Adverse conditions affecting these investments could have an impact on Tennessee municipal securities. 85 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] -6.68% 19.21% 3.56% 9.04% 5.53% -3.76% 11.32% ------ ------ ----- ----- ----- ------ ------ 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 2.86% Best and worst quarterly returns during this period Best: 1st quarter 1995: 7.93% Worst: 1st quarter 1994: -6.40%
Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Municipal Bond Index, a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 5.98% 3.98% 4.57% Investor B Shares 6.50% 4.17% 4.44% Investor C Shares 9.50% 4.40% 6.99% Lehman Municipal Bond Index 11.68% 5.84% 5.79%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are November 2, 1993, October 21, 1993 and November 3, 1994, respectively. The return for the index shown is from inception of Investor A Shares. 86 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 4.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.50% 0.50% 0.50% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 1.06% 1.06% 1.06% ------ -------- -------- Total annual Fund operating expenses 1.81% 2.56% 2.56% Fee waivers and/or reimbursements (0.96)% (0.96)% (0.96)% ------ -------- -------- Total net expenses(5) 0.85% 1.60% 1.60% ====== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 87 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $558 $ 929 $1,325 $2,429 Investor B Shares $663 $1,005 $1,474 $2,639 Investor C Shares $263 $ 705 $1,274 $2,823
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $163 $705 $1,274 $2,639 Investor C Shares $163 $705 $1,274 $2,823
88 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 115. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Texas State Municipal Bond Funds. o Who should consider investing: Residents of Texas o Duration: 3 to 6 years o Income potential: Moderate o Risk potential: Moderate [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. [GRAPHIC] Nations Texas Intermediate Municipal Bond Fund Investment objective The Fund seeks high current income exempt from federal income tax consistent with moderate fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between three and 10 years, and its duration will be between three and six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 89 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Texas Intermediate Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities of the state of Texas, its public authorities and local governments. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 90 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and is generally free from federal income tax, but may be subject to the federal alternative minimum tax, and state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Texas and its municipalities, is more vulnerable to unfavorable developments in Texas than funds that invest in municipal bonds of many different states. For example, the state's economy relies significantly on the high-technology, oil, real estate and agriculture industries as well as the service-producing and goods-producing sectors. Adverse conditions affecting these industries and sectors could have an impact on Texas municipal securities. 91 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS]
1994 1995 1996 1997 1998 1999 2000 - -3.52% 12.71% 3.44% 6.91% 5.20% -1.40% 8.26%
*Year-to-date return as of June 30, 2001: 2.63% Best and worst quarterly returns during this period Best: 1st quarter 1995: 4.88% Worst: 1st quarter 1994: -4.02%
Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman 7-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 4.78% 3.74% 4.35% Investor B Shares 4.45% 3.86% 4.16% Investor C Shares 6.34% 3.81% 5.33% Lehman 7-Year Municipal Bond Index 9.09% 5.41% 5.95%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are February 4, 1993, June 22, 1993 and November 3, 1994, respectively. The return for the index shown is from inception of Investor A Shares. 92 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 3.25% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 3.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.40% 0.40% 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.30% 0.30% 0.30% ------ -------- -------- Total annual Fund operating expenses 0.95% 1.70% 1.70% Fee waivers and/or reimbursements (0.20)% (0.20)% (0.20)% ------ -------- -------- Total net expenses(5) 0.75% 1.50% 1.50% ====== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 93 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $399 $599 $815 $1,437 Investor B Shares $453 $716 $904 $1,793 Investor C Shares $253 $516 $904 $1,992
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $153 $516 $904 $1,793 Investor C Shares $153 $516 $904 $1,992
94 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 115. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Texas State Municipal Bond Funds. o Who should consider investing: Residents of Texas o Duration: More than 6 years o Income potential: High o Risk potential: High [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. [GRAPHIC] Nations Texas Municipal Bond Fund Investment objective The Fund seeks high current income exempt from federal income tax with the potential for principal fluctuation associated with investments in long-term municipal securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade long-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than seven years, and its duration will be more than six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 95 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Texas Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities of the state of Texas, its public authorities and local governments. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 96 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax, but may be subject to the federal alternative minimum tax, and state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Texas and its municipalities, is more vulnerable to unfavorable developments in Texas than funds that invest in municipal bonds of many different states. For example, the state's economy relies significantly on the high-technology, oil, real estate and agriculture industries as well as the service-producing and goods-producing sectors. Adverse conditions affecting these industries and sectors could have an impact on Texas municipal securities. 97 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS]
1994 1995 1996 1997 1998 1999 2000 - -8.43% 19.60% 3.59% 8.82% 6.18% -3.52% 11.58%
*Year-to-date return as of June 30, 2001: 2.18% Best and worst quarterly returns during this period Best: 1st quarter 1995: 7.97% Worst: 1st quarter 1994: -7.26%
Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Municipal Bond Index, a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 6.26% 4.17% 4.33% Investor B Shares 6.75% 4.36% 4.28% Investor C Shares 9.75% 4.59% 7.12% Lehman Municipal Bond Index 11.68% 5.84% 5.75%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are December 17, 1993, October 21, 1993 and November 3, 1994, respectively. The return for the index shown is from inception of Investor A Shares. 98 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buyand hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 4.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.50% 0.50% 0.50% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.87% 0.87% 0.87% ------ -------- -------- Total annual Fund operating expenses 1.62% 2.37% 2.37% Fee waivers and/or reimbursements (0.77)% (0.77)% (0.77)% ------ -------- -------- Total net expenses(5) 0.85% 1.60% 1.60% ====== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 99 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $558 $891 $1,247 $2,247 Investor B Shares $663 $966 $1,396 $2,459 Investor C Shares $263 $666 $1,196 $2,647
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $163 $666 $1,196 $2,459 Investor C Shares $163 $666 $1,196 $2,647
100 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 115. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Virginia State Municipal Bond Funds. o Who should consider investing: Residents of Virginia o Duration: 3 to 6 years o Income potential: Moderate o Risk potential: Moderate [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. [GRAPHIC] Nations Virginia Intermediate Municipal Bond Fund Investment objective The Fund seeks high current income exempt from federal and Virginia state income taxes consistent with moderate fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade intermediate-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and Virginia state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between three and 10 years, and its duration will be between three and six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 101 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Virginia Intermediate Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 102 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and Virginia state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Virginia and its municipalities, is more vulnerable to unfavorable developments in Virginia than funds that invest in municipal bonds of many different states. Traditionally, Virginia's economy has relied heavily upon industries such as agriculture (tobacco) and federal government-related employment. However, recent growth in the state's economy has been related to new businesses in high-technology, wine-producing and tourism industries. Adverse conditions affecting the industries could have a significant impact on Virginia municipal securities. 103 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS]
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 9.66% 6.85% 9.91% -4.47% 13.16% 3.62% 6.63% 5.62% -1.23% 8.43%
*Year-to-date return as of June 30, 2001: 2.78% Best and worst quarterly returns during this period Best: 1st quarter 1995: 5.19% Worst: 1st quarter 1994: -4.10%
Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman 7-Year Municipal Bond Index, a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years 10 years inception* Investor A Shares 4.91% 3.79% 5.31% 5.50% Investor B Shares 4.53% 3.90% -- 4.22% Investor C Shares 6.53% 3.88% -- 4.66% Lehman 7-Year Municipal 9.09% 5.41% 9.30% 8.46% Bond Index
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are December 5, 1989, June 7, 1993 and June 17, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 104 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 3.25% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 3.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.40% 0.40% 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.30% 0.30% 0.30% ------ -------- -------- Total annual Fund operating expenses 0.95% 1.70% 1.70% Fee waivers and/or reimbursements (0.20)% (0.20)% (0.20)% ------ -------- -------- Total net expenses(5) 0.75% 1.50% 1.50% ====== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 105 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $399 $599 $815 $1,437 Investor B Shares $453 $716 $904 $1,793 Investor C Shares $253 $516 $904 $1,992
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $153 $516 $904 $1,793 Investor C Shares $153 $516 $904 $1,992
106 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Municipal Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 115. [GRAPHIC] This Fund at a glance This information is designed to help you compare the two Virginia State Municipal Bond Funds. o Who should consider investing: Residents of Virginia o Duration: More than 6 years o Income potential: High o Risk potential: High [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. [GRAPHIC] Nations Virginia Municipal Bond Fund Investment objective The Fund seeks high current income exempt from federal and Virginia state income taxes with the potential for principal fluctuation associated with investments in long-term municipal securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in investment grade long-term municipal securities. The Fund also normally invests at least 80% of its assets in securities that pay interest that is generally free from federal income tax and Virginia state income tax. The Fund may invest up to 20% of its assets in debt securities that are taxable, including securities that are subject to the federal alternative minimum tax. The Fund may invest up to 10% of its total assets in municipal high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than seven years, and its duration will be more than six years. When selecting individual investments, the team: o looks at a security's potential to generate both income and price appreciation o allocates assets among revenue bonds, general obligation bonds, insured bonds and pre-refunded bonds (bonds that are repaid before their maturity date), based on how they have performed in the past, and on how they are expected to perform under current market conditions. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team also considers other factors. It reviews public policy issues that may affect the municipal bond market. Securities with different coupon rates may also represent good investment opportunities based on supply and demand conditions for bonds. The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 107 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Virginia Municipal Bond Fund has the following risks: o Investment strategy risk - This Fund is considered to be non-diversified because it invests most of its assets in securities that pay interest that is free from income tax in one state. The value of the Fund and the amount of interest it pays could also be affected by the financial conditions of the state, its public authorities and local governments. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Holding cash - The Fund may hold cash while it's waiting to make an investment, as a temporary defensive strategy, or if the team believes that attractive tax-exempt investments are not available. Any uninvested cash the Fund holds does not earn income. 108 o Tax considerations - Most of the distributions paid by the Fund come from interest on municipal securities, and are generally free from federal income tax and Virginia state income tax, but may be subject to the federal alternative minimum tax, and other state and local taxes. Any portion of a distribution that comes from income from non-exempt sources such as income from other kinds of securities or from realized capital gains is generally subject to federal, state and local taxes. Shares of the Fund would not be suitable investments for tax-deferred plans and tax-exempt investors. o State specific risk - State specific risk is the chance that the Fund, because it invests primarily in securities issued by Virginia and its municipalities, is more vulnerable to unfavorable developments in Virginia than funds that invest in municipal bonds of many different states. Traditionally, Virginia's economy has relied heavily upon industries such as agriculture (tobacco) and federal government-related employment. However, recent growth in the state's economy has been related to new businesses in high-technology, wine-producing and tourism industries. Adverse conditions affecting the industries could have a significant impact on Virginia municipal securities. 109 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] -9.53% 19.56% 3.49% 9.25% 5.71% -3.24% 9.97% ------ ------ ----- ----- ----- ------ ----- 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 2.67% Best and worst quarterly returns during this period Best: 1st quarter 1995: 8.14% Worst: 1st quarter 1994: -8.44%
[GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Municipal Bond Index, a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 4.78% 3.91% 4.15% Investor B Shares 5.26% 4.10% 3.99% Investor C Shares 8.24% 4.34% 6.94% Lehman Municipal Bond Index 11.68% 5.84% 5.79%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are November 8, 1993, October 21, 1993 and November 3, 1994, respectively. The return for the index shown is from inception of Investor A Shares. 110 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 4.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.50% 0.50 % 0.50 % Distribution (12b-1) and shareholder servicing fees 0.25% 1.00 % 1.00 % Other expenses 0.57% 0.57 % 0.57 % ------ -------- -------- Total annual Fund operating expenses 1.32% 2.07 % 2.07 % Fee waivers and/or reimbursements (0.47)% (0.47) % (0.47) % ------ -------- -------- Total net expenses(5) 0.85% 1.60 % 1.60 % ====== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 111 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $558 $830 $1,122 $1,953 Investor B Shares $663 $903 $1,270 $2,170 Investor C Shares $263 $603 $1,070 $2,363
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $163 $603 $1,070 $2,170 Investor C Shares $163 $603 $1,070 $2,363
112 [GRAPHIC] Other important information You'll find specific information about each Fund's principal investments, strategies and risks in the descriptions starting on page 6. The following are some other risks and information you should consider before you invest: o Changing investment objectives and policies - The investment objective and certain investment policies of any Fund can be changed without shareholder approval. Other investment policies may be changed only with shareholder approval. o Holding other kinds of investments - The Funds may hold investments that aren't part of their principal investment strategies. Please refer to the SAI for more information. The management team can also choose not to invest in specific securities described in this prospectus and in the SAI. o Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest up to 25% of their assets in Nations Money Market Funds. BA Advisors and its affiliates are entitled to receive fees from the Nations Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Funds for services provided directly. BA Advisors may waive fees which it is entitled to receive from either the Nations Money Market Funds or the Funds. o Investing defensively - A Fund may temporarily hold investments that are not part of its investment objective or its principal investment strategies to try to protect it during a market or economic downturn or because of political or other conditions. A Fund may not achieve its investment objective while it is investing defensively. o Bank of America and its affiliates - Bank of America and its affiliates currently provide services to some or all of the Funds, including investment advisory, investment sub-advisory, co-administration and brokerage services, and are paid for providing these services. Bank of America and its affiliates also may, at times, provide other services and be compensated for them, including transfer agency, interfund lending and securities lending services, or make loans to the Funds. Finally, Bank of America or its affiliates may serve as counterparties in transactions with Nations Funds where permitted by law or regulation, and may receive compensation in that capacity. o Portfolio turnover - A Fund that replaces -- or turns over -- more than 100% of its investments in a year is considered to trade frequently. Frequent trading can result in larger distributions of short-term capital gains to shareholders. These gains are taxable at higher rates than long-term capital gains. Frequent trading can also mean higher brokerage and other transaction costs, which could reduce the Fund's returns. The Funds generally buy securities for capital appreciation, investment income, or both, and don't engage in short-term trading. You'll find the portfolio turnover rate for each Fund in Financial highlights. 113 [GRAPHIC] How the Funds are managed [GRAPHIC] Banc of America Advisors, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Investment adviser BA Advisors is the investment adviser to over 75 mutual fund portfolios in the Nations Funds Family, including the Funds described in this prospectus. BA Advisors is a registered investment adviser. It's a wholly-owned subsidiary of Bank of America, which is owned by Bank of America Corporation. Nations Funds pays BA Advisors an annual fee for its investment advisory services. The fee is calculated as a percentage of the average daily net assets of each Fund and is paid monthly. BA Advisors uses part of this money to pay the investment sub-adviser for the services it provides to each Fund. BA Advisors has agreed to waive fees and/or reimburse expenses for certain Funds until July 31, 2002. You'll find a discussion of any waiver and/or reimbursement in the Fund descriptions. There is no assurance that BA Advisors will continue to waive and/or reimburse any fees and/or expenses after this date. The following chart shows the maximum advisory fees BA Advisors can receive, along with the actual advisory fees it received during the Funds' last fiscal year, after waivers and/or reimbursements: Annual investment advisory fee, as a % of average daily net assets
Maximum advisory Actual fee paid fee last fiscal year Nations California Municipal Bond Fund 0.50% 0.30% Nations Florida Intermediate Municipal Bond Fund 0.40% 0.21% Nations Florida Municipal Bond Fund 0.50% 0.29% Nations Georgia Intermediate Municipal Bond Fund 0.40% 0.19% Nations Georgia Municipal Bond Fund 0.50% 0.04% Nations Kansas Municipal Income Fund 0.50% N/A Nations Maryland Intermediate Municipal Bond Fund 0.40% 0.20% Nations Maryland Municipal Bond Fund 0.50% 0.12% Nations North Carolina Intermediate Municipal Bond Fund 0.40% 0.21% Nations North Carolina Municipal Bond Fund 0.50% 0.14% Nations South Carolina Intermediate Municipal Bond Fund 0.40% 0.21% Nations South Carolina Municipal Bond Fund 0.50% 0.13% Nations Tennessee Intermediate Municipal Bond Fund 0.40% 0.08% Nations Tennessee Municipal Bond Fund 0.50% 0.00% Nations Texas Intermediate Municipal Bond Fund 0.40% 0.22% Nations Texas Municipal Bond Fund 0.50% 0.00% Nations Virginia Intermediate Municipal Bond Fund 0.40% 0.22% Nations Virginia Municipal Bond Fund 0.50% 0.05%
114 Investment sub-adviser Nations Funds and BA Advisors engage one or more investment sub-advisers for each Fund to make day-to-day investment decisions for the Fund. BA Advisors retains ultimate responsibility (subject to Board oversight) for overseeing the sub-advisers and evaluates the Funds' needs and available sub-advisers' skills and abilities on an ongoing basis. Based on its evaluations, BA Advisors may at times recommend to a Fund's Board that the Fund: o change, add or terminate one or more sub-advisers; o continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or o materially change a sub-advisory agreement with a sub-adviser. Applicable law requires a Fund to obtain shareholder approval in order to act on most of these types of recommendations, even if the Fund's Board has approved the proposed action and believes that the action is in shareholders' best interests. BA Advisors and the Funds have applied for relief from the SEC to permit the Funds to act on many of BA Advisors' recommendations with approval only by the Funds' Board and not by Fund shareholders. BA Advisors or a Fund would inform the Fund's shareholders of any actions taken in reliance on this relief. Until BA Advisors and the Funds obtain the relief, each Fund will continue to submit these matters to shareholders for their approval to the extent required by applicable law. [GRAPHIC] Banc of America Capital Management, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Banc of America Capital Management, LLC BACAP is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Its management expertise covers all major domestic asset classes, including equity and fixed income securities, and money market instruments. Currently managing more than $125 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 60 funds in the Nations Funds Family. BACAP takes a team approach to investment management. Each team has access to the latest technology and analytical resources. BACAP is the investment sub-adviser to the Funds. BACAP's Municipal Fixed Income Management Team is responsible for making the day-to-day investment decisions for each Fund. [GRAPHIC] Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 Other service providers The Funds are distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. Stephens may pay commissions, distribution (12b-1) and shareholder servicing fees, and/or other compensation to companies for selling shares and providing services to investors. BA Advisors is also co-administrator of the Funds, and assists in overseeing the administrative operations of the Funds. The Funds pay BA Advisors and Stephens a combined fee of 0.22% for their services, plus certain out-of-pocket expenses. The fee is calculated as an annual percentage of the average daily net assets of the Funds, and is paid monthly. [GRAPHIC] PFPC Inc. 400 Bellevue Parkway Wilmington, Delaware 19809 PFPC Inc. (PFPC) is the transfer agent for the Funds' shares. Its responsibilities include processing purchases, sales and exchanges, calculating and paying distributions, keeping shareholder records, preparing account statements and providing customer service. 115 About your investment - -------------------------------------------------------------------------------- [GRAPHIC] We've used the term, investment professional, to refer to the person who has assisted you with buying Nations Funds. Selling agent or servicing agent (sometimes referred to as a selling agent) means the company that employs your investment professional. Selling and servicing agents include banks, brokerage firms, mutual fund dealers and other financial institutions, including affiliates of Bank of America. [GRAPHIC] For more information about how to choose a share class, contact your investment professional or call us at 1.800.321.7854. [GRAPHIC] Before you invest, please note that over time, distribution (12b-1) and shareholder servicing fees will increase the cost of your investment, and may cost you more than any sales charges you may pay. For more information, see How selling and servicing agents are paid. [GRAPHIC] Choosing a share class Before you can invest in the Funds, you'll need to choose a share class. There are three classes of shares of each Fund offered by this prospectus. Each class has its own sales charges and fees. The table below compares the charges and fees and other features of the share classes.
Intermediate Long-Term Municipal Municipal Investor A Shares Bond Funds Bond Funds Maximum amount you can buy no limit no limit Maximum front-end sales charge 3.25% 4.75% Maximum deferred sales charge(1) none none Maximum annual distribution 0.25% distribution 0.25% distribution and shareholder servicing fees (12b-1)/service fee (12b-1)/service fee Conversion feature none none
(1) A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. Intermediate Long-Term Municipal Municipal Investor B Shares Bond Funds Bond Funds Maximum amount you can buy $250,000 $250,000 Maximum front-end sales charge none none Maximum deferred sales charge(1) 3.00% 5.00% Redemption fee none none Maximum annual distribution 0.75% distribution 0.75% distribution and shareholder servicing fees (12b-1) fee and (12b-1) fee and 0.25% service fee 0.25% service fee Conversion feature yes yes
(1)This charge decreases over time. Different charges apply to Investor B Shares of certain Funds bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. 116
Intermediate Long-Term Municipal Municipal Investor C Shares Bond Funds Bond Funds Maximum amount you can buy no limit no limit Maximum front-end sales charge none none Maximum deferred sales charge(1) 1.00% 1.00% Redemption fee none none Maximum annual distribution 0.75% distribution 0.75% distribution and shareholder servicing fees (12b-1) fee and (12b-1) fee and 0.25% service fee 0.25% service fee Conversion feature none none
(1)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. The share class you choose will depend on how much you're investing, how long you're planning to stay invested, and how you prefer to pay the sales charge. The total cost of your investment over the time you expect to hold your shares will be affected by the distribution (12b-1) and shareholder servicing fees, as well as by the amount of any front-end sales charge or contingent deferred sales charge (CDSC) that applies and when you're required to pay the charge. You should think about these things carefully before you invest. Investor A Shares have a front-end sales charge, which is deducted when you buy your shares. This means that a smaller amount is invested in the Funds, unless you qualify for a waiver or reduction of the sales charge. However, Investor A Shares have lower ongoing distribution (12b-1) and/or shareholder servicing fees than Investor B and Investor C Shares. This means that Investor A Shares can be expected to pay relatively higher dividends per share. Investor B Shares have limits on how much you can invest. When you buy Investor B or Investor C Shares, the full amount is invested in the Funds. However, you may pay a CDSC when you sell your shares. Over time, Investor B and Investor C Shares can incur distribution (12b-1) and shareholder servicing fees that are equal to or more than the front-end sales charge, and the distribution (12b-1) and shareholder servicing fees you would pay for Investor A Shares. Although the full amount of your purchase is invested in the Funds, any positive investment return on this money may be partially or fully offset by the expected higher annual expenses of Investor B and Investor C Shares. You should also consider the conversion feature for Investor B Shares, which is described in About Investor B Shares. 117 [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by a Fund every business day. [GRAPHIC] About Investor A Shares There is no limit to the amount you can invest in Investor A Shares. You generally will pay a front-end sales charge when you buy your shares, or in some cases, a CDSC when you sell your shares. Front-end sales charge You'll pay a front-end sales charge when you buy Investor A Shares, unless: o you qualify for a waiver of the sales charge. You can find out if you qualify for a waiver in the section, When you might not have to pay a sales charge - Front end sales charges o you're reinvesting distributions The sales charge you'll pay depends on the Fund you're buying, and the amount you're investing -- generally, the larger the investment, the smaller the percentage sales charge.
Amount retained Sales charge Sales charge by selling agents as a % of the as a % of the as a % of the offering price net asset value offering price Amount you bought per share per share per share Intermediate Municipal Bond Funds $0-$99,999 3.25% 3.36% 3.00% $100,000-$249,999 2.50% 2.56% 2.25% $250,000-$499,999 2.00% 2.04% 1.75% $500,000-$999,999 1.50% 1.53% 1.25% $1,000,000 or more 0.00% 0.00% 1.00%(1) Long-Term Municipal Bond Funds $0-$49,999 4.75% 4.99% 4.25% $50,000-$99,999 4.50% 4.71% 4.00% $100,000-$249,999 3.50% 3.63% 3.00% $250,000-$499,999 2.50% 2.56% 2.25% $500,000-$999,999 2.00% 2.04% 1.75% $1,000,000 or more 0.00% 0.00% 1.00%(1)
(1)1.00% on the first $3,000,000, 0.50% on the next $47,000,000, 0.25% on amounts over $50,000,000. Stephens pays the amount retained by selling agents on investments of $1,000,000 or more, but may be reimbursed when a CDSC is deducted if the shares are sold within eighteen months from the time they were bought. Please see How selling and servicing agents are paid for more information. 118 Contingent deferred sales charge If you own or buy $1,000,000 or more of Investor A Shares, there is one situation when you'll pay a CDSC: o If you buy your shares on or after August 1, 1999 and sell them within 18 months of buying them, you'll pay a CDSC of 1.00%. The CDSC is calculated from the day your purchase is accepted (the trade date). We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. You won't pay a CDSC on any increase in net asset value since you bought your shares, or on any shares you receive from reinvested distributions. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. [GRAPHIC] About Investor B Shares You can buy up to $250,000 of Investor B Shares. You don't pay a sales charge when you buy Investor B Shares, but you may have to pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC when you sell your Investor B Shares, unless: o you bought the shares on or after January 1, 1996 and before August 1, 1997 o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge - Contingent deferred sales charges The CDSC you pay depends on the Fund you bought, when you bought your shares, how much you bought in some cases, and how long you held them.
Intermediate Municipal Bond Funds If you sell your shares during the following year: You'll pay a CDSC of: - ---------------------------------- --------------------------------------------------------------------- Shares you bought Shares Shares on or after you you bought Shares you bought between 1/1/1996 bought after 8/1/1997 and 11/15/1998 and before before 11/15/1998 in the following amounts: 8/1/1997 1/1/1996 ------------ -------------------------- ------------- --------- $500,000- $0-$499,999 $999,999 the first year you own them 3.0% 3.0% 2.0% none 4.0% the second year you own them 3.0% 2.0% 1.0% none 3.0% the third year you own them 2.0% 1.0% none none 3.0% the fourth year you own them 1.0% none none none 2.0% the fifth year you own them none none none none 2.0% the sixth year you own them none none none none 1.0% after six years of owning them none none none none none
119
Long-Term Municipal Bond Funds If you sell your shares during the following year: You'll pay a CDSC of: - ---------------------------------- ------------------------------------------------------------------------- Shares you bought Shares Shares on or after you you bought Shares you bought between 1/1/1996 bought after 8/1/1997 and 11/15/1998 and before before 11/15/1998 in the following amounts: 8/1/1997 1/1/1996 ------------ ------------------------------------ ------------- --------- $250,000- $500,000- $0-$249,999 $499,999 $999,999 the first year you own them 5.0% 4.0% 3.0% 2.0% none 5.0% the second year you own them 4.0% 3.0% 2.0% 1.0% none 4.0% the third year you own them 3.0% 3.0% 1.0% none none 3.0% the fourth year you own them 3.0% 2.0% none none none 2.0% the fifth year you own them 2.0% 1.0% none none none 2.0% the sixth year you own them 1.0% none none none none 1.0% after six years of owning them none none none none none none
The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor B Shares. Please see How selling and servicing agents are paid for more information. About the conversion feature Investor B Shares generally convert automatically to Investor A Shares according to the following schedule:
Intermediate Municipal Bond Funds Will convert to Investor A Shares Investor B Shares you bought after you've owned them for after November 15, 1998 eight years between August 1, 1997 and November 15, 1998 $0-$499,999 six years $500,000-$999,999 five years before August 1, 1997 six years Long-Term Municipal Bond Funds Will convert to Investor A Shares Investor B Shares you bought after you've owned them for after November 15, 1998 eight years between August 1, 1997 and November 15, 1998 $0-$249,999 nine years $0-$499,999 six years $500,000-$999,999 five years before August 1, 1997 nine years
120 The conversion feature allows you to benefit from the lower operating costs of Investor A Shares, which can help increase total returns. Here's how the conversion works: o We won't convert your shares if you tell your investment professional, selling agent or the transfer agent within 90 days before the conversion date that you don't want your shares to be converted. Remember, it's in your best interest to convert your shares because Investor A Shares have lower expenses. o Shares are converted at the end of the month in which they become eligible for conversion. Any shares you received from reinvested distributions on these shares will convert to Investor A Shares at the same time. o You'll receive the same dollar value of Investor A Shares as the Investor B Shares that were converted. No sales charge or other charges apply. o Investor B Shares that you received from an exchange of Investor B Shares of another Nations Fund will convert based on the day you bought the original shares. Your conversion date may be later if you exchanged to or from a Nations Money Market Fund. o Conversions are free from federal tax. [GRAPHIC] About Investor C Shares There is no limit to the amount you can invest in Investor C Shares. You don't pay a sales charge when you buy Investor C Shares, but you may pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC of 1.00% when you sell Investor C Shares within one year of buying them, unless: o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge - Contingent deferred sales charges The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor C Shares. Please see How selling and servicing agents are paid for more information. 121 [GRAPHIC] Please contact your investment professional for more information about reductions and waivers of sales charges. You should tell your investment professional that you may qualify for a reduction or a waiver before buying shares. We can change or cancel these terms at any time. Any change or cancellation applies only to future purchases. When you might not have to pay a sales charge Front-end sales charges (Investor A Shares) There are three ways you can lower the front-end sales charge you pay on Investor A Shares: o Combine purchases you've already made Rights of accumulation allow you to combine the value of Investor A, Investor B and Investor C Shares you already own with Investor A Shares you're buying to calculate the sales charge. The sales charge is based on the total value of the shares you already own, or the original purchase cost, whichever is higher, plus the value of the shares you're buying. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify for rights of accumulation. o Combine purchases you plan to make By signing a letter of intent, you can combine the value of shares you already own with the value of shares you plan to buy over a 13-month period to calculate the sales charge. o You can choose to start the 13-month period up to 90 days before you sign the letter of intent. o Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. o If you don't buy as much as you planned within the period, you must the difference between the charges you've paid and the charges that actually apply to the shares you've bought. o Your first purchase must be at least 5% of the minimum amount for the pay sales charge level that applies to the total amount you plan to buy. o If the purchase you've made later qualifies for a reduced sales charge through the 90-day backdating provisions, we'll make an adjustment for the lower charge when the letter of intent expires. Any adjustment will be used to buy additional shares at the reduced sales charge. o Combine purchases with family members You can receive a quantity discount by combining purchases of Investor A Shares that you, your spouse and children under age 21 make on the same day. Some distributions or payments from the dissolution of certain qualified plans also qualify for the quantity discount. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify. 122 The following investors can buy Investor A Shares without paying a front-end sales charge: o full-time employees and retired employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries and the immediate families of these people o banks, trust companies and thrift institutions, acting as fiduciaries o individuals receiving a distribution from a Bank of America trust or other fiduciary account may use the proceeds of that distribution to buy Investor A Shares without paying a front-end sales charge, as long as the proceeds are invested in the Funds within 90 days of the date of distribution o Nations Funds' Trustees, Directors and employees of its investment sub-advisers o registered broker/dealers that have entered into a Nations Funds dealer agreement with Stephens may buy Investor A Shares without paying a front-end sales charge for their investment account only o registered personnel and employees of these broker/dealers and their family members may buy Investor A Shares without paying a front-end sales charge according to the internal policies and procedures of the employing broker/dealer as long as these purchases are made for their own investment purposes o employees or partners of any service provider to the Funds o investors who buy through accounts established with certain fee-based investment advisers or financial planners, wrap fee accounts and other managed agency/asset allocation accounts o shareholders of certain funds that reorganized into the Nations Funds who were entitled to buy shares at net asset value o certain pension, profit sharing or other employee benefit plans offered to non-U.S. investors You can also buy Investor A Shares without paying a sales charge if you buy the shares within 120 days of selling the same Fund. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. 123 Contingent deferred sales charges (Investor A, Investor B and Investor C Shares) You won't pay a CDSC on the following transactions: o shares sold following the death or disability (as defined in the Internal Revenue Code of 1986, as amended (the tax code)) of a shareholder, including a registered joint owner o distributions from certain pension, profit sharing or other employee benefit plans offered to non-U.S. investors o payments made to pay medical expenses which exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least 12 weeks o shares sold under our right to liquidate a shareholder's account, including instances where the aggregate net asset value of Investor A, Investor B or Investor C Shares held in the account is less than the minimum account size o if you exchange Investor B or Investor C Shares of a Nations Fund that were bought through a Bank of America employee benefit plan for Investor A Shares of a Nations Fund o withdrawals made under the Automatic Withdrawal Plan described in Buying, selling and exchanging shares, if the total withdrawals of Investor A, Investor B or Investor C Shares made in a year are less than 12% of the total value of those shares in your account. A CDSC may only apply to Investor A Shares if you bought more than $1,000,000 We'll also waive the CDSC on the sale of Investor A or Investor C Shares bought before September 30, 1994 by current or retired employees of Bank of America and its affiliates, or by current or former trustees or directors of the Nations Funds or other management companies managed by Bank of America. You won't pay a CDSC on the sale of Investor B or Investor C Shares if you reinvest any of the proceeds in the same Fund within 120 days of the sale. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. 124 [GRAPHIC] Buying, selling and exchanging shares [GRAPHIC] When you sell shares of a mutual fund, the fund is effectively buying them back from you. This is called a redemption. You can invest in the Funds through your selling agent or directly from Nations Funds. We encourage you to consult with an investment professional who can open an account for you with a selling agent and help you with your investment decisions. Once you have an account, you can buy, sell and exchange shares by contacting your investment professional or selling agent. They will look after any paperwork that's needed to complete a transaction and send your order to us. You should also ask your selling agent about its limits, fees and policies for buying, selling and exchanging shares, which may be different from those described here, and about its related programs or services. The table on the next page summarizes some key information about buying, selling and exchanging shares. You'll find sales charges and other fees that apply to these transactions in Choosing a share class. The Funds also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. Please contact your investment professional, or call us at 1.800.321.7854 if you have any questions or you need help placing an order. 125
Ways to buy, sell or How much you can buy, exchange sell or exchange Other things to know ----------------- ---------------------------------------- --------------------------------------------------- Buying shares In a lump sum minimum initial investment: There is no limit to the amount you can invest o $1,000 for regular accounts in Investor A and C Shares. You can invest up to o $250 for certain fee-based $250,000 in Investor B Shares. investment accounts minimum additional investment: o $100 for all accounts Using our minimum initial investment: You can buy shares twice a month, monthly or Systematic o $100 quarterly, using automatic transfers from your Investment Plan minimum additional investment: bank account. o $50 - ------------------------------------------------------------------------------------------------------------------------------------ Selling shares In a lump sum o you can sell up to $50,000 of your We'll deduct any CDSC from the amount you're shares by telephone, otherwise selling and send you or your selling agent the there are no limits to the amount balance, usually within three business days of you can sell receiving your order. o other restrictions may apply to If you paid for your shares with a check that withdrawals from retirement plan wasn't certified, we'll hold the sale proceeds accounts when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared. Using our o minimum $25 per withdrawal Your account balance must be at least $10,000 Automatic to set up the plan. You can make withdrawals Withdrawal Plan twice a month, monthly, quarterly, bi-annually or annually. We'll send your money by check or deposit it directly to your bank account. No CDSC is deducted if you withdraw 12% or less of the value of your shares in a class. - ------------------------------------------------------------------------------------------------------------------------------------ Exchanging shares In a lump sum o minimum $1,000 per exchange You can exchange your Investor A Shares for Investor A Shares of any other Nations Fund, except Index Funds. You won't pay a front-end sales charge, CDSC or redemption fee on the shares you're exchanging. You can exchange your Investor B Shares for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You can exchange your Investor C Shares for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of a Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Using our o minimum $25 per exchange You must already have an investment in the Automatic Funds into which you want to exchange. You Exchange can make exchanges monthly or quarterly. Feature
126 [GRAPHIC] A business day is any day that the New York Stock Exchange (NYSE) is open. A business day ends at the close of regular trading on the NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes early, the business day ends as of the time the NYSE closes. The NYSE is closed on weekends and on the following national holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. How shares are priced All transactions are based on the price of a Fund's shares -- or its net asset value per share. We calculate net asset value per share for each class of each Fund at the end of each business day. First, we calculate the net asset value for each class of a Fund by determining the value of the Fund's assets in the class and then subtracting its liabilities. Next, we divide this amount by the number of shares that investors are holding in the class. Valuing securities in a Fund The value of a Fund's assets is based on the total market value of all of the securities it holds. The prices reported on stock exchanges and securities markets around the world are usually used to value securities in a Fund. If prices aren't readily available, we'll base the price of a security on its fair value. We use the amortized cost method, which approximates market value, to value short-term investments maturing in 60 days or less. How orders are processed Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents before the end of a business day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive that day's net asset value per share. Orders received after the end of a business day will receive the next business day's net asset value per share. The business day that applies to your order is also called the trade date. We may refuse any order to buy or exchange shares. If this happens, we'll return any money we've received to your selling agent. Telephone orders You can place orders to buy, sell or exchange by telephone if you complete the telephone authorization section of our account application and send it to us. Here's how telephone orders work: o If you sign up for telephone orders after you open your account, you must have your signature guaranteed. o Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. o We'll take reasonable steps to confirm that telephone instructions are genuine. For example, we require proof of your identification before we will act on instructions received by telephone and may record telephone conversations. If we and our service providers don't take these steps, we may be liable for any losses from unauthorized or fraudulent instructions. o Telephone orders may be difficult to complete during periods of significant economic or market change. 127 [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by a Fund every business day. [GRAPHIC] Buying shares Here are some general rules for buying shares: o You buy Investor A Shares at the offering price per share. You buy Investor B and Investor C Shares at net asset value per share. o If we don't receive your money within three business days of receiving your order, we'll refuse the order. o Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. o Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. Minimum initial investment The minimum initial amount you can buy is usually $1,000. If you're buying shares through one of the following accounts or plans, the minimum initial amount you can buy is: o $250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts o $100 using our Systematic Investment Plan Minimum additional investment You can make additional purchases of $100, or $50 if you use our Systematic Investment Plan. Systematic Investment Plan You can make regular purchases of $50 or more using automatic transfers from your bank account to the Funds you choose. You can contact your investment professional or us to set up the plan. Here's how the plan works: o You can buy shares twice a month, monthly or quarterly. o You can choose to have us transfer your money on or about the 15th or the last day of the month. o Some exceptions may apply to employees of Bank of America and its affiliates, and to plans set up before August 1, 1997. For details, please contact your investment professional. 128 [GRAPHIC] For more information about telephone orders, see How orders are processed. [GRAPHIC] Selling shares Here are some general rules for selling shares: o We'll deduct any CDSC from the amount you're selling and send you the balance. o If you're selling your shares through a selling agent, we'll normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. Your selling agent is responsible for depositing the sale proceeds to your account on time. o If you're selling your shares directly through us, we'll normally send the sale proceeds by mail or electronic transfer them to your bank account within three business days after the Fund receives your order. o You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. o If you paid for your shares with a check that wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared, whichever is later. o If you hold any shares in certificate form, you must sign the certificates (or send a signed stock power with them) and send them to PFPC. Your signature must be guaranteed unless you've made other arrangements with us. We may ask for any other information we need to prove that the order is properly authorized. o Under certain circumstances allowed under the Investment Company Act of 1940 (1940 Act), we can pay you in securities or other property when you sell your shares. o We can delay payment of the sale proceeds for up to seven days. We may sell your shares: o if the value of your account falls below $500. We'll give you 60 days notice in writing if we're going to do this o if your selling agent tells us to sell your shares under arrangements made between the selling agent and you o under certain other circumstances allowed under the 1940 Act 129 Automatic Withdrawal Plan The Automatic Withdrawal Plan lets you withdraw $25 or more twice a month, monthly, quarterly, bi-annually or annually. You can contact your investment professional or us to set up the plan. Here's how the plan works: o Your account balance must be at least $10,000 to set up the plan. o If you set up the plan after you've opened your account, your signature must be guaranteed. o You can choose to have us transfer your money on or about the 10th or the 25th of the month. o You won't pay a CDSC on Investor A, Investor B or Investor C Shares if you withdraw 12% or less of the value of those shares in a year. Otherwise, we'll deduct any CDSC from the withdrawals. o We'll send you a check or deposit the money directly to your bank account. o You can cancel the plan by giving your selling agent or us 30 days notice in writing. It's important to remember that if you withdraw more than your investment in the Fund is earning, you'll eventually use up your original investment. [GRAPHIC] You should make sure you understand the investment objective and principal investment strategies of the Fund you're exchanging into. Please read its prospectus carefully. [GRAPHIC] Exchanging shares You can sell shares of a Fund to buy shares of another Nations Fund. This is called an exchange. You might want to do this if your investment goals or tolerance for risk changes. Here's how exchanges work: o You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. o The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. o You may only make exchanges into a Fund that is legally sold in your state of residence. o You generally may only make an exchange into a Fund that is accepting investments. o We may limit the number of exchanges you can make within a specified period of time. o We may change or cancel your right to make an exchange by giving the amount of notice required by regulatory authorities (generally 60 days for a material change or cancellation). 130 o You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. Exchanging Investor A Shares You can exchange Investor A Shares of a Fund for Investor A Shares of any other Nations Fund, except Index Funds. Here are some rules for exchanging Investor A Shares: o You won't pay a front-end sales charge on the shares of the Fund you're exchanging. o You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC at that time will be based on the period from when you bought the original shares until when you sold the shares you received from the exchange. o You won't pay a redemption fee on the shares you're exchanging. Any redemption fee will be deducted when you sell the shares you received from the exchange. Any redemption fee will be paid to the original Fund. Exchanging Investor B Shares You can exchange Investor B Shares of a Fund for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Investor C Shares of a Nations Money Market Fund through an exchange of Investor B Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Investor C Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. 131 Exchanging Investor C Shares You can exchange Investor C Shares of a Fund for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of a Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Daily Shares of a Nations Money Market Fund through an exchange of Investor C Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Daily Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. Automatic Exchange Feature The Automatic Exchange Feature lets you exchange $25 or more of Investor A, Investor B or Investor C Shares every month or every quarter. You can contact your investment professional or us to set up the plan. Here's how automatic exchanges work: o Send your request to PFPC in writing or call 1.800.321.7854. o If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. o You must already have an investment in the Funds you want to exchange. o You can choose to have us transfer your money on or about the 1st or the 15th day of the month. o The rules for making exchanges apply to automatic exchanges. 132 [GRAPHIC] How selling and servicing agents are paid Selling and servicing agents usually receive compensation based on your investment in the Funds. The kind and amount of the compensation depends on the share class in which you invest. Selling agents typically pay a portion of the compensation they receive to their investment professionals. Commissions Your selling agent may receive an up-front commission (reallowance) when you buy shares of a Fund. The amount of this commission depends on which share class you choose: o up to 4.25% of the offering price per share of Investor A Shares. The commission is paid from the sales charge we deduct when you buy your shares o up to 4.00% of the net asset value per share of Investor B Shares. The commission is not deducted from your purchase -- we pay your selling agent directly o up to 1.00% of the net asset value per share of Investor C Shares. The commission is not deducted from your purchase -- we pay your selling agent directly If you buy Investor B or Investor C Shares you will be subject to higher distribution (12b-1) and shareholder servicing fees and may be subject to a CDSC when you sell your shares. [GRAPHIC] The financial institution or intermediary that buys shares for you is also sometimes referred as to as a selling agent. The distribution fee is often referred to as a "12b-1" fee because it's paid through a plan approved under Rule 12b-1 under the 1940 Act. Your selling agent may charge other fees for services provided to your account. Distribution (12b-1) and shareholder servicing fees Stephens and selling and servicing agents may be compensated for selling shares and providing services to investors under distribution and shareholder and servicing plans. The amount of the fee depends on the class of shares you own:
Maximum annual distribution (12b-1) and shareholder servicing fees (as an annual % of average daily net assets) Investor A Shares 0.25% combined distribution (12b-1) and shareholder servicing fee Investor B Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee Investor C Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee
Fees are calculated daily and paid monthly. Because these fees are paid out of the Funds' assets on an ongoing basis, they will increase the cost of your investment over time, and may cost you more than any sales charges you may pay. The Funds pay these fees to Stephens and/or to eligible selling and servicing agents and financial institutions, including BA Advisors or its affiliates, for as long as the plans continue. We may reduce or discontinue payments at any time. 133 Other compensation Selling and servicing agents may also receive: o a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds o additional amounts on all sales of shares: o up to 1.00% of the offering price per share of Investor A Shares o up to 1.00% of the net asset value per share of Investor B Shares o up to 1.00% of the net asset value per share of Investor C Shares o non-cash compensation like trips to sales seminars, tickets to sporting events, theater or other entertainment, opportunities to participate in golf or other outings and gift certificates for meals or merchandise This compensation, which is not paid by the Funds, is discretionary and may be available only to selected selling and servicing agents. For example, Stephens sometimes sponsors promotions involving Banc of America Investment Services, Inc., an affiliate of BA Advisors, and certain other selling or servicing agents. Selected selling and servicing agents also may receive compensation for opening a minimum number of accounts. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. 134 [GRAPHIC] Distributions and taxes [GRAPHIC] The power of compounding Reinvesting your distributions buys you more shares of a Fund -- which lets you take advantage of the potential for compound growth. Putting the money you earn back into your investment means it, in turn, may earn even more money. Over time, the power of compounding has the potential to significantly increase the value of your investment. There is no assurance, however, that you'll earn more money if you reinvest your distributions. About distributions A mutual fund can make money two ways: o It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. o A fund can also have capital gain if the value of its investments increases. If a fund sells an investment at a gain, the gain is realized. If a fund continues to hold the investment, any gain is unrealized. A mutual fund is not subject to federal income tax as long as it distributes its net investment income and realized capital gain to its shareholders. The Funds intend to pay out a sufficient amount of their income and capital gain to their shareholders so the Funds won't have to pay any federal income tax. When a Fund makes this kind of a payment, it's split among all shares, and is called a distribution. All of the Funds distribute any net realized capital gain at least once a year. The Funds declare distributions of net investment income daily and pay them monthly. Any distribution you receive is based on the number of shares you hold on the record date, which is usually the day the distribution is declared (daily dividend Funds) or the day before the distribution is declared (all other Funds). Shares are eligible to receive net investment income distributions from the settlement date (daily dividend Funds), trade date (all other Funds) or realized capital gain from the trade date of the purchase up to and including the day before the shares are sold. Different share classes of a Fund usually pay different net investment income distribution amounts, because each class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. We'll automatically reinvest distributions in additional shares of the same Fund unless you tell us you want to receive your distributions in cash. You can do this by writing to us at the address on the back cover or by calling us at 1.800.321.7854. We generally pay cash distributions within five business days after the end of the month, quarter or year in which the distribution was made. If you sell all of your shares, we'll normally pay any distribution that applies to those shares in cash within five business days after the sale was made. If you buy shares of a Fund shortly before it makes a distribution, you will, in effect, receive part of your purchase back in the distribution, which may be subject to tax. Similarly, if you buy shares of a Fund that holds securities with unrealized capital gain, you will, in effect, receive part of your purchase back if and when the Fund sells those securities and distributes the gain. This distribution is subject to tax. The Funds have built up, or have the potential to build up, high levels of unrealized capital gain. 135 [GRAPHIC] This information is a summary of how federal income taxes may affect your investment in the Funds. It is not intended as a substitute for careful tax planning. You should consult with your own tax adviser about your situation, including any foreign, state and local taxes that may apply. [GRAPHIC] For more information about taxes, please see the SAI. How taxes affect your investment Distributions that come from a Fund's tax-exempt interest income are generally free from federal income tax. These distributions are generally not subject to state income tax (or other applicable state tax, like the Florida intangible personal property tax) if a Fund primarily invests in securities from that state and its subdivisions. For example, you generally won't be subject to California state individual income tax on distributions that come from Nations California Municipal Bond Fund's investments in California state and municipal debt obligations. You may, however, be subject to other state and local taxes on these distributions. A portion of these distributions may also be subject to the federal alternative minimum tax. Texas doesn't impose state income tax. Any distributions that come from taxable income or realized capital gain are generally subject to tax. Distributions that come from taxable income, net short-term capital gain and certain other items generally are taxable to you as ordinary income. Distributions of net long-term capital gain generally are taxable to you as long-term capital gain. Corporate shareholders will not be able to deduct any distributions from a Fund when determining their taxable income. In general, any taxable distributions are taxable to you when paid, whether they are paid in cash or automatically reinvested in additional shares of the Fund. However, any distributions declared to shareholders of record in October, November or December of one year and distributed in January of the following year will be taxable as if they had been paid to you on December 31 of the first year. We'll send you a notice every year that tells you how much you've received in distributions during the year and their federal tax status. Foreign, state and local taxes may also apply to these distributions. Withholding tax We're required by federal law to withhold tax on any taxable distributions and redemption proceeds paid to you (including amounts to be paid in securities or other property and exchanges) if: o you haven't given us a correct Taxpayer Identification Number (TIN) and haven't certified that the TIN is correct and withholding doesn't apply o the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records o the IRS informs us that you're otherwise subject to backup withholding The IRS may also impose penalties against you if you don't give us a correct TIN. Amounts we withhold are applied to your federal income tax liability. You may receive a refund from the IRS if the withholding tax results in an overpayment of taxes. We're also normally required by federal law to withhold tax on distributions (other than capital gain distributions) paid to foreign shareholders. Taxation of redemptions and exchanges Your redemptions (including redemptions paid in securities) and exchanges of Fund shares will usually result in a taxable capital gain or loss, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. 136 [GRAPHIC] Financial highlights The financial highlights table is designed to help you understand how the Funds have performed for the past five years or, if shorter, the period of the Fund's operations. Certain information reflects financial results for a single Fund share. The total investment return line indicates how much an investment in the Fund would have earned, assuming all dividends and distributions had been reinvested. Financial highlights for Investor C Shares of Nations Kansas Municipal Income Fund are not provided because this class of shares had not yet commenced operations during the period indicated. This information has been audited by PricewaterhouseCoopers LLP. The independent accountants' report and Nations Funds financial statements are incorporated by reference into the SAI. Please see the back cover to find out how you can get a copy. 137 Nations California Municipal Bond Fund For a Share outstanding throughout each period
Year ended Period ended Investor A Shares* 03/31/01# 03/31/00 Operating performance: Net asset value, beginning of period $7.14 $7.50 Net investment income 0.35 0.31 Net realized and unrealized gain/(loss) on investments 0.34 (0.34) Net increase/(decrease) in net asset value from operations 0.69 (0.03) Distributions: Dividends from net investment income (0.34) (0.31) Distributions from net realized capital gains (0.02) (0.02) Total dividends and distributions (0.36) (0.33) Net asset value, end of period $ 7.47 $ 7.14 Total return++ 9.93% (0.46)% ============================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $149,282 $157,672 Ratio of operating expenses to average net assets 0.83%(a) 0.80%+(a) Ratio of net investment income to average net assets 4.81% 4.50%+ Portfolio turnover rate 20% 34% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.07% 1.04%+ Period ended Year ended Year ended Year ended Investor A Shares* 05/14/99 02/28/99 02/28/98 02/28/97** Operating performance: Net asset value, beginning of period $ 7.60 $ 7.64 $ 7.35 $ 7.45 Net investment income 0.07 0.34 0.35 0.36 Net realized and unrealized gain/(loss) on investments (0.10) 0.10 0.29 (0.05) Net increase/(decrease) in net asset value from operations (0.03) 0.44 0.64 0.31 Distributions: Dividends from net investment income (0.07) (0.34) (0.35) (0.36) Distributions from net realized capital gains -- (0.14) -- (0.05) Total dividends and distributions (0.07) (0.48) (0.35) (0.41) Net asset value, end of period $ 7.50 $ 7.60 $ 7.64 $ 7.35 Total return++ (0.42)% 5.94% 9.18% 4.29% ========================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $206,000 $219,000 $214,000 $221,000 Ratio of operating expenses to average net assets 0.93%+ 0.93% 0.90%(b) 0.90%(b) Ratio of net investment income to average net assets 4.40%+ 4.42% 4.74% 4.88% Portfolio turnover rate 1% 42% 28% 34% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.96%+ 0.93% 1.06%(b) 1.10%(b)
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon California Municipal Bond Fund A Shares, which were reorganized into the California Municipal Bond Investor A Shares 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 ** As of July 22, 1996, the Fund designated the existing series of shares as "A" Shares. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. (b) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/ or expense reimbursements, was less than 0.01%. 138 Nations California Municipal Bond Fund For a Share outstanding throughout each period
Year ended Period ended Period ended Period ended Investor B Shares* 03/31/01# 03/31/00 05/14/99 02/28/99** Operating performance: Net asset value, beginning of period $ 7.14 $ 7.51 $ 7.61 $ 7.61 Net investment income 0.30 0.27 0.06 0.16 Net realized and unrealized gain/(loss) on investments 0.34 (0.35) (0.10) 0.14 Net increase/(decrease) in net asset value from operations 0.64 (0.08) (0.04) 0.30 Distributions: Dividends from net investment income (0.29) (0.27) (0.06) (0.16) Distributions from net realized capital gains (0.02) (0.02) -- (0.14) Total dividends and distributions (0.31) (0.29) (0.06) (0.30) Net asset value, end of period $ 7.47 $ 7.14 $ 7.51 $ 7.61 Total return++ 9.15% (1.16)% (0.57)% 4.09% =============================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $5,729 $4,206 $3,000 $2,000 Ratio of operating expenses to average net assets 1.55%(a) 1.45%+(a) 1.66%+ 1.70%+(b) Ratio of net investment income to average net assets 4.09% 3.85%+ 3.63%+ 3.67%+ Portfolio turnover rate 20% 34% 1% 42% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.82% 1.79%+ 1.69%+ 1.71%+(b)
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon California Municipal Bond Fund B Shares, which were reorganized into the California Municipal Bond Investor B Shares 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 ** California Municipal Bond Investor B Shares commenced operations on July 15, 1998. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. (b) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/ or expense reimbursements, was less than 0.01%. 139 Nations California Municipal Bond Fund For a Share outstanding throughout each period
Year ended Period ended Investor C Shares 03/31/01# 03/31/00* Operating performance: Net asset value, beginning of period $ 7.12 $ 7.31 Net investment income 0.30 0.19 Net realized and unrealized gain/(loss) on investments 0.33 (0.17) Net increase/(decrease) in net asset value from operations 0.63 0.02 Distributions: Dividends from net investment income (0.29) (0.19) Distributions from net realized capital gains (0.02) (0.02) Total dividends and distributions (0.31) (0.21) Net asset value, end of period $ 7.44 $ 7.12 Total return++ 8.97% 0.30% ================================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $1,191 $ 258 Ratio of operating expenses to average net assets 1.60%(a) 1.60%+(a) Ratio of net investment income to average net assets 4.04% 3.70%+ Portfolio turnover rate 20% 34% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.82% 1.79%+
* California Municipal Bond Investor C Shares commenced operations on July 29, 1999. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations Florida Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor A Shares 03/31/01 03/31/00# Operating performance: Net asset value, beginning of year $ 10.33 $ 10.79 Net investment income 0.48 0.48 Net realized and unrealized gain/(loss) on investments 0.36 (0.46) Net increase/(decrease) in net asset value from operations 0.84 0.02 Distributions: Dividends from net investment income (0.48) (0.48) Total dividends and distributions (0.48) (0.48) Net asset value, end of year $ 10.69 $ 10.33 Total return++ 8.33% 0.22% ============================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $5,319 $9,695 Ratio of operating expenses to average net assets 0.75%(a) 0.73%(a) Ratio of net investment income to average net assets 4.57% 4.57% Portfolio turnover rate 6% 12% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.96% 0.99% Year ended Year ended Year ended Investor A Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.77 $ 10.40 $ 10.46 Net investment income 0.48 0.48 0.47 Net realized and unrealized gain/(loss) on investments 0.02 0.37 (0.06) Net increase/(decrease) in net asset value from operations 0.50 0.85 0.41 Distributions: Dividends from net investment income (0.48) (0.48) (0.47) Total dividends and distributions (0.48) (0.48) (0.47) Net asset value, end of year $ 10.79 $ 10.77 $ 10.40 Total return++ 4.74% 8.34% 4.01% ========================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $12,783 $7,205 $2,142 Ratio of operating expenses to average net assets 0.70% 0.70%(a) 0.70%(a) Ratio of net investment income to average net assets 4.45% 4.54% 4.52% Portfolio turnover rate 14% 13% 16% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.97% 0.96% 1.01%
++ 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. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 140 Nations Florida Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor B Shares 03/31/01 03/31/00# Operating performance: Net asset value, beginning of year $ 10.34 $ 10.79 Net investment income 0.40 0.41 Net realized and unrealized gain/(loss) on investments 0.36 (0.45) Net increase/(decrease) in net asset value from operations 0.76 (0.04) Distributions: Dividends from net investment income (0.40) (0.41) Total dividends and distributions (0.40) (0.41) Net asset value, end of year $ 10.70 $10.34 Total return++ 7.52% (0.38)% ============================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $4,429 $4,639 Ratio of operating expenses to average net assets 1.50%(a) 1.41%(a) Ratio of net investment income to average net assets 3.82% 3.89% Portfolio turnover rate 6% 12% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.71% 1.74% Year ended Year ended Year ended Investor B Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.77 $ 10.40 $ 10.46 Net investment income 0.42 0.43 0.44 Net realized and unrealized gain/(loss) on investments 0.02 0.37 ( 0.06) Net increase/(decrease) in net asset value from operations 0.44 0.80 0.38 Distributions: Dividends from net investment income (0.42) (0.43) (0.44) Total dividends and distributions (0.42) (0.43) (0.44) Net asset value, end of year $ 10.79 $ 10.77 $ 10.40 Total return++ 4.11% 7.80% 3.70% ========================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $5,090 $3,606 $3,488 Ratio of operating expenses to average net assets 1.30% 1.20%(a) 1.00%(a) Ratio of net investment income to average net assets 3.85% 4.04% 4.22% Portfolio turnover rate 14% 13% 16% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.72% 1.46% 1.31%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations Florida Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor C Shares 03/31/01 03/31/00# Operating performance: Net asset value, beginning of year $ 10.36 $ 10.79 Net investment income 0.40 0.40 Net realized and unrealized gain/(loss) on investments 0.36 (0.43) Net increase/(decrease) in net asset value from operations 0.76 (0.03) Distributions: Dividends from net investment income (0.40) (0.40) Total dividends and distributions (0.40) (0.40) Net asset value, end of year $ 10.72 $ 10.36 Total return++ 7.49% (0.26)% ============================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 172 $ 117 Ratio of operating expenses to average net assets 1.50%(a) 1.50%(a) Ratio of net investment income to average net assets 3.82% 3.80% Portfolio turnover rate 6% 12% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.71% 1.74% Year ended Year ended Year ended Investor C Shares 03/31/99 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 10.77 $ 10.40 $ 10.46 Net investment income 0.41 0.43 0.44 Net realized and unrealized gain/(loss) on investments 0.03 0.37 (0.06) Net increase/(decrease) in net asset value from operations 0.44 0.80 0.38 Distributions: Dividends from net investment income (0.42) (0.43) (0.44) Total dividends and distributions (0.42) (0.43) (0.44) Net asset value, end of year $ 10.79 $ 10.77 $ 10.40 Total return++ 4.10% 7.80% 3.71% ========================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,416 $ 188 $ 272 Ratio of operating expenses to average net assets 1.36% 1.20%(a) 1.00%(a) Ratio of net investment income to average net assets 3.79% 4.04% 4.22% Portfolio turnover rate 14% 13% 16% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.72% 1.46% 1.31%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 141 Nations Florida Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor A Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 9.53 $ 9.99 Net investment income 0.45 0.46 Net realized and unrealized gain/(loss) on investments 0.46 (0.46) Net increase/(decrease) in net asset value from operations 0.91 -- Distributions: Dividends from net investment income (0.45) (0.46) Distributions from net realized capital gains (0.01) -- Total dividends and distributions (0.46) (0.46) Net asset value, end of year $ 9.98 $ 9.53 Total return++ 9.86% 0.04% =============================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $45,034 $49,439 Ratio of operating expenses to average net assets 0.85%(a) 0.83%(a) Ratio of net investment income to average net assets 4.68% 4.75% Portfolio turnover rate 7% 18% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.08% 1.11% Year ended Year ended Year ended Investor A Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 9.99 $ 9.48 $ 9.47 Net investment income 0.46 0.46 0.46 Net realized and unrealized gain/(loss) on investments 0.00 0.51 0.01 Net increase/(decrease) in net asset value from operations 0.46 0.97 0.47 Distributions: Dividends from net investment income (0.46) (0.46) (0.46) Distributions from net realized capital gains -- -- -- Total dividends and distributions (0.46) (0.46) (0.46) Net asset value, end of year $ 9.99 $ 9.99 $ 9.48 Total return++ 4.69% 10.38% 5.09% ============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $65,373 $2,027 $1,781 Ratio of operating expenses to average net assets 0.80%(a) 0.80%(a) 0.80%(a) Ratio of net investment income to average net assets 4.60% 4.65% 4.87% Portfolio turnover rate 16% 19% 23% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.10% 1.10% 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. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations Florida Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor B Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 9.53 $ 9.99 Net investment income 0.38 0.39 Net realized and unrealized gain/(loss) on investments 0.46 (0.46) Net increase/(decrease) in net asset value from operations 0.84 (0.07) Distributions: Dividends from net investment income (0.38) (0.39) Distributions from net realized capital gains (0.01) -- Total dividends and distributions (0.39) (0.39) Net asset value, end of year $ 9.98 $ 9.53 Total return++ 9.05% (0.67)% ============================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $10,811 $12,802 Ratio of operating expenses to average net assets 1.60%(a) 1.53%(a) Ratio of net investment income to average net assets 3.93% 4.05% Portfolio turnover rate 7% 18% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.83% 1.86% Year ended Year ended Year ended Investor B Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 9.99 $ 9.48 $ 9.47 Net investment income 0.40 0.40 0.41 Net realized and unrealized gain/(loss) on investments 0.00 0.51 0.01 Net increase/(decrease) in net asset value from operations 0.40 0.91 0.42 Distributions: Dividends from net investment income (0.40) (0.40) (0.41) Distributions from net realized capital gains -- -- -- Total dividends and distributions (0.40) (0.40) (0.41) Net asset value, end of year $ 9.99 $ 9.99 $ 9.48 Total return++ 4.01% 9.71% 4.52% ============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $15,435 $17,048 $19,751 Ratio of operating expenses to average net assets 1.45%(a) 1.42%(a) 1.35%(a) Ratio of net investment income to average net assets 3.95% 4.03% 4.32% Portfolio turnover rate 16% 19% 23% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.85% 1.72% 1.68%
++ 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. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 142 Nations Florida Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor C Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 9.53 $ 9.99 Net investment income 0.37 0.38 Net realized and unrealized gain/(loss) on investments 0.46 (0.46) Net increase/(decrease) in net asset value from operations 0.83 (0.08) Distributions: Dividends from net investment income (0.38) (0.38) Distributions from net realized capital gains (0.01) -- Total dividends and distributions (0.39) (0.38) Net asset value, end of year $ 9.97 $ 9.53 Total return++ 8.92% (0.73)% ============================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 64 $ 23 Ratio of operating expenses to average net assets 1.60%(a) 1.60%(a) Ratio of net investment income to average net assets 3.93% 3.98% Portfolio turnover rate 7% 18% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.83% 1.86% Year ended Year ended Year ended Investor C Shares 03/31/99# 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 9.99 $ 9.48 $ 9.47 Net investment income 0.37 0.41 0.44 Net realized and unrealized gain/(loss) on investments 0.03 0.51 0.01 Net increase/(decrease) in net asset value from operations 0.40 0.92 0.45 Distributions: Dividends from net investment income (0.40) (0.41) (0.44) Distributions from net realized capital gains -- -- -- Total dividends and distributions (0.40) (0.41) (0.44) Net asset value, end of year $ 9.99 $ 9.99 $ 9.48 Total return++ 4.01% 9.83% 4.78% ============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 23 $ 3 $ 40 Ratio of operating expenses to average net assets 1.53%(a) 1.33%(a) 1.10%(a) Ratio of net investment income to average net assets 3.87% 4.12% 4.57% Portfolio turnover rate 16% 19% 23% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.85% 1.63% 1.43%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations Georgia Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Investor A Shares 03/31/01 03/31/00 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.42 $ 10.94 $ 10.92 $ 10.58 $ 10.63 Net investment income 0.48 0.48 0.47 0.47 0.48 Net realized and unrealized gain/(loss) on investments 0.40 (0.52) 0.06 0.38 (0.05) Net increase/(decrease) in net asset value from operations 0.88 (0.04) 0.53 0.85 0.43 Distributions: Dividends from net investment income (0.48) (0.47) (0.47) (0.47) (0.48) Distributions from net realized capital gains -- (0.01) (0.04) (0.04) -- Total dividends and distributions (0.48) (0.48) (0.51) (0.51) (0.48) Net asset value, end of year $ 10.82 $ 10.42 $ 10.94 $ 10.92 $ 10.58 Total return++ 8.66% (0.27)% 4.99% 8.24% 4.12% ======================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $11,872 $13,244 $19,674 $9,446 $8,810 Ratio of operating expenses to average net assets 0.75%(a) 0.73%(a) 0.70% 0.70% 0.70% Ratio of net investment income to average net assets 4.55% 4.46% 4.31% 4.34% 4.52% Portfolio turnover rate 10% 28% 14% 25% 9% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.98% 1.03% 0.98% 0.95% 1.00%
++ 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. (a) The effect of interest expense on the operating ratio was less than 0.01%. 143 Nations Georgia Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Investor B Shares 03/31/01 03/31/00 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.42 $ 10.94 $ 10.92 $ 10.58 $ 10.63 Net investment income 0.40 0.40 0.41 0.42 0.45 Net realized and unrealized gain/(loss) on investments 0.40 (0.51) 0.06 0.38 (0.05) Net increase/(decrease) in net asset value from operations 0.80 (0.11) 0.47 0.80 0.40 Distributions: Dividends from net investment income (0.40) (0.40) (0.41) (0.42) (0.45) Distributions from net realized capital gains -- (0.01) (0.04) (0.04) -- Total dividends and distributions (0.40) (0.41) (0.45) (0.46) (0.45) Net asset value, end of year $ 10.82 $ 10.42 $ 10.94 $ 10.92 $ 10.58 Total return++ 7.85% (0.96)% 4.37% 7.70% 3.81% ======================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $6,773 $6,812 $8,310 $7,378 $7,601 Ratio of operating expenses to average net assets 1.50%(a) 1.41%(a) 1.30% 1.20% 1.00% Ratio of net investment income to average net assets 3.80% 3.78% 3.71% 3.84% 4.22% Portfolio turnover rate 10% 28% 14% 25% 9% Ratio of operating expenses to average net assets without waivers and/or expense reimburements 1.73% 1.78% 1.73% 1.45% 1.30%
++ 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. (a) The effect of interest expense on the operating ratio was less than 0.01%. Nations Georgia Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Investor C Shares 03/31/01 03/31/00 03/31/99 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 10.42 $ 10.94 $ 10.92 $ 10.58 $ 10.63 Net investment income 0.40 0.39 0.41 0.42 0.45 Net realized and unrealized gain/(loss) on investments 0.40 (0.51) 0.05 0.38 (0.05) Net increase/(decrease) in net asset value from operations 0.80 (0.12) 0.46 0.80 0.40 Distributions: Dividends from net investment income (0.40) (0.39) (0.40) (0.42) (0.45) Distributions from net realized capital gains -- (0.01) (0.04) (0.04) -- Total dividends and distributions (0.40) (0.40) (0.44) (0.46) (0.45) Net asset value, end of year $ 10.82 $ 10.42 $ 10.94 $ 10.92 $ 10.58 Total return++ 7.96% (1.13)% 4.35% 7.70% 3.81% ======================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 770 $ 764 $ 886 $1,034 $1,983 Ratio of operating expenses to average net assets 1.50%(a) 1.50%(a) 1.31% 1.20% 1.00% Ratio of net investment income to average net assets 3.80% 3.69% 3.70% 3.84% 4.22% Portfolio turnover rate 10% 28% 14% 25% 9% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.73% 1.78% 1.73% 1.45% 1.30%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 144 Nations Georgia Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Investor A Shares 03/31/01# 03/31/00 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 9.53 $ 10.12 $ 10.00 $ 9.50 $ 9.48 Net investment income 0.44 0.43 0.44 0.45 0.45 Net realized and unrealized gain/(loss) on investments 0.50 (0.59) 0.12 0.50 0.02 Net increase/(decrease) in net asset value from operations 0.94 (0.16) 0.56 0.95 0.47 Distributions: Dividends from net investment income (0.45) (0.43) (0.44) (0.45) (0.45) Net asset value, end of year $ 10.02 $ 9.53 $ 10.12 $ 10.00 $ 9.50 Total return++ 10.11% (1.50)% 5.68% 10.22% 5.05% ========================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,789 $1,853 $2,611 $ 483 $ 208 Ratio of operating expenses to average net assets 0.85%(a) 0.83% 0.80% 0.80%(a) 0.80%(a) Ratio of net investment income to average net assets 4.62% 4.51% 4.33% 4.62% 4.76% Portfolio turnover rate 11% 50% 17% 30% 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.33% 1.63% 1.43% 1.22% 1.25%
++ 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. (a) The effect of interest expense on the operating ratio was less than 0.01%. # Per share net investment income has been calculated using the monthly average shares method.
Nations Georgia Municipal Bond Fund For a Share outstanding throughout each year Year Ended Year ended Year ended Year ended Year ended Investor B Shares 03/31/01# 03/31/00 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 9.53 $ 10.12 $ 10.00 $ 9.50 $ 9.48 Net investment income 0.38 0.37 0.37 0.39 0.40 Net realized and unrealized gain/(loss) on investments 0.49 (0.59) 0.12 0.50 0.02 Net increase/(decrease) in net asset value from operations 0.87 (0.22) 0.49 0.89 0.42 Distributions: Dividends from net investment income (0.38) (0.37) (0.37) (0.39) (0.40) Net asset value, end of year $ 10.02 $ 9.53 $ 10.12 $ 10.00 $ 9.50 Total return++ 9.29% (2.19)% 5.00% 9.54% 4.50% ========================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $9,178 $10,285 $11,348 $10,052 $10,182 Ratio of operating expenses to average net assets 1.60%(a) 1.54% 1.45% 1.42%(a) 1.35%(a) Ratio of net investment income to average net assets 3.87% 3.80% 3.68% 4.00% 4.21% Portfolio turnover rate 11% 50% 17% 30% 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.08% 2.38% 2.18% 1.84% 1.80%
++ 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. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. # Per share net investment income has been calculated using the monthly average shares method. 145 Nations Georgia Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Investor C Shares 03/31/01# 03/31/00 03/31/99 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 9.53 $ 10.12 $ 10.00 $ 9.50 $ 9.48 Net investment income 0.38 0.36 0.37 0.40 0.42 Net realized and unrealized gain/(loss) on investments 0.49 (0.59) 0.12 0.50 0.02 Net increase/(decrease) in net asset value from operations 0.87 (0.23) 0.49 0.90 0.44 Distributions: Dividends from net investment income (0.38) (0.36) (0.37) (0.40) (0.42) Net asset value, end of year $ 10.02 $ 9.53 $ 10.12 $ 10.00 $ 9.50 Total return++ 9.29% (2.29)% 4.97% 9.64% 4.77% ======================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 58 $ 60 $ 3 $ 27 $ 72 Ratio of operating expenses to average net assets 1.60%(a) 1.60% 1.49% 1.33%(a) 1.10%(a) Ratio of net investment income to average net assets 3.87% 3.74% 3.64% 4.09% 4.46% Portfolio turnover rate 11% 50% 17% 30% 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.08% 2.38% 2.18% 1.75% 1.55%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations Kansas Municipal Income Fund For a Share outstanding throughout the period
Period ended Investor A Shares 03/31/01*# Operating performance: Net asset value, beginning of period $ 10.00 Net investment income/(loss) 0.47 Net realized and unrealized gain/(loss) on investments 0.13 Net increase/(decrease) in net asset value from operations 0.60 Distributions: Dividends from net investment income (0.27) Distributions from net realized capital gains 0.00 Total dividends and distributions (0.27) Net asset value, end of period $ 10.33 Total return++ 5.66% =========================================================== Ratios/supplemental data: Net assets, end of period (000) $ 646 Ratio of operating expenses to average net assets 0.85%+(a) Ratio of net investment income to average net assets 4.19%+ Portfolio turnover rate 17% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.18%+
* Investor A Shares commenced operations on August 14, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 146 Nations Kansas Municipal Income Fund For a Share outstanding throughout the period
Period ended Investor B 03/31/01*# Operating performance: Net asset value, beginning of period $ 10.00 Net investment income/(loss) 0.33 Net realized and unrealized gain/(loss) on investments 0.19 Net increase/(decrease) in net asset value from operations 0.52 Distributions: Dividends from net investment income (0.20) Distributions from net realized capital gains 0.00 Total dividends and distributions (0.20) Net asset value, end of period $ 10.32 Total return++ 4.78% ============================================================ Ratios/supplemental data: Net assets, end of period (000) $ 262 Ratio of operating expenses to average net assets 1.60%+(a) Ratio of net investment income/(loss) to average net assets 3.44%+ Portfolio turnover rate 17% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.93%+
* Investor B Shares commenced operations on August 29, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # The effect of interest expense on the operating expense ratio was less than 0.01%. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations Maryland Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Investor A Shares 03/31/01# 03/31/00 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.58 $ 11.07 $ 11.01 $ 10.70 $ 10.80 Net investment income 0.48 0.47 0.48 0.49 0.48 Net realized and unrealized gain/(loss) on investments 0.43 (0.48) 0.06 0.31 (0.10) Net increase/(decrease) in net asset value from operations 0.91 (0.01) 0.54 0.80 0.38 Distributions: Dividends from net investment income (0.48) (0.47) (0.48) (0.49) (0.48) Distributions from net realized capital gains -- (0.01) -- -- -- Total dividends and distributions (0.48) (0.48) (0.48) (0.49) (0.48) Net asset value, end of year $ 11.01 $ 10.58 $ 11.07 $ 11.01 $ 10.70 Total return++ 8.81% (0.06)% 4.96% 7.61% 3.62% ======================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $17,478 $16,454 $17,166 $15,558 $14,988 Ratio of operating expenses to average net assets 0.75% 0.73% 0.70% 0.70% 0.70%(a) Ratio of net investment income to average net assets 4.47% 4.42% 4.31% 4.43% 4.50% Portfolio turnover rate 13% 21% 22% 12% 10% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.96% 1.01% 0.99% 1.00% 0.98%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 147 Nations Maryland Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Investor B Shares 03/31/01# 03/31/00 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.58 $ 11.07 $ 11.01 $ 10.70 $ 10.80 Net investment income 0.40 0.40 0.41 0.43 0.45 Net realized and unrealized gain/(loss) on investments 0.43 (0.48) 0.06 0.31 (0.10) Net increase/(decrease) in net asset value from operations 0.83 (0.08) 0.47 0.74 0.35 Distributions: Dividends from net investment income (0.40) (0.40) (0.41) (0.43) (0.45) Distributions from net realized capital gains -- (0.01) -- -- -- Total dividends and distributions (0.40) (0.41) (0.41) (0.43) (0.45) Net asset value, end of year $ 11.01 $ 10.58 $ 11.07 $ 11.01 $ 10.70 Total return++ 8.01% (0.74)% 4.33% 7.07% 3.31% ================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $5,120 $5,662 $5,989 $4,804 $4,299 Ratio of operating expenses to average net assets 1.50% 1.42% 1.30% 1.20% 1.00%(a) Ratio of net investment income to average net assets 3.72% 3.73% 3.71% 3.93% 4.20% Portfolio turnover rate 13% 21% 22% 12% 10% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.71% 1.76% 1.74% 1.50% 1.28%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations Maryland Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Investor C Shares 03/31/01# 03/31/00 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.58 $ 11.07 $ 11.01 $ 10.70 $ 10.80 Net investment income 0.40 0.39 0.41 0.43 0.45 Net realized and unrealized gain/(loss) on investments 0.43 (0.48) 0.06 0.31 (0.10) Net increase/(decrease) in net asset value from operations 0.83 (0.09) 0.47 0.74 0.35 Distributions: Dividends from net investment income (0.40) (0.39) (0.41) (0.43) (0.45) Distributions from net realized capital gains -- (0.01) -- -- -- Total dividends and distributions (0.40) (0.40) (0.41) (0.43) (0.45) Net asset value, end of year $ 11.01 $ 10.58 $ 11.07 $ 11.01 $ 10.70 Total return++ 8.01% (0.82)% 4.31% 7.07% 3.31% ================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 301 $ 335 $ 561 $ 840 $2,017 Ratio of operating expenses to average net assets 1.50% 1.50% 1.32% 1.20% 1.00%(a) Ratio of net investment income to average net assets 3.72% 3.65% 3.69% 3.93% 4.20% Portfolio turnover rate 13% 21% 22% 12% 10% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.71% 1.76% 1.74% 1.50% 1.28%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 148 Nations Maryland Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Investor A Shares 03/31/01# 03/31/00# 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 9.53 $ 9.99 $ 9.94 $ 9.41 $ 9.39 Net investment income 0.43 0.40 0.41 0.43 0.44 Net realized and unrealized gain/(loss) on investments 0.56 (0.45) 0.05 0.53 0.02 Net increase/(decrease) in net asset value from operations 0.99 (0.05) 0.46 0.96 0.46 Distributions: Dividends from net investment income (0.44) (0.40) (0.41) (0.43) (0.44) Distributions from net realized capital gains -- (0.01) (0.00)## -- -- Total dividends and distributions (0.44) (0.41) (0.41) (0.43) (0.44) Net asset value, end of year $ 10.08 $ 9.53 $ 9.99 $ 9.94 $ 9.41 Total return++ 10.62% (0.49)% 4.71% 10.40% 4.99% ====================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $2,679 $1,781 $1,751 $1,902 $1,409 Ratio of operating expenses to average net assets 0.85%(a) 0.83% 0.80% 0.80% 0.80% Ratio of net investment income to average net assets 4.49% 4.18% 4.09% 4.41% 4.68% Portfolio turnover rate 25% 50% 22% 17% 18% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.25% 1.47% 1.32% 1.27% 1.32%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations Maryland Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Investor B Shares 03/31/01# 03/31/00# 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 9.53 $ 9.99 $ 9.94 $ 9.41 $ 9.39 Net investment income 0.37 0.33 0.35 0.37 0.39 Net realized and unrealized gain/(loss) on investments 0.54 (0.45) 0.05 0.53 0.02 Net increase/(decrease) in net asset value from operations 0.91 (0.12) 0.40 0.90 0.41 Distributions: Dividends from net investment income (0.36) (0.33) (0.35) (0.37) (0.39) Distributions from net realized capital gains -- (0.01) (0.00)## -- -- Total dividends and distributions (0.36) (0.34) (0.35) (0.37) (0.39) Net asset value, end of year $ 10.08 $ 9.53 $ 9.99 $ 9.94 $ 9.41 Total return++ 9.80% (1.19)% 4.03% 9.72% 4.42% ====================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $16,830 $16,034 $16,124 $11,071 $8,099 Ratio of operating expenses to average net assets 1.60%(a) 1.54% 1.45% 1.42% 1.35% Ratio of net investment income to average net assets 3.74% 3.47% 3.44% 3.79% 4.13% Portfolio turnover rate 25% 50% 22% 17% 18% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.00% 2.22% 2.07% 1.89% 1.87%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 149 Nations Maryland Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Investor C Shares 03/31/01# 03/31/00# 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 9.53 $ 9.99 $ 9.94 $ 9.41 $ 9.39 Net investment income 0.37 0.33 0.34 0.39 0.42 Net realized and unrealized gain/(loss) on investments 0.53 (0.45) 0.05 0.53 0.02 Net increase/(decrease) in net asset value from operations 0.90 (0.12) 0.39 0.92 0.44 Distributions: Dividends from net investment income (0.36) (0.33) (0.34) (0.39) (0.42) Distributions from net realized capital gains -- (0.01) (0.00)## -- -- Total dividend and distributions (0.36) (0.34) (0.34) (0.39) (0.42) Net asset value, end of year $ 10.07 $ 9.53 $ 9.99 $ 9.94 $ 9.41 Total return++ 9.69% (1.23)% 4.01% 9.88% 4.73% ====================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 274 $ 214 $ 3 $ 3 $ 2 Ratio of operating expenses to average net assets 1.60%(a) 1.60% 1.47% 1.33% 1.10% Ratio of net investment income to average net assets 3.74% 3.41% 3.42% 3.88% 4.38% Portfolio turnover rate 25% 50% 22% 17% 18% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.00% 2.22% 2.07% 1.80% 1.62%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. ## Amount represents less than $0.01 per share. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations North Carolina Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor A Shares 03/31/01# 03/31/00 Operating performance: Net asset value, beginning of year $ 10.21 $ 10.71 Net investment income 0.47 0.46 Net realized and unrealized gain/(loss) on investments 0.36 (0.48) Net increase/(decrease) in net asset value from operations 0.83 (0.02) Distributions: Dividends from net investment income (0.46) (0.46) Distributions from net realized capital gains -- (0.02) Total dividends and distributions (0.46) (0.48) Net asset value, end of year $ 10.58 $ 10.21 Total return++ 8.34% (0.18)% ============================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $10,332 $9,684 Ratio of operating expenses to average net assets 0.75%(a) 0.73%(a) Ratio of net investment income to average net assets 4.46% 4.44% Portfolio turnover rate 19% 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.96% 1.01% Year ended Year ended Year ended Investor A Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.70 $ 10.34 $ 10.36 Net investment income 0.47 0.47 0.45 Net realized and unrealized gain/(loss) on investments 0.04 0.36 ( 0.02) Net increase/(decrease) in net asset value from operations 0.51 0.83 0.43 Distributions: Dividends from net investment income (0.47) (0.47) (0.45) Distributions from net realized capital gains (0.03) -- -- Total dividends and distributions (0.50) (0.47) (0.45) Net asset value, end of year $ 10.71 $ 10.70 $ 10.34 Total return++ 4.82% 8.17% 4.25% ========================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $10,099 $8,572 $5,723 Ratio of operating expenses to average net assets 0.70% 0.70%(a) 0.70%(a) Ratio of net investment income to average net assets 4.37% 4.49% 4.37% Portfolio turnover rate 16% 21% 26% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.96% 0.96% 1.02%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 150 Nations North Carolina Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor B Shares 03/31/01# 03/31/00 Operating performance: Net asset value, beginning of year $ 10.21 $ 10.71 Net investment income 0.38 0.39 Net realized and unrealized gain/(loss) on investments 0.37 (0.48) Net increase/(decrease) in net asset value from operations 0.75 (0.09) Distributions: Dividends from net investment income (0.38) (0.39) Distributions from net realized capital gains -- (0.02) Total dividends and distributions (0.38) (0.41) Net asset value, end of year $ 10.58 $ 10.21 Total return++ 7.54% (0.87)% ============================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $5,261 $5,212 Ratio of operating expenses to average net assets 1.50%(a) 1.41%(a) Ratio of net investment income to average net assets 3.71% 3.76% Portfolio turnover rate 19% 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.71% 1.76% Year ended Year ended Year ended Investor B Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.70 $ 10.34 $ 10.36 Net investment income 0.40 0.42 0.42 Net realized and unrealized gain/(loss) on investments 0.04 0.36 (0.02) Net increase/(decrease) in net asset value from operations 0.44 0.78 0.40 Distributions: Dividends from net investment income (0.40) (0.42) (0.42) Distributions from net realized capital gains (0.03) -- -- Total dividends and distributions (0.43) (0.42) (0.42) Net asset value, end of year $ 10.71 $ 10.70 $ 10.34 Total return++ 4.20% 7.64% 3.94% ========================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $6,671 $6,859 $6,796 Ratio of operating expenses to average net assets 1.30% 1.20%(a) 1.00%(a) Ratio of net investment income to average net assets 3.77% 3.99% 4.07% Portfolio turnover rate 16% 21% 26% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.71% 1.46% 1.32%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations North Carolina Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor C Shares 03/31/01# 03/31/00 Operating performance: Net asset value, beginning of year $ 10.21 $ 10.71 Net investment income 0.39 0.38 Net realized and unrealized gain/(loss) on investments 0.36 (0.48) Net increase/(decrease) in net asset value from operations 0.75 (0.10) Distributions: Dividends from net investment income (0.38) (0.38) Distributions from net realized capital gains -- (0.02) Total dividends and distributions (0.38) (0.40) Net asset value, end of year $ 10.58 $ 10.21 Total return++ 7.54% (0.95)% ============================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 79 $ 88 Ratio of operating expenses to average net assets 1.50%(a) 1.50%(a) Ratio of net investment income to average net assets 3.71% 3.67% Portfolio turnover rate 19% 19% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.71% 1.76% Year ended Year ended Year ended Investor C Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.70 $ 10.34 $ 10.36 Net investment income 0.42 0.42 0.42 Net realized and unrealized gain/(loss) on investments 0.02 0.36 (0.02) Net increase/(decrease) in net asset value from operations 0.44 0.78 0.40 Distributions: Dividends from net investment income (0.40) (0.42) (0.42) Distributions from net realized capital gains (0.03) -- -- Total dividends and distributions (0.43) (0.42) (0.42) Net asset value, end of year $ 10.71 $ 10.70 $ 10.34 Total return++ 4.18% 7.64% 3.94% ========================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 109 $ 822 $1,364 Ratio of operating expenses to average net assets 1.31% 1.20%(a) 1.00%(a) Ratio of net investment income to average net assets 3.76% 3.99% 4.07% Portfolio turnover rate 16% 21% 26% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.71% 1.46% 1.32%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 151 Nations North Carolina Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor A Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 9.52 $ 10.08 Net investment income 0.44 0.43 Net realized and unrealized gain/(loss) on investments 0.48 (0.56) Net increase/(decrease) in net asset value from operations 0.92 (0.13) Distributions: Dividends from net investment income (0.45) ( 0.43) Net asset value, end of year $ 9.99 $ 9.52 Total return++ 9.88% (1.20)% ============================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $2,780 $1,528 Ratio of operating expenses to average net assets 0.85%(a) 0.83%(a) Ratio of net investment income to average net assets 4.61% 4.51% Portfolio turnover rate 19% 37% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.23% 1.38% Year ended Year ended Year ended Investor A Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.01 $ 9.47 $ 9.49 Net investment income 0.43 0.45 0.45 Net realized and unrealized gain/(loss) on investments 0.08 0.54 (0.02) Net increase/(decrease) in net asset value from operations 0.51 0.99 0.43 Distributions: Dividends from net investment income (0.44) (0.45) (0.45) Net asset value, end of year $ 10.08 $ 10.01 $ 9.47 Total return++ 5.20% 10.64% 4.62% ============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,028 $ 609 $ 594 Ratio of operating expenses to average net assets 0.80%(a) 0.80%(a) 0.80%(a) Ratio of net investment income to average net assets 4.37% 4.58% 4.75% Portfolio turnover rate 11% 20% 28% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.25% 1.13% 1.14%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations North Carolina Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor B Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 9.52 $ 10.08 Net investment income 0.37 0.37 Net realized and unrealized gain/(loss) on investments 0.47 (0.56) Net increase/(decrease) in net asset value from operations 0.84 (0.19) Distributions: Dividends from net investment income (0.37) (0.37) Net asset value, end of year $ 9.99 $ 9.52 Total return++ 9.06% (1.90)% =============================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $16,972 $20,207 Ratio of operating expenses to average net assets 1.60%(a) 1.54%(a) Ratio of net investment income to average net assets 3.86% 3.80% Portfolio turnover rate 19% 37% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.98% 2.13% Year ended Year ended Year ended Investor B Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.01 $ 9.47 $ 9.49 Net investment income 0.38 0.39 0.40 Net realized and unrealized gain/(loss) on investments 0.07 0.54 (0.02) Net increase/(decrease) in net asset value from operations 0.45 0.93 0.38 Distributions: Dividends from net investment income ( 0.38) ( 0.39) (0.40) Net asset value, end of year $ 10.08 $ 10.01 $ 9.47 Total return++ 4.53% 9.96% 4.06% ============================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $24,656 $25,187 $23,863 Ratio of operating expenses to average net assets 1.45%(a) 1.42%(a) 1.35%(a) Ratio of net investment income to average net assets 3.72% 3.96% 4.20% Portfolio turnover rate 11% 20% 28% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.00% 1.75% 1.69%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 152 Nations North Carolina Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor C Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 9.51 $ 10.08 Net investment income 0.36 0.37 Net realized and unrealized gain/(loss) on investments 0.49 (0.57) Net increase/(decrease) in net asset value from operations 0.85 (0.20) Distributions: Dividends from net investment income (0.37) (0.37) Net asset value, end of year $ 9.99 $ 9.51 Total return++ 9.18% (1.99)% ============================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 87 $ 54 Ratio of operating expenses to average net assets 1.60%(a) 1.60%(a) Ratio of net investment income to average net assets 3.86% 3.74% Portfolio turnover rate 19% 37% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.98% 2.13% Year ended Year ended Year ended Investor C Shares 03/31/99 03/31/98(#) 03/31/97 Operating performance: Net asset value, beginning of year $ 10.01 $ 9.47 $ 9.49 Net investment income 0.37 0.40 0.42 Net realized and unrealized gain/(loss) on investments 0.07 0.54 (0.02) Net increase/(decrease) in net asset value from operations 0.44 0.94 0.40 Distributions: Dividends from net investment income (0.37) (0.40) (0.42) Net asset value, end of year $ 10.08 $ 10.01 $ 9.47 Total return++ 4.50% 10.07% 4.32% ============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 3 $ 3 $ 18 Ratio of operating expenses to average net assets 1.47%(a) 1.33%(a) 1.10%(a) Ratio of net investment income to average net assets 3.70% 4.05% 4.45% Portfolio turnover rate 11% 20% 28% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.00% 1.66% 1.44%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations South Carolina Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor A Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 10.27 $ 10.79 Net investment income 0.49 0.49 Net realized and unrealized gain/(loss) on investments 0.37 (0.51) Net increase/(decrease) in net asset value from operations 0.86 (0.02) Distributions: Dividends from net investment income (0.49) (0.49) Distributions from net realized capital gains -- (0.01) Total dividends and distributions (0.49) (0.50) Net asset value, end of year $ 10.64 $ 10.27 Total return++ 8.58% (0.14)% ============================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $18,420 $17,396 Ratio of operating expenses to average net assets 0.75%(a) 0.73%(a) Ratio of net investment income to average net assets 4.70% 4.65% Portfolio turnover rate 9% 14% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.95% 0.99% Year ended Year ended Year ended Investor A Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.79 $ 10.50 $ 10.52 Net investment income 0.49 0.50 0.49 Net realized and unrealized gain/(loss) on investments 0.04 0.29 (0.02) Net increase/(decrease) in net asset value from operations 0.53 0.79 0.47 Distributions: Dividends from net investment income (0.49) (0.50) (0.49) Distributions from net realized capital gains (0.04) (0.00)## -- Total dividends and distributions (0.53) (0.50) (0.49) Net asset value, end of year $ 10.79 $ 10.79 $ 10.50 Total return++ 5.01% 7.67% 4.51% ============================================================================================== Net assets, end of year (in 000's) $18,729 $13,945 $10,465 Ratio of operating expenses to average net assets 0.70%(a) 0.70%(a) 0.70%(a) Ratio of net investment income to average net assets 4.55% 4.66% 4.60% Portfolio turnover rate 9% 16% 13% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.94% 0.95% 0.99%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the average shares method. ## Amount represents less than $0.01 per share. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 153 Nations South Carolina Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor B Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 10.27 $ 10.79 Net investment income 0.41 0.41 Net realized and unrealized gain/(loss) on investments 0.37 (0.51) Net increase/(decrease) in net asset value from operations 0.78 (0.10) Distributions: Dividends from net investment income (0.41) (0.41) Distributions from net realized capital gains -- (0.01) Total dividends and distributions (0.41) (0.42) Net asset value, end of year $ 10.64 $ 10.27 Total return++ 7.78% (0.82)% ============================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $7,083 $7,310 Ratio of operating expenses to average net assets 1.50%(a) 1.41%(a) Ratio of net investment income to average net assets 3.95% 3.97% Portfolio turnover rate 9% 14% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.70% 1.74% Year ended Year ended Year ended Investor B Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.79 $ 10.50 $ 10.52 Net investment income 0.43 0.44 0.45 Net realized and unrealized gain/(loss) on investments 0.04 0.29 (0.02) Net increase/(decrease) in net asset value from operations 0.47 0.73 0.43 Distributions: Dividends from net investment income (0.43) (0.44) (0.45) Distributions from net realized capital gains (0.04) (0.00)## -- Total dividends and distributions (0.47) (0.44) (0.45) Net asset value, end of year $ 10.79 $ 10.79 $ 10.50 Total return++ 4.39% 7.13% 4.19% ============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $8,542 $6,819 $5,738 Ratio of operating expenses to average net assets 1.30%(a) 1.20%(a) 1.00%(a) Ratio of net investment income to average net assets 3.95% 4.16% 4.30% Portfolio turnover rate 9% 16% 13% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.69% 1.45% 1.29%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the average shares method. ## Amount represents less than $0.01 per share. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations South Carolina Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor C Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 10.27 $ 10.79 Net investment income 0.41 0.40 Net realized and unrealized gain/(loss) on investments 0.37 (0.51) Net increase/(decrease) in net asset value from operations 0.78 (0.11) Distributions: Dividends from net investment income (0.41) (0.40) Distributions from net realized capital gains -- (0.01) Total dividends and distributions (0.41) (0.41) Net asset value, end of year $ 10.64 $ 10.27 Total return++ 7.78% (0.91)% ============================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $2,175 $2,755 Ratio of operating expenses to average net assets 1.50%(a) 1.50%(a) Ratio of net investment income to average net assets 3.95% 3.88% Portfolio turnover rate 9% 14% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.70% 1.74% Year ended Year ended Year ended Investor C Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.79 $ 10.50 $ 10.52 Net investment income 0.42 0.44 0.45 Net realized and unrealized gain/(loss) on investments 0.04 0.29 (0.02) Net increase/(decrease) in net asset value from operations 0.46 0.73 0.43 Distributions: Dividends from net investment income (0.42) (0.44) (0.45) Distributions from net realized capital gains (0.04) (0.00)## -- Total dividends and distributions (0.46) (0.44) (0.45) Net asset value, end of year $ 10.79 $ 10.79 $ 10.50 Total return++ 4.36% 7.13% 4.20% ============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $3,102 $2,698 $5,089 Ratio of operating expenses to average net assets 1.32%(a) 1.20%(a) 1.00%(a) Ratio of net investment income to average net assets 3.93% 4.16% 4.30% Portfolio turnover rate 9% 16% 13% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.69% 1.45% 1.29%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the average shares method. ## Amount represents less than $0.01 per share. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 154 Nations South Carolina Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor A Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 9.75 $ 10.30 Net investment income 0.46 0.45 Net realized and unrealized gain/(loss) on investments 0.54 (0.55) Net increase/(decrease) in net asset value from operations 1.00 (0.10) Distributions: Dividends from net investment income (0.46) (0.45) Distributions from net realized capital gains -- -- Total dividends and distributions (0.46) (0.45) Net asset value, end of year $ 10.29 $ 9.75 Total return++ 10.52% (0.95)% ============================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,057 $ 906 Ratio of operating expenses to average net assets 0.85%(a) 0.83%(a) Ratio of net investment income to average net assets 4.62% 4.56% Portfolio turnover rate 8% 71% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.24% 1.53% Year ended Year ended Year ended Investor A Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.26 $ 9.79 $ 9.77 Net investment income 0.44 0.47 0.47 Net realized and unrealized gain/(loss) on investments 0.06 0.47 0.02 Net increase/(decrease) in net asset value from operations 0.50 0.94 0.49 Distributions: Dividends from net investment income (0.46) (0.47) (0.47) Distributions from net realized capital gains -- (0.00)## -- Total dividends and distributions (0.46) (0.47) (0.47) Net asset value, end of year $ 10.30 $ 10.26 $ 9.79 Total return++ 4.92% 9.82% 5.12% ========================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,060 $1,517 $ 811 Ratio of operating expenses to average net assets 0.80% 0.80%(a) 0.80%(a) Ratio of net investment income to average net assets 4.42% 4.59% 4.79% Portfolio turnover rate 3% 9% 30% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.43% 1.19% 1.20%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations South Carolina Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor B Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 9.75 $ 10.30 Net investment income 0.39 0.38 Net realized and unrealized gain/(loss) on investments 0.55 (0.55) Net increase/(decrease) in net asset value from operations 0.94 (0.17) Distributions: Dividends from net investment income (0.39) (0.38) Distributions from net realized capital gains -- -- Total dividends and distributions (0.39) (0.38) Net asset value, end of year $ 10.30 $ 9.75 Total return++ 9.80% (1.65)% ============================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $8,338 $8,974 Ratio of operating expenses to average net assets 1.60%(a) 1.54%(a) Ratio of net investment income to average net assets 3.87% 3.85% Portfolio turnover rate 8% 71% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.99% 2.28% Year ended Year ended Year ended Investor B Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.26 $ 9.79 $ 9.77 Net investment income 0.39 0.40 0.42 Net realized and unrealized gain/(loss) on investments 0.04 0.47 0.02 Net increase/(decrease) in net asset value from operations 0.43 0.87 0.44 Distributions: Dividends from net investment income (0.39) (0.40) (0.42) Distributions from net realized capital gains -- (0.00)## -- Total dividends and distributions (0.39) (0.40) (0.42) Net asset value, end of year $ 10.30 $ 10.26 $ 9.79 Total return++ 4.25% 9.15% 4.54% ========================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $10,905 $10,394 $12,104 Ratio of operating expenses to average net assets 1.44% 1.42%(a) 1.35%(a) Ratio of net investment income to average net assets 3.78% 3.97% 4.24% Portfolio turnover rate 3% 9% 30% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.18% 1.81% 1.75%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 155 Nations South Carolina Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor C Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 9.75 $ 10.30 Net investment income 0.39 0.38 Net realized and unrealized gain/(loss) on investments 0.55 (0.55) Net increase/(decrease) in net asset value from operations 0.94 (0.17) Distributions: Dividends from net investment income (0.39) (0.38) Distributions from net realized capital gains -- -- Total dividends and distributions (0.39) (0.38) Net asset value, end of year $ 10.30 $ 9.75 Total return++ 9.80% (1.71)% ============================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 45 $ 41 Ratio of operating expenses to average net assets 1.60%(a) 1.60%(a) Ratio of net investment income to average net assets 3.87% 3.79% Portfolio turnover rate 8% 71% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.99% 2.28% Year ended Year ended Year ended Investor C Shares 03/31/99# 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.26 $ 9.79 $ 9.77 Net investment income 0.39 0.42 0.44 Net realized and unrealized gain/(loss) on investments 0.04 0.47 0.02 Net increase/(decrease) in net asset value from operations 0.43 0.89 0.46 Distributions: Dividends from net investment income (0.39) (0.42) (0.44) Distributions from net realized capital gains -- (0.00)## -- Total dividends and distributions (0.39) (0.42) (0.44) Net asset value, end of year $ 10.30 $ 10.26 $ 9.79 Total return++ 4.23% 9.29% 4.80% ==================================================== ======= ======= ======= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 77 $ 28 $ 247 Ratio of operating expenses to average net assets 1.44% 1.33%(a) 1.10%(a) Ratio of net investment income to average net assets 3.78% 4.06% 4.49% Portfolio turnover rate 3% 9% 30% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.18% 1.72% 1.50%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations Tennessee Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor A Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 9.91 $ 10.46 Net investment income 0.45 0.44 Net realized and unrealized gain/(loss) on investments 0.44 (0.54) Net increase/(decrease) in net asset value from operations 0.89 (0.10) Distributions: Dividends from net investment income (0.45) (0.44) Distributions from net realized capital gains -- (0.01) Total dividends and distributions (0.45) (0.45) Net asset value, end of year $ 10.35 $ 9.91 Total return++ 9.25% (0.90)% ============================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $7,945 $7,810 Ratio of operating expenses to average net assets 0.75%(a) 0.73%(a) Ratio of net investment income to average net assets 4.52% 4.39% Portfolio turnover rate 10% 49% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.09% 1.19% Year ended Year ended Year ended Investor A Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.40 $ 10.08 $ 10.09 Net investment income 0.45 0.45 0.44 Net realized and unrealized gain/(loss) on investments 0.06 0.32 (0.01) Net increase/(decrease) in net asset value from operations 0.51 0.77 0.43 Distributions: Dividends from net investment income (0.45) (0.45) (0.44) Distributions from net realized capital gains -- -- -- Total dividends and distributions (0.45) (0.45) (0.44) Net asset value, end of year $ 10.46 $ 10.40 $ 10.08 Total return++ 4.97% 7.77% 4.33% ========================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $9,242 $8,061 $6,840 Ratio of operating expenses to average net assets 0.70% 0.70%(a) 0.70%(a) Ratio of net investment income to average net assets 4.28% 4.38% 4.35% Portfolio turnover rate 22% 38% 28% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.10% 1.04% 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. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 156 Nations Tennessee Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor B Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 9.91 $ 10.46 Net investment income 0.38 0.38 Net realized and unrealized gain/(loss) on investments 0.44 (0.54) Net increase/(decrease) in net asset value from operations 0.82 (0.16) Distributions: Dividends from net investment income (0.38) (0.38) Distributions from net realized capital gains -- (0.01) Total dividends and distributions (0.38) (0.39) Net asset value, end of year $ 10.35 $ 9.91 Total return++ 8.44% (1.58)% ============================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,448 $1,783 Ratio of operating expenses to average net assets 1.50%(a) 1.41%(a) Ratio of net investment income to average net assets 3.77% 3.71% Portfolio turnover rate 10% 49% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.84% 1.94% Year ended Year ended Year ended Investor B Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.40 $ 10.08 $ 10.09 Net investment income 0.38 0.40 0.41 Net realized and unrealized gain/(loss) on investments 0.06 0.32 (0.01) Net increase/(decrease) in net asset value from operations 0.44 0.72 0.40 Distributions: Dividends from net investment income (0.38) (0.40) (0.41) Distributions from net realized capital gains -- -- -- Total dividends and distributions (0.38) (0.40) (0.41) Net asset value, end of year $ 10.46 $ 10.40 $ 10.08 Total return++ 4.34% 7.24% 4.02% ========================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $3,007 $2,924 $3,050 Ratio of operating expenses to average net assets 1.30% 1.20%(a) 1.00%(a) Ratio of net investment income to average net assets 3.68% 3.88% 4.05% Portfolio turnover rate 22% 38% 28% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.85% 1.54% 1.43%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations Tennessee Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor C Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 9.87 $ 10.45 Net investment income 0.42 0.39 Net realized and unrealized gain/(loss) on investments 0.40 (0.57) Net increase/(decrease) in net asset value from operations 0.82 (0.18) Distributions: Dividends from net investment income (0.38) (0.39) Distributions from net realized capital gains -- (0.01) Total dividends and distributions (0.38) (0.40) Net asset value, end of year $ 10.31 $ 9.87 Total return++ 8.46% (1.96)% ============================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 3 $ 3 Ratio of operating expenses to average net assets 1.50%(a) 1.50%(a) Ratio of net investment income to average net assets 3.77% 3.62% Portfolio turnover rate 10% 49% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.84% 1.94% Year ended Year ended Year ended Investor C Shares 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.40 $ 10.08 $ 10.09 Net investment income 0.39 0.40 0.42 Net realized and unrealized gain/(loss) on investments 0.05 0.32 (0.01) Net increase/(decrease) in net asset value from operations 0.44 0.72 0.41 Distributions: Dividends from net investment income (0.39) (0.40) (0.42) Distributions from net realized capital gains -- -- -- Total dividends and distributions (0.39) (0.40) (0.42) Net asset value, end of year $ 10.45 $ 10.40 $ 10.08 Total return++ 4.28% 7.29% 4.08% ========================================================================================== Net assets, end of year (in 000's) $ 33 $ 3 $ 2 Ratio of operating expenses to average net assets 1.11% 1.20%(a) 1.00%(a) Ratio of net investment income to average net assets 3.87% 3.88% 4.05% Portfolio turnover rate 22% 38% 28% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.85% 1.54% 1.43%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 157 Nations Tennessee Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Investor A Shares 03/31/01 03/31/00# 03/31/99# 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 9.68 $ 10.30 $ 10.22 $ 9.70 $ 9.68 Net investment income 0.46 0.43 0.43 0.46 0.46 Net realized and unrealized gain/(loss) on investments 0.56 (0.62) 0.11 0.52 0.02 Net increase/(decrease) in net asset value from operations 1.02 (0.19) 0.54 0.98 0.48 Distributions: Dividends from net investment income (0.46) (0.43) (0.46) (0.46) (0.46) Net asset value, end of year $ 10.24 $ 9.68 $ 10.30 $ 10.22 $ 9.70 Total return++ 10.82% (1.59)% 5.32% 10.23% 5.02% ==================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,706 $1,357 $ 484 $1,440 $1,018 Ratio of operating expenses to average net assets 0.85%(a) 0.83% 0.80% 0.80% 0.80% Ratio of net investment income to average net assets 4.67% 4.60% 4.41% 4.54% 4.71% Portfolio turnover rate 9% 34% 40% 19% 31% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.82% 2.39% 1.80% 1.40% 1.44%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations Tennessee Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Investor B Shares 03/31/01 03/31/00# 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 9.68 $ 10.30 $ 10.22 $ 9.70 $ 9.68 Net investment income 0.39 0.38 0.39 0.40 0.40 Net realized and unrealized gain/(loss) on investments 0.56 (0.62) 0.08 0.52 0.02 Net increase/(decrease) in net asset value from operations 0.95 (0.24) 0.47 0.92 0.42 Distributions: Dividends from net investment income (0.39) (0.38) (0.39) (0.40) (0.40) Net asset value, end of year $ 10.24 $ 9.68 $ 10.30 $ 10.22 $ 9.70 Total return++ 10.00% (2.28)% 4.64% 9.56% 4.45% ==================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $3,720 $4,001 $4,718 $4,915 $5,319 Ratio of operating expenses to average net assets 1.60%(a) 1.54% 1.45% 1.42% 1.35% Ratio of net investment income to average net assets 3.92% 3.89% 3.76% 3.92% 4.16% Portfolio turnover rate 9% 34% 40% 19% 31% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.57% 3.14% 2.55% 2.02% 1.99%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 158 Nations Tennessee Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Investor C Shares 03/31/01 03/31/00# 03/31/99# 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 9.68 $ 10.30 $ 10.22 $ 9.70 $ 9.68 Net investment income 0.39 0.36 0.38 0.40 0.43 Net realized and unrealized gain/(loss) on investments 0.56 (0.62) 0.09 0.52 0.02 Net increase/(decrease) in net asset value resulting from operations 0.95 (0.26) 0.47 0.92 0.45 Distributions: Dividends from net investment income (0.39) (0.36) (0.39) (0.40) (0.43) Net asset value, end of year $ 10.24 $ 9.68 $ 10.30 $ 10.22 $ 9.70 Total return++ 10.00% (2.35)% 4.62% 9.65% 4.71% ===================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 163 $ 143 $ 68 $ 42 $ 38 Ratio of operating expenses to average net assets 1.60%(a) 1.60% 1.46% 1.33% 1.10% Ratio of net investment income to average net assets 3.92% 3.83% 3.75% 4.01% 4.41% Portfolio turnover rate 9% 34% 40% 19% 31% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.57% 3.14% 2.55% 1.93% 1.74%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations Texas Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Investor A Shares 03/31/01 03/31/00 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.00 $ 10.48 $ 10.50 $ 10.18 $ 10.21 Net investment income 0.48 0.47 0.47 0.47 0.45 Net realized and unrealized gain/(loss) on investments 0.35 (0.48) 0.02 0.32 (0.03) Net increase/(decrease) in net asset value from operations 0.83 (0.01) 0.49 0.79 0.42 Distributions: Dividends from net investment income (0.48) (0.47) (0.47) (0.47) (0.45) Distributions from net realized capital gains -- (0.00)# (0.04) -- -- Total dividends and distributions (0.48) (0.47) (0.51) (0.47) (0.45) Net asset value, end of year $ 10.35 $ 10.00 $ 10.48 $ 10.50 $ 10.18 Total return++ 8.52% (0.06)% 4.77% 7.87% 4.17% ======================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $4,346 $6,075 $6,909 $2,666 $ 909 Ratio of operating expenses to average net assets 0.75%(a) 0.73%(a) 0.70% 0.70% 0.70% Ratio of net investment income to average net assets 4.75% 4.61% 4.46% 4.54% 4.39% Portfolio turnover rate 6% 33% 22% 19% 34% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.95% 0.97% 0.93% 0.95% 1.04%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Amount represents less than $0.01 per share. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 159 Nations Texas Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Investor B Shares 03/31/01 03/31/00 03/31/99 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.00 $ 10.48 $ 10.50 $ 10.18 $ 10.21 Net investment income 0.40 0.40 0.41 0.42 0.42 Net realized and unrealized gain/(loss) on investments 0.35 (0.48) 0.02 0.32 (0.03) Net increase/(decrease) in net asset value from operations 0.75 (0.08) 0.43 0.74 0.39 Distributions: Dividends from net investment income (0.40) (0.40) (0.41) (0.42) (0.42) Distributions from net realized capital gains -- (0.00)# (0.04) -- -- Total dividends and distributions (0.40) (0.40) (0.45) (0.42) (0.42) Net asset value, end of year $ 10.35 $ 10.00 $ 10.48 $ 10.50 $ 10.18 Total return++ 7.71% (0.74)% 4.15% 7.34% 3.87% ======================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $2,145 $2,005 $2,137 $2,184 $2,182 Ratio of operating expenses to average net assets 1.50%(a) 1.42%(a) 1.30% 1.20% 1.00% Ratio of net investment income to average net assets 4.00% 3.92% 3.86% 4.04% 4.09% Portfolio turnover rate 6% 33% 22% 19% 34% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.70% 1.72% 1.68% 1.45% 1.34%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Amount represents less than $0.01 per share. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations Texas Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Investor C Shares 03/31/01 03/31/00 03/31/99# 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.00 $ 10.48 $ 10.50 $ 10.18 $ 10.21 Net investment income 0.40 0.38 0.40 0.42 0.42 Net realized and unrealized gain/(loss) on investments 0.35 (0.48) 0.02 0.32 (0.03) Net increase/(decrease) in net asset value from operations 0.75 (0.10) 0.42 0.74 0.39 Distributions: Dividends from net investment income (0.40) (0.38) (0.40) (0.42) (0.42) Distributions from net realized capital gains -- (0.00)## (0.04) -- -- Total dividends and distributions (0.40) (0.38) (0.44) (0.42) (0.42) Net asset value, end of year $ 10.35 $ 10.00 $ 10.48 $ 10.50 $ 10.18 Total return++ 7.69% (0.86)% 4.14% 7.34% 3.87% ======================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 3 $ 3 $ 3 $ 293 $ 591 Ratio of operating expenses to average net assets 1.50%(a) 1.50%(a) 1.33% 1.20% 1.00% Ratio of net investment income to average net assets 4.00% 3.84% 3.83% 4.04% 4.09% Portfolio turnover rate 6% 33% 22% 19% 34% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.70% 1.72% 1.68% 1.45% 1.34%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 160 Nations Texas Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor A Shares 03/31/01 03/31/00# Operating performance: Net asset value, beginning of year $ 9.56 $ 10.11 Net investment income 0.47 0.45 Net realized and unrealized gain/(loss) on investments 0.50 (0.55) Net increase/(decrease) in net asset value from operations 0.97 (0.10) Distributions: Dividends from net investment income (0.47) (0.45) Net asset value, end of year $ 10.06 $ 9.56 Total return++ 10.37% (0.86)% ============================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 340 $ 333 Ratio of operating expenses to average net assets 0.85%(a) 0.83%(a) Ratio of net investment income to average net assets 4.78% 4.72% Portfolio turnover rate 10% 39% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.62% 2.00% Year ended Year ended Year ended Investor A Shares 03/31/99 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 10.04 $ 9.48 $ 9.49 Net investment income 0.44 0.46 0.46 Net realized and unrealized gain/(loss) on investments 0.07 0.56 (0.01) Net increase/(decrease) in net asset value from operations 0.51 1.02 0.45 Distributions: Dividends from net investment income (0.44) (0.46) (0.46) Net asset value, end of year $ 10.11 $ 10.04 $ 9.48 Total return++ 5.20% 10.90% 4.78% ========================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 401 $ 419 $ 371 Ratio of operating expenses to average net assets 0.80% 0.80%(a) 0.80%(a) Ratio of net investment income to average net assets 4.39% 4.63% 4.79% Portfolio turnover rate 34% 33% 52% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.50% 1.27% 1.23%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations Texas Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor B Shares 03/31/01 03/31/00# Operating performance: Net asset value, beginning of year $ 9.56 $ 10.11 Net investment income 0.39 0.39 Net realized and unrealized gain/(loss) on investments 0.51 (0.55) Net increase/(decrease) in net asset value from operations 0.90 (0.16) Distributions: Dividends from net investment income (0.40) (0.39) Net asset value, end of year $ 10.06 $ 9.56 Total return++ 9.55% (1.56)% ============================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $5,142 $5,569 Ratio of operating expenses to average net assets 1.60%(a) 1.54%(a) Ratio of net investment income to average net assets 4.03% 4.01% Portfolio turnover rate 10% 39% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.37% 2.75% Year ended Year ended Year ended Investor B Shares 03/31/99 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 10.04 $ 9.48 $ 9.49 Net investment income 0.38 0.39 0.40 Net realized and unrealized gain/(loss) on investments 0.07 0.56 (0.01) Net increase/(decrease) in net asset value from operations 0.45 0.95 0.39 Distributions: Dividends from net investment income (0.38) (0.39) (0.40) Net asset value, end of year $ 10.11 $ 10.04 $ 9.48 Total return++ 4.53% 10.23% 4.21% ========================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $6,828 $8,804 $10,090 Ratio of operating expenses to average net assets 1.45% 1.42%(a) 1.35%(a) Ratio of net investment income to average net assets 3.74% 4.01% 4.24% Portfolio turnover rate 34% 33% 52% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.25% 1.89% 1.78%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 161 Nations Texas Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor C Shares 03/31/01 03/31/00# Operating performance: Net asset value, beginning of year $ 9.56 $ 10.11 Net investment income 0.39 0.38 Net realized and unrealized gain/(loss) on investments 0.51 (0.55) Net increase/(decrease) in net asset value from operations 0.90 (0.17) Distributions: Dividends from net investment income ( 0.40) (0.38) Net asset value, end of year $ 10.06 $ 9.56 Total return++ 9.55% (1.62)% ============================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 91 $ 84 Ratio of operating expenses to average net assets 1.60%(a) 1.60%(a) Ratio of net investment income to average net assets 4.03% 3.95% Portfolio turnover rate 10% 39% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.37% 2.75% Year ended Year ended Year ended Investor C Shares 03/31/99 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 10.04 $ 9.48 $ 9.49 Net investment income 0.38 0.40 0.43 Net realized and unrealized gain/(loss) on investments 0.07 0.56 (0.01) Net increase/(decrease) in net asset value from operations 0.45 0.96 0.42 Distributions: Dividends from net investment income (0.38) (0.40) (0.43) Net asset value, end of year $ 10.11 $ 10.04 $ 9.48 Total return++ 4.51% 10.31% 4.47% ========================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 84 $ 80 $ 73 Ratio of operating expenses to average net assets 1.46% 1.33%(a) 1.10%(a) Ratio of net investment income to average net assets 3.73% 4.10% 4.49% Portfolio turnover rate 34% 33% 52% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.25% 1.80% 1.53%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations Virginia Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor A Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 10.51 $ 10.98 Net investment income 0.48 0.47 Net realized and unrealized gain/(loss) on investments 0.41 (0.47) Net increase/(decrease) in net asset value from operations 0.89 0.00 Distributions: Dividends from net investment income (0.48) (0.47) Distributions from net realized capital gains -- (0.00)## Total dividends and distributions (0.48) (0.47) Net asset value, end of year $ 10.92 $ 10.51 Total return++ 8.65% 0.06% =========================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $43,655 $46,663 Ratio of operating expenses to average net assets 0.75% 0.73%(a) Ratio of net investment income to average net assets 4.48% 4.43% Portfolio turnover rate 9% 23% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.95% 0.98% Year ended Year ended Year ended Investor A Shares 03/31/99# 03/31/98 03/31/97 Operating performance: Net asset value, beginning of year $ 10.92 $ 10.59 $ 10.69 Net investment income 0.47 0.49 0.49 Net realized and unrealized gain/(loss) on investments 0.07 0.33 (0.10) Net increase/(decrease) in net asset value from operations 0.54 0.82 0.39 Distributions: Dividends from net investment income (0.48) (0.49) (0.49) Distributions from net realized capital gains -- -- -- Total dividends and distributions (0.48) (0.49) (0.49) Net asset value, end of year $ 10.98 $ 10.92 $ 10.59 Total return++ 5.00% 7.91% 3.71% ============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $56,733 $54,080 $55,791 Ratio of operating expenses to average net assets 0.70%(a) 0.70%(a) 0.70%(a) Ratio of net investment income to average net assets 4.34% 4.57% 4.59% Portfolio turnover rate 5% 21% 20% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.95% 0.94% 0.94%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 162 Nations Virginia Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor B Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 10.51 $ 10.98 Net investment income 0.40 0.40 Net realized and unrealized gain/(loss) on investments 0.41 (0.47) Net increase/(decrease) in net asset value from operations 0.81 (0.07) Distributions: Dividends from net investment income (0.40) (0.40) Distributions from net realized capital gains -- (0.00)## Total dividends and distributions (0.40) (0.40) Net asset value, end of year $ 10.92 $ 10.51 Total return++ 7.85% (0.63)% ========================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $8,859 $9,073 Ratio of operating expenses to average net assets 1.50% 1.41%(a) Ratio of net investment income to average net assets 3.73% 3.75% Portfolio turnover rate 9% 23% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.70% 1.73% Year ended Year ended Year ended Investor B Shares 03/31/99 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 10.92 $ 10.59 $ 10.69 Net investment income 0.41 0.44 0.46 Net realized and unrealized gain/(loss) on investments 0.06 0.33 (0.10) Net increase/(decrease) in net asset value from operations 0.47 0.77 0.36 Distributions: Dividends from net investment income (0.41) (0.44) (0.46) Distributions from net realized capital gains -- -- -- Total dividends and distributions (0.41) (0.44) (0.46) Net asset value, end of year $ 10.98 $ 10.92 $ 10.59 Total return++ 4.38% 7.37% 3.40% ============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $10,296 $9,643 $10,516 Ratio of operating expenses to average net assets 1.30%(a) 1.20%(a) 1.00%(a) Ratio of net investment income to average net assets 3.74% 4.07% 4.29% Portfolio turnover rate 5% 21% 20% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.70% 1.44% 1.24%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations Virginia Intermediate Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor C Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 10.51 $ 10.98 Net investment income 0.40 0.39 Net realized and unrealized gain/(loss) on investments 0.41 (0.47) Net increase/(decrease) in net asset value from operations 0.81 (0.08) Distributions: Dividends from net investment income (0.40) (0.39) Distributions from net realized capital gains -- (0.00)## Total dividends and distributions (0.40) (0.39) Net asset value, end of year $ 10.92 $ 10.51 Total return++ 7.84% (0.71)% =========================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 817 $ 759 Ratio of operating expenses to average net assets 1.50% 1.50%(a) Ratio of net investment income to average net assets 3.73% 3.66% Portfolio turnover rate 9% 23% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.70% 1.73% Year ended Year ended Year ended Investor C Shares 03/31/99# 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 10.92 $ 10.59 $ 10.69 Net investment income 0.39 0.44 0.46 Net realized and unrealized gain/(loss) on investments 0.08 0.33 (0.10) Net increase/(decrease) in net asset value from operations 0.47 0.77 0.36 Distributions: Dividends from net investment income (0.41) (0.44) (0.46) Distributions from net realized capital gains -- -- -- Total dividends and distributions (0.41) (0.44) (0.46) Net asset value, end of year $ 10.98 $ 10.92 $ 10.59 Total return++ 4.36% 7.37% 3.40% ================================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,100 $1,949 $6,463 Ratio of operating expenses to average net assets 1.34%(a) 1.20%(a) 1.00%(a) Ratio of net investment income to average net assets 3.70% 4.07% 4.29% Portfolio turnover rate 5% 21% 20% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.70% 1.44% 1.24%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 163 Nations Virginia Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Investor A Shares 03/31/01# 03/31/00# 03/31/99# 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 9.44 $ 9.99 $ 9.95 $ 9.40 $ 9.38 Net investment income 0.45 0.39 0.45 0.45 0.46 Net realized and unrealized gain/(loss) on investments 0.40 (0.55) 0.04 0.55 0.02 Net increase/(decrease) in net asset value from operations 0.85 (0.16) 0.49 1.00 0.48 Distributions: Dividends from net investment income (0.47) (0.39) (0.45) (0.45) (0.46) Net asset value, end of year $ 9.82 $ 9.44 $ 9.99 $ 9.95 $ 9.40 Total return++ 9.20% (1.02)% 4.98% 10.88% 5.23% ======================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,016 $ 590 $ 965 $1,222 $ 726 Ratio of operating expenses to average net assets 0.85% 0.83% 0.80%(a) 0.79%(a) 0.80%(a) Ratio of net investment income to average net assets 4.86% 4.64% 4.46% 4.66% 4.90% Portfolio turnover rate 17% 21% 11% 9% 37% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.32% 1.60% 1.36% 1.16% 1.18%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. Nations Virginia Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Year ended Year ended Year ended Investor B Shares 03/31/01# 03/31/00# 03/31/99 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 9.45 $ 9.99 $ 9.95 $ 9.40 $ 9.38 Net investment income 0.39 0.38 0.38 0.39 0.41 Net realized and unrealized gain/(loss) on investments 0.38 (0.54) 0.04 0.55 0.02 Net increase/(decrease) in net asset value from operations 0.77 (0.16) 0.42 0.94 0.43 Distributions: Dividends from net investment income (0.39) (0.38) (0.38) (0.39) (0.41) Net asset value, end of year $ 9.83 $ 9.45 $ 9.99 $ 9.95 $ 9.40 Total return++ 8.38% (1.61)% 4.30% 10.21% 4.65% ======================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $10,570 $10,608 $13,499 $13,082 $13,972 Ratio of operating expenses to average net assets 1.60% 1.53% 1.45%(a) 1.41%(a) 1.35%(a) Ratio of net investment income to average net assets 4.11% 3.94% 3.81% 4.04% 4.35% Portfolio turnover rate 17% 21% 11% 9% 37% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.07% 2.35% 2.11% 1.78% 1.73%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 164 Nations Virginia Municipal Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor C Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 9.45 $ 9.99 Net investment income 0.29 0.38 Net realized and unrealized gain/(loss) on investments 0.48 (0.54) Net increase/(decrease) in net asset value from operations 0.77 (0.16) Distributions: Dividends from net investment income (0.39) (0.38) Net asset value, end of year $ 9.83 $ 9.45 Total return++ 8.35% (1.58)% ====================================================== ======= ======= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 54 $ 3 Ratio of operating expenses to average net assets 1.60% 1.60% Ratio of net investment income to average net assets 4.11% 3.87% Portfolio turnover rate 17% 21% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.07% 2.35% Year ended Year ended Year ended Investor C Shares 03/31/99 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 9.95 $ 9.40 $ 9.38 Net investment income 0.37 0.40 0.43 Net realized and unrealized gain/(loss) on investments 0.04 0.55 0.02 Net increase/(decrease) in net asset value from operations 0.41 0.95 0.45 Distributions: Dividends from net investment income (0.37) (0.40) (0.43) Net asset value, end of year $ 9.99 $ 9.95 $ 9.40 Total return++ 4.21% 10.31% 4.92% ================================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 3 $ 3 $ 45 Ratio of operating expenses to average net assets 1.45%(a) 1.32%(a) 1.10%(a) Ratio of net investment income to average net assets 3.81% 4.13% 4.60% Portfolio turnover rate 11% 9% 37% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.11% 1.69% 1.48%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of interest expense on the operating expense ratio was less than 0.01%. 165 [GRAPHIC] This glossary includes explanations of the important terms that may be used in this prospectus. Some of the terms explained may apply to Nations Funds not included in this prospectus. [GRAPHIC] Terms used in this prospectus Amortized cost method - under Rule 2a-7 of the 1940 Act, the method of calculating an investment company's net asset value whereby portfolio securities are valued at the Fund's acquisition cost as adjusted for amortization of premium or accretion of discount rather than at their current market value. Asset-backed security - a debt security that gives an investor an interest in a pool of assets that is collateralized or "backed" by one or more kinds of assets, including automobile loans or credit card receivables, generally issued by banks, credit card companies or other lenders. Asset-backed securities typically make periodic payments, which may be interest or a combination of interest and a portion of the principal of the underlying assets. Average dollar-weighted maturity - the average length of time until the debt securities held by a Fund reach maturity. In general, the longer the average dollar-weighted maturity, the more a Fund's share price will fluctuate in response to changes in interest rates. Bank obligation - a money market instrument issued by a domestic or U.S. branch of a foreign bank, including certificates of deposit, time deposits and bankers' acceptances. Capital gain or loss - the difference between the purchase price of a security and its selling price. An investor realizes a capital gain when it sells a security for more than it paid for it. An investor realizes a capital loss when it sells a security for less than it paid for it. Cash equivalents - short-term, interest-bearing instruments which can easily be converted into cash, including U.S. government obligations, bank obligations, and certain asset-backed securities, foreign government securities and commercial paper issued by U.S. and foreign issuers which, at the time of investment, is rated at least Prime-2 by Moody's Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch). Collateralized mortgage obligation (CMO) - a type of mortgage-backed security. CMO payment obligations are covered by interest and/or principal payments from a pool of mortgages. In addition, the underlying assets of a CMO are typically separated into classes, called tranches, based on maturity. Each tranche pays a different rate of interest. CMOs are not generally issued by the U.S. government, its agencies or instrumentalities. Commercial paper - a short-term corporate obligation. Commercial paper is typically considered a money market instrument. Common stock - a security that represents part equity ownership in a company. Common stock typically allows an investor to vote at shareholder meetings and to share in the company's profits by receiving dividends. 166 Convertible debt - a debt security that can be exchanged for common stock (or another type of security) on a specified basis and date. Convertible security - a security that can be exchanged for common stock (or another type of security) at a specified rate. Convertible securities include convertible debt, rights and warrants. Crossing networks - an electronic system where anonymous parties can match buy and sell transactions. These transactions don't affect the market, and transaction costs are extremely low. CSFB Global High Yield Index - the Credit Suisse First Boston Global High Yield Index is an unmanaged, trader priced portfolio constructed to mirror the high yield debt market. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Debt security - a security issued by a governmental body or company (the issuer) to help fund their operations or major projects. The issuer pays interest at a specified rate on a specified date or dates, and repays the principal when the security matures. Short-term debt securities include money market instruments such as treasury bills. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Depositary receipts - evidence of the deposit of a security with a custodian bank. American Depositary Receipts (ADRs), for example, are certificates traded in U.S. markets representing an interest of a foreign company. They were created to make it possible for foreign issuers to meet U.S. security registration requirements. Other examples include ADSs, GDRs and EDRs. Derivatives - A derivative is a financial contract whose value is based upon, or "derived" from, an underlying financial asset (such as a stock or a bond), a commodity (such as gold), a market index (such as the S&P 500) or a reference rate (such as the prime lending interest rate). Examples of derivative instruments include futures, options, index-, equity-, commodity- and currency-linked securities, warrants and swap contracts. For a detailed description of the derivatives described here, see the SAI. Diversified - A diversified fund, as defined by the 1940 Act, must have at least 75% of its total assets in cash and cash equivalents, government securities, securities of other investment companies, or other securities. For purposes of this calculation, the fund may not count securities of a single issuer that comprise more than 5% of the fund's assets. Dividend yield - rate of return of dividends paid on a common or preferred stock. It equals the amount of the annual dividend on a stock expressed as a percentage of the stock's current market value. Duration - a security's or portfolio's sensitivity to changes in interest rates. For example, if interest rates rise by one percentage point, the share price of a fund with a duration of five years would decline by about 5%. If interest rates fall by one percentage point, the fund's share price would rise by about 5%. 167 Equity security - an investment that gives an investor an equity ownership right in a company. Equity securities (or "equities") include common and preferred stock, rights and warrants. First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds and has the highest short-term rating from a nationally recognized statistical rating organization (NRSRO), or if unrated, is determined by the Fund's portfolio management team to be of comparable quality, or is a money market fund or a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Foreign security - a debt or equity security determined by a Fund's portfolio management team to be foreign based on an issuer's domicile, its principle place of business, the source of its revenues or other factors. Forward foreign currency contracts - a forward foreign currency contract includes an obligation to purchase or sell a foreign currency at a specified future date. Forward purchase agreement - a contract obligating one party to buy and another party to sell an equity security, commodity, currency or other financial instrument at a specific future date. Fundamental analysis - a method of securities analysis that tries to evaluate the intrinsic, or "true," value of a particular stock. It includes a study of the overall economy, industry conditions and the financial condition and management of a company. Futures contract - a contract to buy or sell underlying instruments at a specified price on a specified future date. The price is typically set through a futures exchange. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to NRSROs such as S&P and Moody's. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by a Fund's Board. Please see the SAI for more information about credit ratings. High yield debt security - debt securities that, at the time of purchase, are rated "BB" or below by S&P or "Ba" or below by Moody's, or that are unrated and determined by the portfolio management team to be of comparable quality. Interest rate swap - an agreement between two parties to exchange periodic interest payments based on a predetermined principal amount. Investment grade - a debt security that has been given a medium to high credit rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating by other NRSROs) based on the issuer's ability to pay interest and repay principal on time. The portfolio management team may consider an unrated debt security to be investment grade if the team believes it is of comparable quality. Please see the SAI for more information about credit ratings. 168 Lehman 3-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of two to three years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman 7-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Aggregate Bond Index - an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government Bond Index - an unmanaged index of government bonds with an average maturity of approximately nine years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government/Corporate Bond Index - an unmanaged index of U.S. government, U.S. Treasury and agency securities, and corporate and Yankee bonds. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Intermediate Government Bond Index - an unmanaged index of U.S. government agency and U.S. Treasury securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Intermediate Government/Corporate Bond Index - an unmanaged index of all publicly issued investment grade corporate, U.S. Treasury, and U.S. government and agency securities with maturities of 1 to 10 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Municipal Bond Index - a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Liquidity - a measurement of how easily a security can be bought or sold at a price that is close to its market value. Merrill Lynch 1-3 Year Treasury Index - an unmanaged index of U.S. Treasury bonds with maturities of 1 to 3 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Money market instrument - a short-term debt security that is considered to mature in 13 months or less. Money market instruments include U.S. Treasury obligations, U.S. government obligations, certificates of deposit, bankers' acceptances, commercial paper, repurchase agreements and certain municipal securities. 169 Mortgage-backed security or Mortgage-related security - a debt security that gives you an interest in, and is backed by, a pool of residential mortgages issued by the U.S. government or by financial institutions. The underlying mortgages may be guaranteed by the U.S. government or one of its agencies, authorities or instrumentalities. Mortgage-backed securities typically make monthly payments, which are a combination of interest and a portion of the principal of the underlying mortgages. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public or private projects and services. "General obligations" are typically backed by the issuer's full taxing and revenue-raising powers. "Revenue securities" depend on the income earned by a specific project or authority, like road or bridge tolls, user fees for water or revenues from a utility. Interest income from municipal securities that pay for "public" projects and services is exempt from federal income taxes and is generally exempt from state taxes if an investor lives in the state that issued the security. If an investor lives in the municipality that issued the security, interest income may also be exempt from local taxes. Non-diversified - a fund that holds securities of fewer issuers than other kinds of funds. Non-diversified funds tend to have greater price swings than more diversified funds because events affecting one or more of its securities may have a disproportionately large effect on the fund. NRSRO - A nationally recognized statistical rating organization, such as S&P or Moody's. Options - An option is the right to buy or sell a security based on an agreed upon price at a specified time. For example, an option may give the holder of a stock the right to sell the stock to another party, allowing the seller to profit if the price has fallen below the agreed price. Options may also be based on the movement of an index such as the S&P 500. Over-the-counter market - a market where dealers trade securities through a telephone or computer network rather than through a public stock exchange. Preferred stock - a type of equity security that gives you a limited ownership right in a company, with certain preferences or priority over common stock. Preferred stock generally pays a fixed annual dividend. If the company goes bankrupt, preferred shareholders generally receive their share of the company's remaining assets before common shareholders and after bondholders and other creditors. Ownership of preferred stock typically does not come with certain voting rights that come with common stock. Pre-refunded bond - a bond that is repaid before its maturity date. The repayment is generally financed by a new issue. Issuers generally pre-refund bonds during periods of lower interest rates to reduce their interest costs. Price-to-earnings ratio (P/E ratio) - the current price of a share divided by its actual or estimated earnings per share. The P/E ratio is one measure of the value of a company. 170 Private placement - a private placement is the sale of stocks, bonds or other investments directly to a qualified investor without having to register the offering with the SEC or other comparable foreign regulatory authorities. Qualified investors are typically large institutional investors or high net worth individuals. Securities acquired through private placements generally may not be resold. Quantitative analysis - an analysis of financial information about a company or security to identify securities that have the potential for growth or are otherwise suitable for a fund to buy. Real Estate Investment Trust (REIT) - a portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls, and real-estate-related loans or interests. Repurchase agreement - a short-term (often overnight) investment arrangement. The investor agrees to buy certain securities from the borrower and the borrower promises to buy them back at a specified date and price. The difference between the purchase price paid by the investor and the repurchase price paid by the borrower represents the investor's return. Repurchase agreements are popular because they provide low-risk returns and can allow a fund to remain fully invested. Reverse repurchase agreement - a repurchase agreement in which an investor sells a security to another party, like a bank or dealer, in return for cash, and agrees to buy the security back at a specified date and price. Reverse repurchase agreements are, in effect, loans to a fund. Right - a temporary privilege allowing investors who already own a common stock to buy additional shares directly from the company at a specified price or formula. Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds, but is not a first-tier security. Senior security - a debt security that allows holders to receive their share of a company's remaining assets in a bankruptcy before other bondholders, creditors, and common and preferred shareholders. Settlement date - the date on which an order is settled either by payment or delivery of securities. Total return swap - an agreement between two parties to exchange periodic interest payments for the total return of an equity or fixed income instrument. Trade date - the effective date of a purchase, sale or exchange transaction, or other instructions sent to us. The trade date is determined by the day and time we receive the order or instructions in a form that's acceptable to us. U.S. government obligations - a wide range of debt securities issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities. U.S. Treasury obligation - a debt security issued by the U.S. Treasury. 171 Warrant - a certificate that gives you the right to buy common shares at a specified price within a specified period of time. Zero-coupon bond - a bond that makes no periodic interest payments. Zero coupon bonds are sold at a deep discount to their face value and mature at face value. The difference between the face value at maturity and the purchase price represents the return. 172 [GRAPHIC] Where to find more information You'll find more information about Nations Funds State Municipal Bond Funds in the following documents: Annual and semi-annual reports The annual and semi-annual reports contain information about Fund investments and performance, the financial statements and the independent accountants' reports. The annual report also includes a discussion about the market conditions and investment strategies that had a significant effect on each Fund's performance during the period covered. [GRAPHIC] Statement of Additional Information The SAI contains additional information about the Funds and their policies. The SAI is legally part of this prospectus (it's incorporated by reference). A copy has been filed with the SEC. You can obtain a free copy of these documents, request other information about the Funds and make shareholder inquiries by contacting Nations Funds: By telephone: 1.800.321.7854 By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nations-funds.com Information about the Funds can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. The reports and other information about the Funds are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. SEC file numbers: Nations Fund Trust, 811-04305 Nations Reserves, 811-6030 Nations Funds Trust, 811-09645 SMBPROIX-8/01 [NATIONS FUNDS LOGO] [GRAPHIC] Nations High Yield Bond Fund Prospectus -- Investor A, B and C Shares August 1, 2001 The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Not FDIC Insured - ----------------- May Lose Value - ----------------- No Bank Guarantee [Nations Funds logo appears here] An overview of the Fund - -------------------------------------------------------------------------------- [GRAPHIC] Terms used in this prospectus In this prospectus, we, us and our refer to the Nations Funds family (Nations Funds or Nations Funds Family). Some other important terms we've used may be new to you. These are printed in italics where they first appear in a section and are described in Terms used in this prospectus. [GRAPHIC] You'll find Terms used in this prospectus on page 37. Your investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, N. A. (Bank of America), the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Your investment may lose money. Affiliates of Bank of America are paid for the services they provide to the Fund. This booklet, which is called a prospectus, tells you about one Nations Fund -- Nations High Yield Bond Fund. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. About the Fund Nations High Yield Bond Fund focuses on the potential to earn income by investing primarily in high yield debt securities. High yield bond funds offer the opportunity for higher levels of income than other government & corporate bond funds. High yield debt securities, like all fixed income securities, have the potential to increase in value because when interest rates fall, the value of these securities tends to rise. When interest rates rise, however, the value of these securities tends to fall. Other things can also affect the value of high yield debt securities, most importantly credit risk. High yield debt securities are generally more sensitive to credit risk than other types of fixed income securities. There's always a risk that you'll lose money or you may not earn as much as you expect. Is this Fund right for you? Not every fund is right for every investor. When you're choosing a fund to invest in, you should consider things like your investment goals, how much risk you can accept and how long you're planning to hold your investment. Nations High Yield Bond Fund may be suitable for you if: o you're looking for income o you want to diversify your existing portfolio o you have longer-term investment goals It may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with fixed income securities, particularly high yield debt securities o you're seeking preservation of capital and stability of share price You'll find a discussion of the Fund's principal investments, strategies and risks in the Fund description that starts on page 4. For more information If you have any questions about the Fund, please call us at 1.800.321.7854 or contact your investment professional. You'll find more information about the Fund in the Statement of Additional Information (SAI). The SAI includes more detailed information about the Fund's investments, policies, performance and management, among other things. Please turn to the back cover to find out how you can get a copy. 2 What's inside - -------------------------------------------------------------------------------- [GRAPHIC] Banc of America Advisors, LLC Banc of America Advisors, LLC (BA Advisors) is the investment adviser to the Fund. BA Advisors is responsible for the overall management and supervision of the investment management of the Fund. BA Advisors and Nations Funds have engaged a sub-adviser, which is responsible for the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BA Advisors and the sub-adviser starting on page 10. [GRAPHIC] About the Fund Nations High Yield Bond Fund 4 Sub-adviser: MacKay Shields LLC - ------------------------------------------------------------------- Other important information 8 - ------------------------------------------------------------------- How the Fund is managed 10 [GRAPHIC] About your investment Information for investors Choosing a share class 13 About Investor A Shares 14 Front-end sales charge 14 Contingent deferred sales charge 15 About Investor B Shares 15 Contingent deferred sales charge 15 About Investor C Shares 18 Contingent deferred sales charge 18 When you might not have to pay a sales charge 18 Buying, selling and exchanging shares 22 How orders are processed 24 How selling and servicing agents are paid 30 Distributions and taxes 32 - ------------------------------------------------------------------- Financial highlights 34 - ------------------------------------------------------------------- Terms used in this prospectus 37 - ------------------------------------------------------------------- Where to find more information back cover 3 [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and MacKay Shields LLC (MacKay Shields) is its sub-adviser. MacKay Shields' High Yield Portfolio Management Team makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about MacKay Shields and the High Yield Portfolio Management Team on page 11. [GRAPHIC] High yield debt securities The Fund invests primarily in high yield debt securities, which are often referred to as "junk bonds." High yield debt securities offer the potential for higher income than other kinds of debt securities with similar maturities, but they also have higher credit risk. Nations High Yield Bond Fund [GRAPHIC] Investment objective The Fund seeks maximum income by investing in a diversified portfolio of high yield debt securities. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations High Yield Bond Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in domestic and foreign corporate high yield debt securities. These securities are not rated investment grade, but generally will be rated "Ba" or "B" by Moody's Investor Services, Inc. or "BB" or "B" by Standard & Poor's Corporation. The team may choose unrated securities if it believes they are of comparable quality at the time of investment. The portfolio is not managed to a specific duration. Its duration will generally track the CSFB Global High Yield Index. The Master Portfolio invests primarily in: o Domestic corporate high yield debt securities, including private placements o U.S. dollar-denominated foreign corporate high yield debt securities, including private placements o Zero-coupon bonds o U.S. government obligations o Equity securities (up to 25% of its assets), which may include convertible securities The Master Portfolio also may invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. When selecting investments for the portfolio, the team: o focuses on individual security selection ("bottom-up" analysis) o uses fundamental credit analysis o emphasizes current income while attempting to minimize risk to principal o seeks to identify a catalyst for capital appreciation such as an operational or financial restructuring o tries to manage risk by diversifying the Master Portfolio's investments across securities of many different issuers The team may sell a security when its market price rises above the target price the team has set, when it believes there has been a deterioration in an issuer's fundamentals, such as earnings, sales or management, or an issuer's credit quality, or to maintain portfolio diversification, and for other reasons. 4 [GRAPHIC] You'll find more about other risks of investing in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations High Yield Bond Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Credit risk - The types of securities in which the Master Portfolio typically invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Liquidity risk - There is a risk that a security held by the Master Portfolio cannot be sold at the time desired, or cannot be sold without adversely affecting the price. o Foreign investment risk - Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, may also apply to some foreign investments. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund can withdraw its entire investment from the Master Portfolio if it believes it's in the best interest of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. [GRAPHIC] For information about the performance of other high yield accounts managed by MacKay Shields, see How the Fund is managed. [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. 5 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 4.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.55% 0.55% 0.55% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.89% 0.89% 0.89% ------ -------- -------- Total annual Fund operating expenses 1.69% 2.44% 2.44% Fee waivers and/or reimbursements (0.51)% (0.51)% (0.51)% ------ -------- -------- Total net expenses(6) 1.18% 1.93% 1.93% ====== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the table above are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. (6)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 6 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $590 $ 936 $1,305 $2,341 Investor B Shares $696 $1,012 $1,455 $2,552 Investor C Shares $296 $ 712 $1,255 $2,738 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $196 $712 $1,255 $2,552 Investor C Shares $196 $712 $1,255 $2,738 7 [GRAPHIC] Other important information You'll find specific information about the Fund's principal investments, strategies and risks in the description starting on page 4. The following are some other risks and information you should consider before you invest: o Changing investment objective and policies - The investment objective and certain investment policies of the Fund can be changed without shareholder approval. Other investment policies may be changed only with shareholder approval. o Holding other kinds of investments - The Fund may hold investments that aren't part of its principal investment strategies. Please refer to the SAI for more information. The management team can also choose not to invest in specific securities described in this prospectus and in the SAI. o Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Master Portfolio may invest up to 25% of its assets in Nations Money Market Funds. BA Advisors and its affiliates are entitled to receive fees from the Nations Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Master Portfolio for services provided directly. BA Advisors may waive fees which it is entitled to receive from either the Nations Money Market Funds or the Master Portfolio. o Foreign investment risk - Funds that invest in foreign securities may be affected by changes in currency exchange rates and the costs of converting currencies; foreign government controls on foreign investment, repatriation of capital, and currency and exchange; foreign taxes; inadequate supervision and regulation of some foreign markets; difficulty selling some investments which may increase volatility; different settlement practices or delayed settlements in some markets; difficulty getting complete or accurate information about foreign companies; less strict accounting, auditing and financial reporting standards than those in the U.S.; political, economic or social instability; and difficulty enforcing legal rights outside the U.S. If the Master Portfolio invests in emerging markets there may be other risks involved, such as those of immature economies and less developed and more thinly traded securities markets. o Investing defensively - The Master Portfolio may temporarily hold investments that are not part of its investment objective or its principal investment strategies to try to protect it during a market or economic downturn or because of political or other conditions. The Master Portfolio may not achieve its investment objective while it is investing defensively. o Securities lending program - The Master Portfolio may lend portfolio securities to approved broker-dealers or other financial institutions on a fully collateralized basis in order to earn additional income. There may be delays in receiving additional collateral after the loan is made or in recovering the securities loaned. 8 o Bank of America and its affiliates - Bank of America and its affiliates currently provide services to the Fund, including investment advisory, investment sub-advisory, co-administration and brokerage services, and are paid for providing these services. Bank of America and its affiliates also may, at times, provide other services and be compensated for them, including transfer agency, interfund lending and securities lending services, or make loans to the Fund. Finally, Bank of America or its affiliates may serve as counterparties in transactions with Nations Funds where permitted by law or regulation, and may receive compensation in that capacity. o Portfolio turnover - A fund that replaces -- or turns over -- more than 100% of its investments in a year is considered to trade frequently. Frequent trading can result in larger distributions of short-term capital gains to shareholders. These gains are taxable at higher rates than long-term capital gains. Frequent trading can also mean higher brokerage and other transaction costs, which could reduce the Fund's returns. The Master Portfolio generally buys securities for capital appreciation, investment income, or both, and doesn't engage in short-term trading. You'll find the portfolio turnover rate for the Fund in Financial highlights. 9 [GRAPHIC] How the Fund is managed [GRAPHIC] Banc of America Advisors, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Investment adviser BA Advisors is the investment adviser to over 75 mutual fund portfolios in the Nations Funds Family, including the Fund described in this prospectus. BA Advisors is a registered investment adviser. It's a wholly-owned subsidiary of Bank of America, which is owned by Bank of America Corporation. The Fund pays BA Advisors an annual fee for its investment advisory services. The fee is calculated as a percentage of the average daily net assets of the Fund and is paid monthly. BA Advisors uses part of this money to pay the investment sub-adviser for the services it provides to the Fund. BA Advisors has agreed to waive fees and/or reimburse expenses for this Fund until July 31, 2002. You'll find a discussion of any waiver and/or reimbursement in the Fund description. There is no assurance that BA Advisors will continue to waive and/or reimburse any fees and/or expenses after this date. The following chart shows the maximum advisory fee BA Advisors can receive, along with the actual advisory fees it received during the Fund's last fiscal year, after waivers and/or reimbursements: Annual investment advisory fee, as a % of average daily net assets Maximum Actual fee advisory paid last fee fiscal year Nations High Yield Bond Fund(1) 0.55% 0.55% (1)The Fund doesn't have its own investment adviser because it invests in Nations High Yield Bond Master Portfolio. BA Advisors is the investment adviser to the Master Portfolio. Investment sub-adviser Nations Funds and BA Advisors engage one or more investment sub-advisers for the Master Portfolio to make day-to-day investment decisions for the Master Portfolio. BA Advisors retains ultimate responsibility (subject to Board oversight) for overseeing the sub-advisers and evaluates the Master Portfolio's needs and available sub-advisers' skills and abilities on an ongoing basis. Based on its evaluations, BA Advisors may at times recommend to the Master Portfolio's Board that the Master Portfolio: o change, add or terminate one or more sub-advisers; o continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or o materially change a sub-advisory agreement with a sub-adviser. Applicable law requires the Fund to obtain shareholder approval in order to act on most of these types of recommendations, even if the Fund's Board has approved the proposed action and believes that the action is in shareholders' best interests. BA Advisors and the Master Portfolio have applied for relief from the SEC to permit the Master Portfolio to act on many of BA Advisors' recommendations with approval only by the Fund's Board and not by Fund shareholders. BA Advisors or the Fund would inform the Fund's shareholders of any actions taken in reliance on this relief. Until BA Advisors and the Master Portfolio obtain the relief, the Fund will continue to submit these matters to shareholders for their approval to the extent required by applicable law. 10 [GRAPHIC] MacKay Shields LLC 9 West 57th Street New York, New York 10019 MacKay Shields LLC Founded in 1938, MacKay Shields is an independently-managed, wholly-owned subsidiary of New York Life Insurance Company. The firm's 63 investment professionals manage more than $30 billion in assets, including over $6 billion in high yield assets. MacKay Shields' High Yield Portfolio Management Team is responsible for making the day-to-day decisions for Nations High Yield Bond Master Portfolio. Prior performance of other high yield accounts managed by MacKay Shields Nations High Yield Bond Fund commenced its operations on February 14, 2000. The table below is designed to show you how a composite of similar high yield accounts managed by MacKay Shields performed over various time periods in the past. The accounts comprising the MacKay Shields composite have investment objectives, policies and strategies that are substantially similar to those of Nations High Yield Bond Master Portfolio. The table below shows the returns for the MacKay Shields composite compared with the CSFB Global High Yield Index for the periods ending December 31, 2000. The returns of the Mackay Shields composite reflect deductions of account fees and expenses, and assume all dividends and distributions have been reinvested. Average annual total returns as of December 31, 2000 CSFB MacKay Shields Global High Composite (%) Yield Index (%) one year (3.40)% (5.22)% three years 4.26% (0.52)% five years 9.67% 4.50% ten years 15.24% 11.20% 11 Annual total returns as of December 31 CSFB MacKay Shields Global High Composite (%) Yield Index (%) 2000 (3.4)% (5.2)% 1999 10.7% 3.3% 1998 5.0% 0.6% 1997 15.9% 12.6% 1996 19.6% 12.4% 1995 21.2% 17.4% 1994 2.6% (1.0)% 1993 23.1% 18.9% 1992 23.4% 16.7% 1991 (since 7/1/91) 12.8% 12.9% This information is designed to demonstrate the historical track record of MacKay Shields. It does not indicate how the Fund will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's fees and expenses. The MacKay Shields composite includes all high yield accounts managed by MacKay Shields. The accounts don't pay the same expenses that mutual funds pay and aren't subject to the diversification rules, tax restrictions and investment limits under the 1940 Act or Subchapter M of the Internal Revenue Code. Returns could have been lower if the composite had been subject to these expenses and regulations and reflected a deduction for investment advisory fees. Performance is expressed in U.S. dollars. The aggregate returns of the accounts in the composite may not reflect the returns of any particular account of MacKay Shields. For further information regarding the composite performance, please see the SAI. [GRAPHIC] Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 Other service providers The Fund is distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. Stephens may pay commissions, distribution (12b-1) and shareholder servicing fees, and/or other compensation to companies for selling shares and providing services to investors. BA Advisors is also co-administrator of the Fund, and assists in overseeing the administrative operations of the Fund. The Fund pays BA Advisors and Stephens a combined fee of 0.23% for their services, plus certain out-of-pocket expenses. The fee is calculated as an annual percentage of the average daily net assets of the Fund, and is paid monthly. [GRAPHIC] PFPC Inc. 400 Bellevue Parkway Wilmington, Delaware 19809 PFPC Inc. (PFPC) is the transfer agent for the Fund's shares. Its responsibilities include processing purchases, sales and exchanges, calculating and paying distributions, keeping shareholder records, preparing account statements and providing customer service. 12 About your investment - -------------------------------------------------------------------------------- [GRAPHIC] We've used the term, investment professional, to refer to the person who has assisted you with buying Nations Funds. Selling agent or servicing agent (sometimes referred to as a selling agent) means the company that employs your investment professional. Selling and servicing agents include banks, brokerage firms, mutual fund dealers and other financial institutions, including affiliates of Bank of America. [GRAPHIC] For more information about how to choose a share class, contact your investment professional or call us at 1.800.321.7854. [GRAPHIC] Before you invest, please note that over time, distribution (12b-1) and shareholder servicing fees will increase the cost of your investment, and may cost you more than any sales charges you may pay. For more information, see How selling and servicing agents are paid. [GRAPHIC] Choosing a share class Before you can invest in the Fund, you'll need to choose a share class. There are three classes of shares of the Fund offered by this prospectus. Each class has its own sales charges and fees. The table below compares the charges and fees and other features of the share classes.
Investor A Investor B Investor C Shares Shares Shares Maximum amount no limit $250,000 no limit you can buy Maximum front-end 4.75% none none sales charge Maximum deferred none(1) 5.00%(2) 1.00%(3) sales charge Maximum annual 0.25% distribution 0.75% distribution 0.75% distribution distribution (12b-1)/service (12b-1) fee and (12b-1) fee and and shareholder fee 0.25% service fee 0.25% service fee servicing fees Conversion feature none yes none
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. The share class you choose will depend on how much you're investing, how long you're planning to stay invested, and how you prefer to pay the sales charge. 13 The total cost of your investment over the time you expect to hold your shares will be affected by the distribution (12b-1) and shareholder servicing fees, as well as by the amount of any front-end sales charge or contingent deferred sales charge (CDSC) that applies, and when you're required to pay the charge. You should think about these things carefully before you invest. Investor A Shares have a front-end sales charge, which is deducted when you buy your shares. This means that a smaller amount is invested in the Fund, unless you qualify for a waiver or reduction of the sales charge. However, Investor A Shares have lower ongoing distribution (12b-1) and/or shareholder servicing fees than Investor B and Investor C Shares. This means that Investor A Shares can be expected to pay relatively higher dividends per share. Investor B Shares have limits on how much you can invest. When you buy Investor B or Investor C Shares, the full amount is invested in the Fund. However, you may pay a CDSC when you sell your shares. Over time, Investor B and Investor C Shares can incur distribution (12b-1) and shareholder servicing fees that are equal to or more than the front-end sales charge, and the distribution (12b-1) and shareholder servicing fees you would pay for Investor A Shares. Although the full amount of your purchase is invested in the Fund, any positive investment return on this money may be partially or fully offset by the expected higher annual expenses of Investor B and Investor C Shares. You should also consider the conversion feature for Investor B Shares, which is described in About Investor B Shares. [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by the Fund every business day. [GRAPHIC] About Investor A Shares There is no limit to the amount you can invest in Investor A Shares. You generally will pay a front-end sales charge when you buy your shares, or in some cases, a CDSC when you sell your shares. Front-end sales charge You'll pay a front-end sales charge when you buy Investor A Shares, unless: o you qualify for a waiver of the sales charge. You can find out if you qualify for a waiver in the section, When you might not have to pay a sales charge -- Front end sales charges o you're reinvesting distributions The sales charge you'll pay depends on the amount you're investing -- generally, the larger the investment, the smaller the percentage sales charge. 14
Nations High Yield Bond Fund Amount retained by selling Sales charge Sales charge agents as a % of the as a % of the as a % of the offering price net asset value offering price Amount you bought per share per share per share $0-$49,999 4.75% 4.99% 4.25% $50,000-$99,999 4.50% 4.71% 4.00% $100,000-$249,999 3.50% 3.63% 3.00% $250,000-$499,999 2.50% 2.56% 2.25% $500,000-$999,999 2.00% 2.04% 1.75% $1,000,000 or more 0.00% 0.00% 1.00%(1)
(1) 1.00% on the first $3,000,000, 0.50% on the next $47,000,000, 0.25% on amounts over $50,000,000. Stephens pays the amount retained by selling agents on investments of $1,000,000 or more, but may be reimbursed when a CDSC is deducted if the shares are sold within eighteen months from the time they were bought. Please see How selling and servicing agents are paid for more information. Contingent deferred sales charge If you own or buy $1,000,000 or more of Investor A Shares, there is one situation when you'll pay a CDSC: o If you buy your shares on or after August 1, 1999 and sell them within 18 months of buying them, you'll pay a CDSC of 1.00%. The CDSC is calculated from the day your purchase is accepted (the trade date). We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. You won't pay a CDSC on any increase in net asset value since you bought your shares, or on any shares you receive from reinvested distributions. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. [GRAPHIC] About Investor B Shares You can buy up to $250,000 of Investor B Shares. You don't pay a sales charge when you buy Investor B Shares, but you may have to pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC when you sell your Investor B Shares, unless: o you bought the shares on or after January 1, 1996 and before August 1, 1997 o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge -- Contingent deferred sales charges 15 The CDSC you pay depends on when you bought your shares, how much you bought in some cases, and how long you held them.
If you sell your shares during the following year: You'll pay a CDSC of: - ------------------------------ ------------------------------------------------------------ Shares you bought Shares Shares on or after you you bought Shares you bought between 1/1/1996 bought after 8/1/1997 and 11/15/1998 and before before 11/15/1998 in the following amounts: 8/1/1997 1/1/1996 ------------ ------------------------------------ ------------- --------- $250,000- $500,000- $0-$249,999 $499,999 $999,999 the first year you own them 5.0% 4.0% 3.0% 2.0% none 5.0% the second year you own them 4.0% 3.0% 2.0% 1.0% none 4.0% the third year you own them 3.0% 3.0% 1.0% none none 3.0% the fourth year you own them 3.0% 2.0% none none none 2.0% the fifth year you own them 2.0% 1.0% none none none 2.0% the sixth year you own them 1.0% none none none none 1.0% after six years of owning them none none none none none none
The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor B Shares. Please see How selling and servicing agents are paid for more information. 16 About the conversion feature Investor B Shares generally convert automatically to Investor A Shares according to the following schedule:
Nations High Yield Bond Fund Will convert to Investor A Shares Investor B Shares you bought after you've owned them for after November 15, 1998 eight years between August 1, 1997 and November 15, 1998 $0-$249,999 nine years $250,000-$499,999 six years $500,000-$999,999 five years before August 1, 1997 eight years
The conversion feature allows you to benefit from the lower operating costs of Investor A Shares, which can help increase total returns. Here's how the conversion works: o We won't convert your shares if you tell your investment professional, selling agent or the transfer agent within 90 days before the conversion date that you don't want your shares to be converted. Remember, it's in your best interest to convert your shares because Investor A Shares have lower expenses. o Shares are converted at the end of the month in which they become eligible for conversion. Any shares you received from reinvested distributions on these shares will convert to Investor A Shares at the same time. o You'll receive the same dollar value of Investor A Shares as the Investor B Shares that were converted. No sales charge or other charges apply. o Investor B Shares that you received from an exchange of Investor B Shares of another Nations Fund will convert based on the day you bought the original shares. Your conversion date may be later if you exchanged to or from a Nations Money Market Fund. o Conversions are free from federal tax. 17 [GRAPHIC] About Investor C Shares There is no limit to the amount you can invest in Investor C Shares. You don't pay a sales charge when you buy Investor C Shares, but you may pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC of 1.00% when you sell Investor C Shares within one year of buying them, unless: o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge -- Contingent deferred sales charges The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor C Shares. Please see How selling and servicing agents are paid for more information. [GRAPHIC] Please contact your investment professional for more information about reductions and waivers of sales charges. You should tell your investment professional that you may qualify for a reduction or a waiver before buying shares. We can change or cancel these terms at any time. Any change or cancellation applies only to future purchases. When you might not have to pay a sales charge Front-end sales charges (Investor A Shares) There are three ways you can lower the front-end sales charge you pay on Investor A Shares: o Combine purchases you've already made Rights of accumulation allow you to combine the value of Investor A, Investor B and Investor C Shares you already own with Investor A Shares you're buying in order to calculate the sales charge. The sales charge is based on the total value of the shares you already own, or the original purchase cost, whichever is higher, plus the value of the shares you're buying. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify for rights of accumulation. o Combine purchases you plan to make By signing a letter of intent, you can combine the value of shares you already own with the value of shares you plan to buy over a 13-month period to calculate the sales charge. o You can choose to start the 13-month period up to 90 days before you sign the letter of intent. o Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. 18 o If you don't buy as much as you planned within the period, you must pay the difference between the charges you've paid and the charges that actually apply to the shares you've bought. o Your first purchase must be at least 5% of the minimum amount for the sales charge level that applies to the total amount you plan to buy. o If the purchase you've made later qualifies for a reduced sales charge through the 90-day backdating provisions, we'll make an adjustment for the lower charge when the letter of intent expires. Any adjustment will be used to buy additional shares at the reduced sales charge. o Combine purchases with family members You can receive a quantity discount by combining purchases of Investor A Shares that you, your spouse and children under age 21 make on the same day. Some distributions or payments from the dissolution of certain qualified plans also qualify for the quantity discount. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: o full-time employees and retired employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries and the immediate families of these people o banks, trust companies and thrift institutions, acting as fiduciaries o individuals receiving a distribution from a Bank of America trust or other fiduciary account may use the proceeds of that distribution to buy Investor A Shares without paying a front-end sales charge, as long as the proceeds are invested in the Fund within 90 days of the date of distribution o Nations Funds' Trustees, Directors and employees of its investment sub-advisers o registered broker/dealers that have entered into a Nations Funds dealer agreement with Stephens may buy Investor A Shares without paying a front-end sales charge for their investment account only o registered personnel and employees of these broker/dealers and their family members may buy Investor A Shares without paying a front-end sales charge according to the internal policies and procedures of the employing broker/dealer as long as these purchases are made for their own investment purposes o employees or partners of any service provider to the Fund o investors who buy through accounts established with certain fee-based investment advisers or financial planners, wrap fee accounts and other managed agency/asset allocation acounts o shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at net asset value 19 The following plans can buy Investor A Shares without paying a front-end sales charge: o pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the Internal Revenue Code of 1986, as amended (the tax code) o employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must: o have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or o sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or o be an employer-sponsored plan with at least 100 eligible participants, or o be a participant in an alliance program that has signed an agreement with the Fund or a selling agent o certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors You can also buy Investor A Shares without paying a sales charge if you buy the shares within 120 days of selling the same Fund. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. Contingent deferred sales charges (Investor A, Investor B and Investor C Shares) You won't pay a CDSC on the following transactions: o shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner o distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors o the following retirement plan distributions: o lump-sum or other distributions from a qualified corporate or self-employed retirement plan following the retirement (or following attainment of age 59 1/2 in the case of a "key employee" of a "top heavy" plan) o distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 o a tax-free return of an excess contribution to an IRA o distributions from a qualified retirement plan that aren't subject to the 10% additional federal withdrawal tax under Section 72(t)(2) of the tax code 20 o payments made to pay medical expenses which exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least 12 weeks o shares sold under our right to liquidate a shareholder's account, including instances where the aggregate net asset value of Investor A, Investor B or Investor C Shares held in the account is less than the minimum account size o if you exchange Investor B or Investor C Shares of a Nations Fund that were bought through a Bank of America employee benefit plan for Investor A Shares of a Nations Fund o withdrawals made under the Automatic Withdrawal Plan described in Buying, selling and exchanging shares, if the total withdrawals of Investor A, Investor B or Investor C Shares made in a year are less than 12% of the total value of those shares in your account. A CDSC may only apply to Investor A Shares if you bought more than $1,000,000 We'll also waive the CDSC on the sale of Investor A or Investor C Shares bought before September 30, 1994 by current or retired employees of Bank of America Corporation (and its predecessors) and its affiliates, or by current or former trustees or directors of the Nations Funds or other management companies managed by Bank of America. You won't pay a CDSC on the sale of Investor B or Investor C Shares if you reinvest any of the proceeds in the same Fund within 120 days of the sale. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. 21 [GRAPHIC] Buying, selling and exchanging shares [GRAPHIC] When you sell shares of a mutual, fund, the fund is effectively "buying" them back from you. This is called a redemption. You can invest in the Fund through your selling agent or directly from Nations Funds. We encourage you to consult with an investment professional who can open an account for you with a selling agent and help you with your investment decisions. Once you have an account, you can buy, sell and exchange shares by contacting your investment professional or selling agent. They will look after any paperwork that's needed to complete a transaction and send your order to us. You should also ask your selling agent about its limits, fees and policies for buying, selling and exchanging shares, which may be different from those described here, and about its related programs or services. The table on the next page summarizes some key information about buying, selling and exchanging shares. You'll find sales charges and other fees that apply to these transactions in Choosing a share class. The Fund also offers other classes of shares, with different features and expense levels, which you may be eligible to buy. Please contact your investment professional, or call us at 1.800.321.7854 if you have any questions or you need help placing an order. 22
Ways to buy, sell or How much you can buy, exchange sell or exchange Other things to know ----------------- ---------------------------------------------- ------------------------------------------- Buying shares In a lump sum minimum initial investment: There is no limit to the amount o $1,000 for regular accounts you can invest in Investor A and C Shares. o $500 for traditional and Roth IRA accounts You can invest up to $250,000 in o $250 for certain fee-based accounts Investor B Shares. o no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: o $100 for all accounts Using our minimum initial investment: You can buy shares twice a month, monthly Systematic o $100 or quarterly, using automatic transfers Investment Plan minimum additional investment: from your bank account. o $50 - ------------------------------------------------------------------------------------------------------------------------------------ Selling shares In a lump sum o you can sell up to $50,000 of your shares We'll deduct any CDSC from the amount by telephone, otherwise there are no you're selling and send you or your selling limits to the amount you can sell agent the balance, usually within three o other restrictions may apply to business days of receiving your order. withdrawals from retirement plan If you paid for your shares with a check accounts that wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared. Using our o minimum $25 per withdrawal Your account balance must be at least Automatic $10,000 to set up the plan. You can make Withdrawal Plan withdrawals twice a month, monthly, quarterly, bi-annually or annually. We'll send your money by check or deposit it directly to your bank account. No CDSC is deducted if you withdraw 12% or less of the value of your shares in a class. - ------------------------------------------------------------------------------------------------------------------------------------ Exchanging shares In a lump sum o minimum $1,000 per exchange You can exchange your Investor A Shares for Investor A Shares of any other Nations Fund, except Index Funds. You won't pay a front-end sales charge, CDSC or redemption fee on the shares you're exchanging. You can exchange your Investor B Shares for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You can exchange your Investor C Shares for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of a Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Using our o minimum $25 per exchange You must already have an investment in the Automatic Funds into which you want to exchange. You Exchange Feature can make exchanges monthly or quarterly.
23 [GRAPHIC] A business day is any day that the New York Stock Exchange (NYSE) is open. A business day ends at the close of regular trading on the NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes early, the business day ends as of the time the NYSE closes. The NYSE is closed on weekends and on the following national holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. How shares are priced All transactions are based on the price of the Fund's shares -- or its net asset value per share. We calculate net asset value per share for each class of the Fund at the end of each business day. First, we calculate the net asset value for each class of the Fund by determining the value of the Fund's assets in the class and then subtracting its liabilities. Next, we divide this amount by the number of shares that investors are holding in the class. Valuing securities in the Fund The value of the Fund's assets is based on the total market value of all of the securities it holds. The prices reported on stock exchanges and securities markets around the world are usually used to value securities in the Master Portfolio. If prices aren't readily available, or the value of a security has been materially affected by events occurring after a foreign exchange closes, we'll base the price of a security on its fair value. When the Master Portfolio uses fair value to price securities it may value those securities higher or lower than another fund that uses market quotations to price the same securities. We use the amortized cost method, which approximates market value, to value short-term investments maturing in 60 days or less. International markets may be open on days when U.S. markets are closed. The value of foreign securities owned by the Master Portfolio could change on days when Fund shares may not be bought or sold. How orders are processed Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents before the end of a business day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive that day's net asset value per share. Orders received after the end of a business day will receive the next business day's net asset value per share. The business day that applies to your order is also called the trade date. We may refuse any order to buy or exchange shares. If this happens, we'll return any money we've received to your selling agent. Telephone orders You can place orders to buy, sell or exchange by telephone if you complete the telephone authorization section of our account application and send it to us. Here's how telephone orders work: o If you sign up for telephone orders after you open your account, you must have your signature guaranteed. o Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. o We'll take reasonable steps to confirm that telephone instructions are genuine. For example, we require proof of your identification before we will act on instructions received by telephone and may record telephone conversations. If we and our service providers don't take these steps, we may be liable for any losses from unauthorized or fraudulent instructions. o Telephone orders may be difficult to complete during periods of significant economic or market change. 24 [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by the Fund every business day. [GRAPHIC] Buying shares Here are some general rules for buying shares: o You buy Investor A Shares at the offering price per share. You buy Investor B and Investor C Shares at net asset value per share. o If we don't receive your money within three business days of receiving your order, we'll refuse the order. o Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. o Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. Minimum initial investment The minimum initial amount you can buy is usually $1,000. If you're buying shares through one of the following accounts or plans, the minimum initial amount you can buy is: o $500 for traditional and Roth individual retirement accounts (IRAs) o $250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts o $100 using our Systematic Investment Plan o There is no minimum for 401(k) plans, simplified employee pension plans (SEPs), salary reduction-simplified employee pension plans (SAR-SEPs), Savings Incentives Match Plans for Employees (SIMPLE IRAs), salary reduction IRAs (SAR-IRAs) or other similar kinds of accounts. However, if the value of your account falls below $1,000 for 401(k) plans or $500 for the other plans within one year after you open your account, we may sell your shares. We'll give you 60 days notice in writing if we're going to do this Minimum additional investment You can make additional purchases of $100, or $50 if you use our Systematic Investment Plan. 25 [GRAPHIC] For more information about telephone orders, see How orders are processed. Systematic Investment Plan You can make regular purchases of $50 or more using automatic transfers from your bank account to the Funds you choose. You can contact your investment professional or us to set up the plan. Here's how the plan works: o You can buy shares twice a month, monthly or quarterly. o You can choose to have us transfer your money on or about the 15th or the last day of the month. o Some exceptions may apply to employees of Bank of America and its affiliates, and to plans set up before August 1, 1997. For details, please contact your investment professional. [GRAPHIC] Selling shares Here are some general rules for selling shares: o We'll deduct any CDSC from the amount you're selling and send you the balance. o If you're selling your shares through a selling agent, we'll normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. Your selling agent is responsible for depositing the sale proceeds to your account on time. o If you're selling your shares directly through us, we'll normally send the sale proceeds by mail or electronic transfer them to your bank account within three business days after the Fund receives your order. o You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. o If you paid for your shares with a check that wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared, whichever is later. o If you hold any shares in certificate form, you must sign the certificates (or send a signed stock power with them) and send them to PFPC. Your signature must be guaranteed unless you've made other arrangements with us. We may ask for any other information we need to prove that the order is properly authorized. o Under certain circumstances allowed under the Investment Company Act of 1940 (1940 Act), we can pay you in securities or other property when you sell your shares. o We can delay payment of the sale proceeds for up to seven days. o Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. 26 We may sell your shares: o if the value of your account falls below $500. We'll give you 60 days notice in writing if we're going to do this o if your selling agent tells us to sell your shares under arrangements made between the selling agent and you o under certain other circumstances allowed under the 1940 Act Automatic Withdrawal Plan The Automatic Withdrawal Plan lets you withdraw $25 or more twice a month, monthly, quarterly, bi-annually or annually. You can contact your investment professional or us to set up the plan. Here's how the plan works: o Your account balance must be at least $10,000 to set up the plan. o If you set up the plan after you've opened your account, your signature must be guaranteed. o You can choose to have us transfer your money on or about the 10th or the 25th of the month. o You won't pay a CDSC on Investor A, Investor B or Investor C Shares if you withdraw 12% or less of the value of those shares in a year. Otherwise, we'll deduct any CDSC from the withdrawals. o We'll send you a check or deposit the money directly to your bank account. o You can cancel the plan by giving your selling agent or us 30 days notice in writing. It's important to remember that if you withdraw more than your investment in the Fund is earning, you'll eventually use up your original investment. [GRAPHIC] You should make sure you understand the investment objective and principal investment strategies of the Fund you're exchanging into. Please read its prospectus carefully. [GRAPHIC] Exchanging shares You can sell shares of the Fund to buy shares of another Nations Fund. This is called an exchange. You might want to do this if your investment goals or tolerance for risk changes. Here's how exchanges work: o You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. o The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. 27 o You may only make exchanges into a Fund that is legally sold in your state of residence. o You generally may only make an exchange into a Fund that is accepting investments. o We may limit the number of exchanges you can make within a specified period of time. o We may change or cancel your right to make an exchange by giving the amount of notice required by regulatory authorities (generally 60 days for a material change or cancellation). o You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. Exchanging Investor A Shares You can exchange Investor A Shares of the Fund for Investor A Shares of any other Nations Fund, except Index Funds. Here are some rules for exchanging Investor A Shares: o You won't pay a front-end sales charge on the shares of the Fund you're exchanging. o You won't pay a CDSC, if applicable, on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC at that time will be based on the period from when you bought the original shares until when you sold the shares you received from the exchange. o You won't pay a redemption fee on the shares you're exchanging. Any redemption fee will be deducted when you sell the shares you received from the exchange. Any redemption fee will be paid to the original Fund. Exchanging Investor B Shares You can exchange Investor B Shares of the Fund for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. 28 If you received Investor C Shares of a Nations Money Market Fund though an exchange of Investor B Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Investor C Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. Exchanging Investor C Shares You can exchange Investor C Shares of the Fund for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of the Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Daily Shares of a Nations Money Market Fund through an exchange of Investor C Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Daily Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. Automatic Exchange Feature The Automatic Exchange Feature lets you exchange $25 or more of Investor A, Investor B or Investor C Shares every month or every quarter. You can contact your investment professional or us to set up the plan. Here's how automatic exchanges work: o Send your request to PFPC in writing or call 1.800.321.7854. o If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. o You must already have an investment in the Fund you want to exchange. o You can choose to have us transfer your money on or about the 1st or the 15th day of the month. o The rules for making exchanges apply to automatic exchanges. 29 [GRAPHIC] How selling and servicing agents are paid Selling and servicing agents usually receive compensation based on your investment in the Fund. The kind and amount of the compensation depends on the share class in which you invest. Selling agents typically pay a portion of the compensation they receive to their investment professionals. Commissions Your selling agent may receive an up-front commission (reallowance) when you buy shares of the Fund. The amount of this commission depends on which share class you choose: o up to 4.25% of the offering price per share of Investor A Shares. The commission is paid from the sales charge we deduct when you buy your shares o up to 4.00% of the net asset value per share of Investor B Shares. The commission is not deducted from your purchase -- we pay your selling agent directly o up to 1.00% of the net asset value per share of Investor C Shares. The commission is not deducted from your purchase -- we pay your selling agent directly If you buy Investor B or Investor C Shares you will be subject to higher distribution (12b-1) and shareholder servicing fees and may be subject to a CDSC when you sell your shares. [GRAPHIC] The financial institution or intermediary that buys shares for you is also sometimes referred to as a selling agent. The distribution fee is often referred to as a "12b-1" fee because it's paid through a plan approved under Rule 12b-1 under the 1940 Act. Your selling agent may charge other fees for services provided to your account. Distribution (12b-1) and shareholder servicing fees Stephens and selling and servicing agents may be compensated for selling shares and providing services to investors under distribution and shareholder servicing plans. The amount of the fee depends on the class of shares you own:
Maximum annual distribution (12b-1) and shareholder servicing fees (as an annual % of average daily net assets) Investor A Shares 0.25% combined distribution (12b-1) and shareholder servicing fee Investor B Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee Investor C Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee
Fees are calculated daily and paid monthly. Because these fees are paid out of the Fund's assets on an ongoing basis, they will increase the cost of your investment over time, and may cost you more than any sales charges you may pay. The Fund pays these fees to Stephens and/or to eligible selling and servicing agents and financial institutions, including BA Advisors or its affiliates, for as long as the plans continue. We may reduce or discontinue payments at any time. 30 Other compensation Selling and servicing agents may also receive: o a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Fund o additional amounts on all sales of shares: o up to 1.00% of the offering price per share of Investor A Shares o up to 1.00% of the net asset value per share of Investor B Shares o up to 1.00% of the net asset value per share of Investor C Shares o non-cash compensation like trips to sales seminars, tickets to sporting events, theater or other entertainment, opportunities to participate in golf or other outings and gift certificates for meals or merchandise This compensation, which is not paid by the Fund, is discretionary and may be available only to selected selling and servicing agents. For example, Stephens sometimes sponsors promotions involving Banc of America Investment Services, Inc., an affiliate of BA Advisors, and certain other selling or servicing agents. Selected selling and servicing agents also may receive compensation for opening a minimum number of accounts. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Fund for services they provide. 31 [GRAPHIC] Distributions and taxes [GRAPHIC] The power of compounding Reinvesting your distributions buys you more shares of the Fund -- which lets you take advantage of the potential for compound growth. Putting the money you earn back into your investment means it, in turn, may earn even more money. Over time, the power of compounding has the potential to significantly increase the value of your investment. There is no assurance, however, that you'll earn more money if you reinvest your distributions. About distributions A mutual fund can make money two ways: o It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. o A fund can also have capital gain if the value of its investments increases. If a fund sells an investment at a gain, the gain is realized. If a fund continues to hold the investment, any gain is unrealized. A mutual fund is not subject to federal income tax as long as it distributes its net investment income and realized capital gain to its shareholders. The Fund intends to pay out a sufficient amount of its income and capital gain to its shareholders so the Fund won't have to pay any federal income tax. When the Fund makes this kind of a payment, it's split among all shares, and is called a distribution. The Fund distributes any net realized capital gain at least once a year. The Fund pays distributions of net investment income monthly. Any distribution you receive is based on the number of shares you hold on the record date, which is usually the day the distribution is declared (daily dividend Funds) or the day before the distribution is declared (all other Funds). Shares are eligible to receive net investment income distributions from the settlement date (daily dividend Funds), trade date (all other Funds) or realized capital gain from the trade date of the purchase up to and including the day before the shares are sold. Different share classes of the Fund usually pay different net investment income distribution amounts, because each class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. We'll automatically reinvest distributions in additional shares of the Fund unless you tell us you want to receive your distributions in cash. You can do this by writing to us at the address on the back cover, or by calling us at 1.800.321.7854. We generally pay cash distributions within five business days after the end of the month, quarter or year in which the distribution was made. If you sell all of your shares, we'll normally pay any distribution that applies to those shares in cash within five business days after the sale was made. If you buy shares of the Fund shortly before it makes a distribution, you will, in effect, receive part of your purchase back in the distribution, which is subject to tax. Similarly, if you buy shares of the Fund when it holds securities with unrealized capital gain, you will, in effect, receive part of your purchase back if and when the Fund sells those securities and distributes the gain. This distribution is also subject to tax. The Fund has built up, or has the potential to build up, high levels of unrealized capital gain. 32 [GRAPHIC] This information is a summary of how federal income taxes may affect your investment in the Fund. It is not intended as a substitute for careful tax planning. You should consult with your own tax adviser about your situation, including any foreign, state and local taxes that may apply. [GRAPHIC] For more information about taxes, please see the SAI. How taxes affect your investment Distributions that come from a Fund's net investment income, net short-term capital gain and certain other items generally are taxable to you as ordinary income. Distributions that come from a Fund's net long-term capital gain generally are taxable to you as long-term capital gain. Corporate shareholders generally won't be able to deduct any distributions from the Fund when determining their taxable income. In general, all distributions are taxable to you when paid, whether they are paid in cash or automatically reinvested in additional shares of the Fund. However, any distributions declared to shareholders of record in October, November or December of one year and distributed in January of the following year will be taxable as if they had been paid to you on December 31 of the first year. We'll send you a notice every year that tells you how much you've received in distributions during the year and their federal tax status. Foreign, state and local taxes may also apply to these distributions. Withholding tax We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts to be paid for in securities or other property and exchanges) if: o you haven't given us a correct Taxpayer Identification Number (TIN) and haven't certified that the TIN is correct and withholding doesn't apply o the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records o the IRS informs us that you're otherwise subject to backup withholding The IRS may also impose penalties against you if you don't give us a correct TIN. Amounts we withhold are applied to your federal income tax liability. You may receive a refund from the IRS if the withholding tax results in an overpayment of taxes. We're also normally required by federal law to withhold tax on distributions paid (other than capital gain distributions) to foreign shareholders. Taxation of redemptions and exchanges Your redemptions (including redemptions paid in securities) and exchanges of Fund shares will usually result in a taxable capital gain or loss, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. 33 [GRAPHIC] Financial highlights The financial highlights table is designed to help you understand how the Fund has performed for the past five years or, if shorter, the period of the Fund's operations. Certain information reflects financial results for a single Fund share. The total investment return line indicates how much an investment in the Fund would have earned, assuming all dividends and distributions had been reinvested. This information has been audited by PricewaterhouseCoopers LLP. The independent accountants' report and Nations Funds financial statements are incorporated by reference into the SAI. Please see the back cover to find out how you can get a copy. 34 Nations High Yield Bond Fund For a Share outstanding throughout each period
Year ended Period ended Investor A Shares 03/31/01# 03/31/00*# Operating performance: Net asset value, beginning of period $ 9.88 $ 10.00 Net investment income 0.96 0.08 Net realized and unrealized gain/(loss) on investments (0.58) ( 0.12) Net increase/(decrease) in net asset value from operations 0.38 ( 0.04) Distributions: Dividends from net investment income (0.99) ( 0.08) Distributions in excess of net investment income (0.05) -- Total dividends and distributions (1.04) ( 0.08) Net asset value, end of period $ 9.22 $ 9.88 Total return++ 3.99% ( 0.33)% =================================================== ======= ======= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $8,344 $ 371 Ratio of operating expenses to average net assets 1.18% 1.18%+ Ratio of net investment income to average net assets 10.72% 6.78%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.70% 12.91%+
* High Yield Bond Fund Investor A Shares commenced operations on February 14, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. Nations High Yield Bond Fund For a Share outstanding throughout each period
Year ended Period ended Investor B Shares 03/31/01# 03/31/00*# Operating performance: Net asset value, beginning of period $ 9.88 $ 10.00 Net investment income 0.92 0.07 Net realized and unrealized gain/(loss) on investments (0.62) (0.12) Net increase/(decrease) in net asset value from operations 0.30 (0.05) Distributions: Dividends from net investment income (0.93) (0.07) Distributions in excess of net investment income (0.04) -- Total dividends and distributions (0.97) (0.07) Net asset value, end of period $ 9.21 $ 9.88 Total return++ 3.29% (0.47)% =================================================== ======= ======= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $22,106 $ 3,426 Ratio of operating expenses to average net assets 1.93% 1.93%+ Ratio of net investment income to average net assets 9.97% 6.03%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.45% 13.66%+
* High Yield Bond Fund Investor B Shares commenced operations on February 17, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. 35 Nations High Yield Bond Fund For a Share outstanding throughout each period
Year ended Period ended Investor C Shares 03/31/01# 03/31/00*# Operating performance: Net asset value, beginning of period $ 9.87 $ 10.02 Net investment income 0.90 0.04 Net realized and unrealized gain/(loss) on investments (0.61) (0.12) Net increase/(decrease) in net asset value from operations 0.29 (0.08) Distributions: Dividends from net investment income (0.93) (0.07) Distributions in excess of net investment income (0.04) -- Total dividends and distributions (0.97) (0.07) Net asset value, end of period $ 9.19 $ 9.87 Total return++ 3.20% (0.76)% =================================================== ======= ======= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $1,891 $ 59 Ratio of operating expenses to average net assets 1.93% 1.93%+ Ratio of net investment income to average net assets 9.97% 6.03%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.45% 13.66%+
* High Yield Bond Fund Investor C Shares commenced operations on March 8, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. 36 [GRAPHIC] This glossary includes explanations of the important terms that may be used in this prospectus. Some of the terms explained may apply to Nations Funds not included in this prospectus. [GRAPHIC] Terms used in this prospectus Amortized cost method - under Rule 2a-7 of the 1940 Act, the method of calculating an investment company's net asset value whereby portfolio securities are valued at the Fund's acquisition cost as adjusted for amortization of premium or accretion of discount rather than at their current market value. Asset-backed security - a debt security that gives an investor an interest in a pool of assets that is collateralized or "backed" by one or more kinds of assets, including automobile loans or credit card receivables, generally issued by banks, credit card companies or other lenders. Asset-backed securities typically make periodic payments, which may be interest or a combination of interest and a portion of the principal of the underlying assets. Average dollar-weighted maturity - the average length of time until the debt securities held by a Fund reach maturity. In general, the longer the average dollar-weighted maturity, the more a Fund's share price will fluctuate in response to changes in interest rates. Bank obligation - a money market instrument issued by a domestic or U.S. branch of a foreign bank, including certificates of deposit, time deposits and bankers' acceptances. Capital gain or loss - the difference between the purchase price of a security and its selling price. An investor realizes a capital gain when it sells a security for more than it paid for it. An investor realizes a capital loss when it sells a security for less than it paid for it. Cash equivalents - short-term, interest-bearing instruments which can easily be converted into cash, including U.S. government obligations, bank obligations, and certain asset-backed securities, foreign government securities and commercial paper issued by U.S. and foreign issuers which, at the time of investment, is rated at least Prime-2 by Moody's Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch). Collateralized mortgage obligation (CMO) - a type of mortgage-backed security. CMO payment obligations are covered by interest and/or principal payments from a pool of mortgages. In addition, the underlying assets of a CMO are typically separated into classes, called tranches, based on maturity. Each tranche pays a different rate of interest. CMOs are not generally issued by the U.S. government, its agencies or instrumentalities. Commercial paper - a short-term corporate obligation. Commercial paper is typically considered a money market instrument. Common stock - a security that represents part equity ownership in a company. Common stock typically allows an investor to vote at shareholder meetings and to share in the company's profits by receiving dividends. 37 Convertible debt - a debt security that can be exchanged for common stock (or another type of security) on a specified basis and date. Convertible security - a security that can be exchanged for common stock (or another type of security) at a specified rate. Convertible securities include convertible debt, rights and warrants. Crossing networks - an electronic system where anonymous parties can match buy and sell transactions. These transactions don't affect the market, and transaction costs are extremely low. CSFB Global High Yield Index - the Credit Suisse First Boston Global High Yield Index is an unmanaged, trader priced portfolio constructed to mirror the high yield debt market. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Debt security - a security issued by a governmental body or company (the issuer) to help fund their operations or major projects. The issuer pays interest at a specified rate on a specified date or dates, and repays the principal when the security matures. Short-term debt securities include money market instruments such as treasury bills. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Depositary receipts - evidence of the deposit of a security with a custodian bank. American Depositary Receipts (ADRs), for example, are certificates traded in U.S. markets representing an interest of a foreign company. They were created to make it possible for foreign issuers to meet U.S. security registration requirements. Other examples include ADSs, GDRs and EDRs. Derivatives - A derivative is a financial contract whose value is based upon, or "derived" from, an underlying financial asset (such as a stock or a bond), a commodity (such as gold), a market index (such as the S&P 500) or a reference rate (such as the prime lending interest rate). Examples of derivative instruments include futures, options, index-, equity-, commodity- and currency-linked securities, warrants and swap contracts. For a detailed description of the derivatives described here, see the SAI. Diversified - A diversified fund, as defined by the 1940 Act, must have at least 75% of its total assets in cash and cash equivalents, government securities, securities of other investment companies, or other securities. For purposes of this calculation, the fund may not count securities of a single issuer that comprise more than 5% of the fund's assets. Dividend yield - rate of return of dividends paid on a common or preferred stock. It equals the amount of the annual dividend on a stock expressed as a percentage of the stock's current market value. Duration - a security's or portfolio's sensitivity to changes in interest rates. For example, if interest rates rise by one percentage point, the share price of a fund with a duration of five years would decline by about 5%. If interest rates fall by one percentage point, the fund's share price would rise by about 5%. 38 Equity security - an investment that gives an investor an equity ownership right in a company. Equity securities (or "equities") include common and preferred stock, rights and warrants. First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds and has the highest short-term rating from a nationally recognized statistical rating organization (NRSRO), or if unrated, is determined by the Fund's portfolio management team to be of comparable quality, or is a money market fund or a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Foreign security - a debt or equity security determined by a Fund's portfolio management team to be foreign based on an issuer's domicile, its principle place of business, the source of its revenues or other factors. Forward foreign currency contracts - a forward foreign currency contract includes an obligation to purchase or sell a foreign currency at a specified future date. Forward purchase agreement - a contract obligating one party to buy and another party to sell an equity security, commodity, currency or other financial instrument at a specific future date. Fundamental analysis - a method of securities analysis that tries to evaluate the intrinsic, or "true," value of a particular stock. It includes a study of the overall economy, industry conditions and the financial condition and management of a company. Futures contract - a contract to buy or sell underlying instruments at a specified price on a specified future date. The price is typically set through a futures exchange. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to NRSROs such as S&P and Moody's. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by a Fund's Board. Please see the SAI for more information about credit ratings. High yield debt security - debt securities that, at the time of purchase, are rated "BB" or below by S&P or "Ba" or below by Moody's, or that are unrated and determined by the portfolio management team to be of comparable quality. Interest rate swap - an agreement between two parties to exchange periodic interest payments based on a predetermined principal amount. 39 Investment grade - a debt security that has been given a medium to high credit rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating by other NRSROs) based on the issuer's ability to pay interest and repay principal on time. The portfolio management team may consider an unrated debt security to be investment grade if the team believes it is of comparable quality. Please see the SAI for more information about credit ratings. Lehman 3-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of two to three years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman 7-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Aggregate Bond Index - an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government Bond Index - an unmanaged index of government bonds with an average maturity of approximately nine years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government/Corporate Bond Index - an unmanaged index of U.S. government, U.S. Treasury and agency securities, and corporate and Yankee bonds. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Intermediate Government Bond Index - an unmanaged index of U.S. government agency and U.S. Treasury securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Intermediate Government/Corporate Bond Index - an unmanaged index of all publicly issued investment grade corporate, U.S. Treasury, and U.S. government and agency securities with maturities of 1 to 10 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Municipal Bond Index - a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Liquidity - a measurement of how easily a security can be bought or sold at a price that is close to its market value. 40 Merrill Lynch 1-3 Year Treasury Index - an unmanaged index of U.S. Treasury bonds with maturities of 1 to 3 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Money market instrument - a short-term debt security that is considered to mature in 13 months or less. Money market instruments include U.S. Treasury obligations, U.S. government obligations, certificates of deposit, bankers' acceptances, commercial paper, repurchase agreements and certain municipal securities. Mortgage-backed security or Mortgage-related security - a debt security that gives you an interest in, and is backed by, a pool of residential mortgages issued by the U.S. government or by financial institutions. The underlying mortgages may be guaranteed by the U.S. government or one of its agencies, authorities or instrumentalities. Mortgage-backed securities typically make monthly payments, which are a combination of interest and a portion of the principal of the underlying mortgages. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public or private projects and services. "General obligations" are typically backed by the issuer's full taxing and revenue-raising powers. "Revenue securities" depend on the income earned by a specific project or authority, like road or bridge tolls, user fees for water or revenues from a utility. Interest income from municipal securities that pay for "public" projects and services is exempt from federal income taxes and is generally exempt from state taxes if an investor lives in the state that issued the security. If an investor lives in the municipality that issued the security, interest income may also be exempt from local taxes. Non-diversified - a fund that holds securities of fewer issuers than other kinds of funds. Non-diversified funds tend to have greater price swings than more diversified funds because events affecting one or more of its securities may have a disproportionately large effect on the fund. NRSRO - A nationally recognized statistical rating organization, such as S&P or Moody's. Options - An option is the right to buy or sell a security based on an agreed upon price at a specified time. For example, an option may give the holder of a stock the right to sell the stock to another party, allowing the seller to profit if the price has fallen below the agreed price. Options may also be based on the movement of an index such as the S&P 500. Over-the-counter market - a market where dealers trade securities through a telephone or computer network rather than through a public stock exchange. Preferred stock - a type of equity security that gives you a limited ownership right in a company, with certain preferences or priority over common stock. Preferred stock generally pays a fixed annual dividend. If the company goes bankrupt, preferred shareholders generally receive their share of the company's remaining assets before common shareholders and after bondholders and other creditors. Ownership of preferred stock typically does not come with certain voting rights that come with common stock. 41 Pre-refunded bond - a bond that is repaid before its maturity date. The repayment is generally financed by a new issue. Issuers generally pre-refund bonds during periods of lower interest rates to reduce their interest costs. Price-to-earnings ratio (P/E ratio) - the current price of a share divided by its actual or estimated earnings per share. The P/E ratio is one measure of the value of a company. Private placement - a private placement is the sale of stocks, bonds or other investments directly to a qualified investor without having to register the offering with the SEC or other comparable foreign regulatory authorities. Qualified investors are typically large institutional investors or high net worth individuals. Securities acquired through private placements generally may not be resold. Quantitative analysis - an analysis of financial information about a company or security to identify securities that have the potential for growth or are otherwise suitable for a fund to buy. Real Estate Investment Trust (REIT) - a portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls, and real-estate-related loans or interests. Repurchase agreement - a short-term (often overnight) investment arrangement. The investor agrees to buy certain securities from the borrower and the borrower promises to buy them back at a specified date and price. The difference between the purchase price paid by the investor and the repurchase price paid by the borrower represents the investor's return. Repurchase agreements are popular because they provide low-risk returns and can allow a fund to remain fully invested. Reverse repurchase agreement - a repurchase agreement in which an investor sells a security to another party, like a bank or dealer, in return for cash, and agrees to buy the security back at a specified date and price. Reverse repurchase agreements are, in effect, loans to a fund. Right - a temporary privilege allowing investors who already own a common stock to buy additional shares directly from the company at a specified price or formula. Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds, but is not a first-tier security. Senior security - a debt security that allows holders to receive their share of a company's remaining assets in a bankruptcy before other bondholders, creditors, and common and preferred shareholders. Settlement date - the date on which an order is settled either by payment or delivery of securities. Total return swap - an agreement between two parties to exchange periodic interest payments for the total return of an equity or fixed income instrument. 42 Trade date - the effective date of a purchase, sale or exchange transaction, or other instructions sent to us. The trade date is determined by the day and time we receive the order or instructions in a form that's acceptable to us. U.S. government obligations - a wide range of debt securities issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities. U.S. Treasury obligation - a debt security issued by the U.S. Treasury. Warrant - a certificate that gives you the right to buy common shares at a specified price within a specified period of time. Zero-coupon bond - a bond that makes no periodic interest payments. Zero coupon bonds are sold at a deep discount to their face value and mature at face value. The difference between the face value at maturity and the purchase price represents the return. 43 [GRAPHIC] Where to find more information You'll find more information about Nations High Yield Bond Fund in the following documents: Annual and semi-annual reports The annual and semi-annual reports contain information about Fund investments and performance, the financial statements and the independent accountants' reports. The annual report also includes a discussion about the market conditions and investment strategies that had a significant effect on the Fund's performance during the period covered. [GRAPHIC] Statement of Additional Information The SAI contains additional information about the Fund and its policies. The SAI is legally part of this prospectus (it's incorporated by reference). A copy has been filed with the SEC. You can obtain a free copy of these documents, request other information about the Fund and make shareholder inquiries by contacting Nations Funds: By telephone: 1.800.321.7854 By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nations-funds.com Information about the Fund can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. The reports and other information about the Fund are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. SEC file number: Nations Funds Trust, 811-09645 [Nations Funds logo appears here] HYPROIX-8/01 [GRAPHIC] International/Global Stock Funds Prospectus -- Investor A, B and C Shares August 1, 2001 Global Stock Fund Nations Global Value Fund International Stock Funds Nations International Value Fund Nations International Equity Fund Nations Marsico International Opportunities Fund Nations Emerging Markets Fund The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. - ----------------- Not FDIC Insured - ----------------- May Lose Value - ----------------- No Bank Guarantee - ----------------- [NATIONS FUNDS LOGO] An overview of the Funds - -------------------------------------------------------------------------------- [GRAPHIC] Terms used in this prospectus In this prospectus, we, us and our refer to the Nations Funds family (Nations Funds or Nations Funds Family). Some other important terms we've used may be new to you. These are printed in italics where they first appear in a section and are described in Terms used in this prospectus. [GRAPHIC] You'll find Terms used in this prospectus on page 63. Your investment in these Funds is not a bank deposit and is not insured or guaranteed by Bank of America, N. A. (Bank of America), the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Your investment may lose money. Affiliates of Bank of America are paid for the services they provide to the Funds. This booklet, which is called a prospectus, tells you about some Nations Funds International/Global Stock Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. About the Funds The International Stock Funds invest primarily in equity securities of companies outside the U.S. The Global Stock Fund invests primarily in equity securities of U.S. and non-U.S. companies. Foreign securities have the potential to provide you with higher returns than many other kinds of investments, but they also involve special risks not associated with investing in the U.S. stock market, which you need to be aware of before you invest. There's always the risk that you'll lose money or you may not earn as much as you expect. Choosing the right Funds for you Not every Fund is right for every investor. When you're choosing a Fund to invest in, you should consider things like your investment goals, how much risk you can accept and how long you're planning to hold your investment. The International/Global Stock Funds focus on long-term growth. They may be suitable for you if: o you have longer-term investment goals o they're part of a balanced portfolio o you want to try to protect your portfolio against a loss of buying power that inflation can cause over time They may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with foreign securities o you have short-term investment goals o you're looking for a regular stream of income You'll find a discussion of each Fund's principal investments, strategies and risks in the Fund descriptions that start on page 4. For more information If you have any questions about the Funds, please call us at 1.800.321.7854 or contact your investment professional. You'll find more information about the Funds in the Statement of Additional Information (SAI). The SAI includes more detailed information about each Fund's investments, policies, performance and management, among other things. Please turn to the back cover to find out how you can get a copy. 2 What's inside - -------------------------------------------------------------------------------- [GRAPHIC] Banc of America Advisors, LLC Banc of America Advisors, LLC (BA Advisors) is the investment adviser to each of the Funds. BA Advisors is responsible for the overall management and supervision of the investment management of each Fund. BA Advisors and Nations Funds have engaged sub-advisers, which are responsible for the day-to-day investment decisions for each of the Funds. [GRAPHIC] You'll find more about BA Advisors and the sub-advisers starting on page 29. [GRAPHIC] About the Funds Nations Global Value Fund Sub-adviser: Brandes Investment Partners, L.P. 4 - --------------------------------------------------------------------------- Nations International Value Fund 8 Sub-adviser: Brandes Investment Partners, L.P. - --------------------------------------------------------------------------- Nations International Equity Fund 13 Sub-advisers: Gartmore Global Partners, INVESCO Global Asset Management (N.A.), Inc. and Putnam Investment Management LLC - --------------------------------------------------------------------------- Nations Marsico International Opportunities Fund 18 Sub-adviser: Marsico Capital Management, LLC - --------------------------------------------------------------------------- Nations Emerging Markets Fund 22 Sub-adviser: Gartmore Global Partners - --------------------------------------------------------------------------- Other important information 27 - --------------------------------------------------------------------------- How the Funds are managed 29 [GRAPHIC] About your investment Information for investors Choosing a share class 35 About Investor A Shares 36 Front-end sales charge 36 Contingent deferred sales charge 37 About Investor B Shares 37 Contingent deferred sales charge 37 About Investor C Shares 39 Contingent deferred sales charge 39 When you might not have to pay a sales charge 39 Buying, selling and exchanging shares 43 How orders are processed 45 How selling and servicing agents are paid 51 Distributions and taxes 53 - --------------------------------------------------------------------------- Financial highlights 56 - --------------------------------------------------------------------------- Terms used in this prospectus 63 - --------------------------------------------------------------------------- Where to find more information back cover 3 [GRAPHIC] About the sub-adviser Brandes Investment Partners, L.P. (Brandes) is this Fund's sub-adviser. Brandes' Large Cap Investment Committee makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about Brandes on page 30. Nations Global Value Fund [GRAPHIC] Investment objective The Fund seeks long-term capital appreciation by investing primarily in equity securities of domestic and foreign issuers, including issuers in emerging markets countries. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in equity securities of domestic and foreign companies that have a market capitalization of more than $1 billion at the time of investment and that are believed to be undervalued. The Fund typically invests in at least three countries, including the United States, at any one time. The Fund primarily invests in equity securities and may, with respect to its foreign investments, invest in the foregoing and/or depositary receipts. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. [GRAPHIC] What is the Graham and Dodd approach to investing? Benjamin Graham is widely regarded as the founder of this classic value approach to investing and a pioneer in modern security analysis. In his 1934 book, Security Analysis, co-written by David Dodd, Graham introduced the idea that stocks should be chosen by identifying the "true" long-term -- or intrinsic -- value of a company based on measurable data. Benjamin Graham and David Dodd have never had any affiliation with the Fund. The management team follows this approach, looking at each stock as though it's a business that's for sale. By buying stocks at what it believes are favorable prices, the team looks for the potential for appreciation over the business cycle, and for a margin of safety against price declines. The management team uses the "Graham and Dodd" value approach to selecting securities and managing the Fund. The team invests in a company when its current price appears to be below its "true" long-term -- or intrinsic -- value. The team uses fundamental analysis to determine intrinsic value, and will look at a company's earnings, book value, cash flow, capital structure, and management record, as well as its industry and its position in the industry. This analysis includes a review of company reports, filings with the SEC, computer databases, industry publications, general and business publications, brokerage firm research reports and other information sources, as well as interviews with company management. The team may sell a security when its price reaches the target set by the team, when there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, and for other reasons. 4 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Limits on investments To help manage risk, the Fund has certain limits on its investments. These limits apply at the time an investment is made: o The Fund will normally invest no more than 5% of its assets in a single security. o It may not invest more than the greater of: o 20% of its assets in a single country or industry, or o 150% of the weighting of a single country or industry in the MSCI World Index (limited to less than 25% of its assets in a single industry, other than U.S. government securities). o It generally may not invest more than 20% of its assets in emerging markets or developing countries. [GRAPHIC] Risks and other things to consider Nations Global Value Fund has the following risks: o Investment strategy risk - The team chooses stocks it believes are undervalued or out of favor with the expectation that these stocks will eventually rise in value. There is a risk that the value of these investments will not rise as high or as quickly as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Foreign investment risk - Because the Fund invests in foreign securities, it can be affected by the risks of foreign investing. Funds that invest in foreign securities may be affected by changes in currency exchange rates and the costs of converting currencies; foreign government controls on foreign investment, repatriation of capital, and currency and exchange; foreign taxes; inadequate supervision and regulation of some foreign markets; difficulty selling some investments which may increase volatility; different settlement practices or delayed settlements in some markets; difficulty getting complete or accurate information about foreign companies; less strict accounting, auditing and financial reporting standards than those in the U.S.; political, economic or social instability; and difficulty enforcing legal rights outside the U.S. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Emerging markets risk - Securities issued by companies in developing or emerging market countries, like those in Eastern Europe, the Middle East, Asia or Africa, may be more sensitive to the risks of foreign investing. In particular, these countries may experience instability resulting from rapid social, political and economic development. Many of these countries are dependent on international trade, which makes them sensitive to world commodity prices and economic downturns in other countries. Some emerging countries have a higher risk of currency devaluations, and some countries may experience long periods of high inflation or rapid changes in inflation rates. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 5 [GRAPHIC] For information about the performance of other global stock accounts managed by Brandes, see How the Funds are managed. [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses (Expenses that are deducted from the Fund's assets) Management fees 0.90% 0.90% 0.90% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses(4) 0.50% 0.50% 0.50% ----- -------- -------- Total annual Fund operating expenses(5) 1.65% 2.40% 2.40% ===== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)Other expenses are based on estimates for the current fiscal year. (5)The Fund's investment adviser and/or some of its other service providers have agreed to limit total annual operating expenses to the levels shown above until July 31, 2002. There is no guarantee that these limitations will continue after this date. The investment adviser is entitled to reimbursement from the Fund of any fees waived or expenses reimbursed under this agreement if such reimbursements do not cause the Fund's expenses to exceed existing expense limitations. 6 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years Investor A Shares $733 $1,066 Investor B Shares $743 $1,048 Investor C Shares $343 $ 748 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years Investor B Shares $243 $748 Investor C Shares $243 $748 7 [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Brandes is its sub-adviser. Brandes' Large Cap Investment Committee makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about Brandes on page 30. Nations International Value Fund [GRAPHIC] Investment objective The Fund seeks long-term capital appreciation by investing primarily in equity securities of foreign issuers, including emerging markets countries. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations International Value Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in foreign companies anywhere in the world that have a market capitalization of more than $1 billion at the time of investment. The Master Portfolio typically invests in at least three countries other than the United States at any one time. The Master Portfolio primarily invests in equity securities either directly or indirectly through closed-end investment companies and depositary receipts. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. [GRAPHIC] What is the Graham and Dodd approach to investing? Benjamin Graham is widely regarded as the founder of this classic value approach to investing and a pioneer in modern security analysis. In his 1934 book, Security Analysis, co-written by David Dodd, Graham introduced the idea that stocks should be chosen by identifying the "true" long-term -- or intrinsic -- value of a company based on measurable data. Benjamin Graham and David Dodd have never had any affiliation with the Fund. The management team follows this approach, looking at each stock as though it's a business that's for sale. By buying stocks at what it believes are favorable prices, the team looks for the potential for appreciation over the business cycle, and for a margin of safety against price declines. The management team uses the "Graham and Dodd" value approach to selecting securities and managing the Master Portfolio. The team invests in a company when its current price appears to be below its true long-term -- or intrinsic -- value. The team uses fundamental analysis to determine intrinsic value, and will look at a company's book value, cash flow, capital structure, and management record, as well as its industry and its position in the industry. This analysis includes a review of company reports, filings with the SEC, computer databases, industry publications, general and business publications, brokerage firm research reports and other information sources, as well as interviews with company management. The team may sell a security when its price reaches the target set by the team, there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, and for other reasons. 8 [GRAPHIC] Limits on investments To help manage risk, the Fund has certain limits on its investments. These limits apply at the time an investment is made: o The Fund will normally invest no more than 5% of its assets in a single security. o It may not invest more than the greater of: o 20% of its assets in a single country or industry, or o 150% of the weighting of a single country or industry in the MSCI EAFE Index (limited to less than 25% of its assets in a single industry, other than U.S. government securities). o It generally may not invest more than 20% of its assets in emerging markets or developing countries. [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations International Value Fund has the following risks: o Investment strategy risk - The team chooses stocks it believes are undervalued or out of favor with the expectation that these stocks will eventually rise in value. There is a risk that the value of these investments will not rise as high or as quickly as the team expects, or will fall. o Foreign investment risk - Because the Master Portfolio invests primarily in foreign securities, it can be affected by the risks of foreign investing. Funds that invest in foreign securities may be affected by changes in currency exchange rates and the costs of converting currencies; foreign government controls on foreign investment, repatriation of capital, and currency and exchange; foreign taxes; inadequate supervision and regulation of some foreign markets; difficulty selling some investments which may increase volatility; different settlement practices or delayed settlements in some markets; difficulty getting complete or accurate information about foreign companies; less strict accounting, auditing and financial reporting standards than those in the U.S.; political, economic or social instability; and difficulty enforcing legal rights outside the U.S. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Emerging markets risk - Securities issued by companies in developing or emerging market countries, like those in Eastern Europe, the Middle East, Asia or Africa, may be more sensitive to the risks of foreign investing. In particular, these countries may experience instability resulting from rapid social, political and economic development. Many of these countries are dependent on international trade, which makes them sensitive to world commodity prices and economic downturns in other countries. Some emerging countries have a higher risk of currency devaluations, and some countries may experience long periods of high inflation or rapid changes in inflation rates. o Stock market risk - The value of the stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 9 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. For information about the performance of other international accounts managed by Brandes, see How the Funds are managed. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1996 1997 1998 1999 2000 15.32% 20.38% 11.82% 52.43% 2.94% *Year-to-date return as of June 30, 2001: -6.96% Best and worst quarterly returns during this period Best: 4th quarter 1999: 24.15% Worst: 3rd quarter 1998: -16.57% [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the MSCI EAFE Index (Morgan Stanley Capital International Europe, Australasia and Far East Index), an unmanaged, capitalization-weighted index consisting of securities listed on exchanges in European, Australasian and Far Eastern Markets. The index is not available for investment. Since 1 year 5 years inception* Investor A Shares -2.97% 18.08% 17.92% Investor B Shares -2.51% -- 15.84% Investor C Shares 1.25% -- 21.56% MSCI EAFE Index -14.17% 7.13% 7.13% *The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are December 27, 1995, May 22, 1998 and June 15, 1998, respectively. The return for the index shown is from inception of Investor A Shares. 10 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.90% 0.90% 0.90% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.33% 0.33% 0.33% ---- -------- -------- Total annual Fund operating expenses 1.48% 2.23% 2.23% ==== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. 11 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $717 $1,017 $1,338 $2,245 Investor B Shares $726 $ 997 $1,395 $2,376 Investor C Shares $326 $ 697 $1,195 $2,565 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $226 $697 $1,195 $2,376 Investor C Shares $226 $697 $1,195 $2,565 12 [GRAPHIC] About the sub-advisers The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser. The Master Portfolio is a "multi-manager" fund, which means that it's managed by more than one sub-adviser. Gartmore Global Partners (Gartmore), INVESCO Global Asset Management (N.A.), Inc. (INVESCO) and Putnam Investment Management LLC (Putnam) each manage approximately one-third of the assets of the Master Portfolio. Gartmore's Global Equities Portfolio Construction Team, INVESCO's International Equity Portfolio Management Team and Putnam's Core International Equity Group make the day-to-day investment decisions for their portions of the Master Portfolio. [GRAPHIC] You'll find more about Gartmore, INVESCO and Putnam on page 33. [GRAPHIC] Why invest in an international stock fund? International stock funds invest in a diversified portfolio of companies located in markets throughout the world. These companies can offer investment opportunities that are not available in the United States. Investing internationally also involves special risks not associated with investing in the U.S. stock market. Nations International Equity Fund [GRAPHIC] Investment objective The Fund seeks long-term capital growth by investing primarily in equity securities of non-United States companies in Europe, Australia, the Far East and other regions, including developing countries. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations International Equity Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in established companies located in at least three countries other than the United States. The investment managers select countries, including emerging market or developing countries, and companies they believe have the potential for growth. The Master Portfolio primarily invests in equity securities which may include equity interests in foreign investment funds or trusts, convertible securities, real estate investment trust securities and depositary receipts. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The Master Portfolio may invest in foreign currency exchange contracts to convert foreign currencies to and from the U.S. dollar, and to hedge against changes in foreign currency exchange rates. The Master Portfolio is a "multi-manager" fund. It has three different investment managers. Each is responsible for managing approximately one-third of the Master Portfolio's assets. The managers all have different, but complementary, investment styles: o Gartmore combines "top-down" allocation among regions around the world with a stock selection process that focuses on investing in securities when growth is likely to be higher, or sustained longer, than other investors expect. o INVESCO uses a "bottom-up" approach, and favors well-established companies with above average financial strength and sustainable growth. o Putnam is a "core manager," focusing on stable, long-term investments, rather than growth or value stocks. It combines "bottom-up" stock selection with "top-down" country allocation. The multi-manager strategy is based on the belief that having more than one manager may result in better performance and more stable returns over time. A manager may sell a security when its price reaches the target set by the manager, when the company's growth prospects are deteriorating, when the manager believes other investments are more attractive, and for other reasons. 13 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations International Equity Fund has the following risks: o Investment strategy risk - The managers choose stocks they believe have the potential for long-term growth. There is a risk that the value of these investments will not rise as high as expected, or will fall. There is also a risk that the Fund's multi-manager strategy may not result in better performance or more stable returns. o Foreign investment risk - Because the Master Portfolio invests primarily in foreign securities, it can be affected by the risks of foreign investing. Funds that invest in foreign securities may be affected by changes in currency exchange rates and the costs of converting currencies; foreign government controls on foreign investment, repatriation of capital, and currency and exchange; foreign taxes; inadequate supervision and regulation of some foreign markets; difficulty selling some investments which may increase volatility; different settlement practices or delayed settlements in some markets; difficulty getting complete or accurate information about foreign companies; less strict accounting, auditing and financial reporting standards than those in the U.S.; political, economic or social instability; and difficulty enforcing legal rights outside the U.S. If the Master Portfolio invests in emerging markets there may be other risks involved, such as those of immature economies and less developed and more thinly traded securities markets. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Stock market risk - The value of the stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Futures risk - This Master Portfolio may use futures contracts to convert currencies and to hedge against changes in foreign currency exchange rates. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 14 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1993 1994 1995 1996 1997 1998 1999 2000 26.90% 2.21% 8.21% 8.14% 1.04% 16.40% 39.13% -15.33% *Year-to-date return as of June 30, 2001: -13.83% Best and worst quarterly returns during this period Best: 4th quarter 1999: 28.40% Worst: 3rd quarter 1998: -13.88% [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage charges or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the MSCI EAFE Index (Morgan Stanley Capital International Europe, Australasia and Far East Index), an unmanaged, capitalization-weighted index consisting of securities listed on exchanges in European, Australasian and Far Eastern Markets. The index is not available for investment. Since 1 year 5 years inception* Investor A Shares -20.20% 7.14% 7.14% Investor B Shares -19.79% 7.23% 7.88% Investor C Shares -16.79% 7.66% 7.45% MSCI EAFE Index -14.17% 7.13% 8.94% *The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are June 3, 1992, June 7, 1993 and June 17, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 15 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.80% 0.80% 0.80% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.35% 0.35% 0.35% ---- -------- -------- Total annual Fund operating expenses 1.40% 2.15% 2.15% ==== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. 16 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $709 $993 $1,298 $2,161 Investor B Shares $718 $973 $1,354 $2,292 Investor C Shares $318 $673 $1,154 $2,483 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $218 $673 $1,154 $2,292 Investor C Shares $218 $673 $1,154 $2,483 17 [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Marsico Capital Management, LLC (Marsico Capital) is its sub-adviser. James Gendelman is the portfolio manager and makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about Marsico Capital and James Gendelman on page 34. [GRAPHIC] What is an international fund? International stock funds invest in a diversified portfolio of companies located in markets throughout the world. These companies can offer investment opportunities that are not available in the United States. Nations Marsico International Opportunities Fund [GRAPHIC] Investment objective The Fund seeks long-term growth of capital. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations Marsico International Opportunities Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in common stocks of foreign companies. While the Master Portfolio may invest in companies of any size, it focuses on large companies. These companies are selected for their long-term growth potential. The Master Portfolio normally invests in issuers from at least three different countries not including the United States and generally holds a core position of 35 to 50 common stocks. The Master Portfolio may invest in common stocks of companies operating in emerging markets. The Master Portfolio also may invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Marsico Capital uses an approach that combines "top-down" economic analysis with "bottom-up" stock selection. The "top-down" approach takes into consideration such macroeconomic factors as interest rates, inflation, the regulatory environment and the global competitive landscape. In addition, Marsico Capital also examines such factors as the most attractive global investment opportunities, industry consolidation and the sustainability of economic trends. As a result of the "top-down" analysis, Marsico Capital identifies sectors, industries and companies which it believes should benefit from the overall trends observed. Marsico Capital then looks for individual companies with earnings growth potential that may not be recognized by the market at large. In determining whether a particular company is suitable for investment, Marsico Capital focuses on a number of different attributes including the company's specific market expertise or dominance, its franchise durability and pricing power, solid fundamentals (strong balance sheet, improving returns on equity, ability to generate free cash flow), strong management and reasonable valuations in the context of projected growth rates. As part of this fundamental, "bottom-up" research, Marsico Capital may visit with various levels of a company's management as well as with its customers, suppliers and competitors. Marsico Capital also prepares detailed earnings and cash flow models of companies. These models permit it to project earnings growth and other important characteristics under different scenarios. Each model is customized to follow a particular company and is intended to replicate and describe a company's past, present and future performance. The models are comprised of quantitative information and detailed narratives that reflect updated interpretations of corporate data. Marsico Capital may sell a security when it believes there is a deterioration in the company's financial situation, the security is overvalued, when there is a negative development in the company's competitive, regulatory or economic environment, and for other reasons. 18 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Marsico International Opportunities Fund has the following risks: o Investment strategy risk - There is a risk that the value of the Master Portfolio's investments will not rise as high as Marsico Capital expects, or will fall. o Stock market risk - The value of any stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Master Portfolio may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. o Foreign investment risk - Because the Master Portfolio invests primarily in foreign securities, it can be affected by the risks of foreign investing. Funds that invest in foreign securities may be affected by changes in currency exchange rates and the costs of converting currencies; foreign government controls on foreign investment, repatriation of capital, and currency and exchange; foreign taxes; inadequate supervision and regulation of some foreign markets; difficulty selling some investments which may increase volatility; different settlement practices or delayed settlements in some markets; difficulty getting complete or accurate information about foreign companies; less strict accounting, auditing and financial reporting standards than those in the U.S.; political, economic or social instability; and difficulty enforcing legal rights outside the U.S. If the Master Portfolio invests in emerging markets there may be other risks involved, such as those of immature economies and less developed and more thinly traded securities. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 19 [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.80% 0.80% 0.80% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 5.46% 5.46% 5.46% ------ -------- -------- Total annual Fund operating expenses 6.51% 7.26% 7.26% Fee waivers and/or reimbursements (4.76)% (4.76)% (4.76)% ------ -------- -------- Total net expenses(6) 1.75% 2.50% 2.50% ====== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. (6)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 20 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $743 $1,993 $3,206 $6,082 Investor B Shares $753 $2,002 $3,285 $6,187 Investor C Shares $353 $1,708 $3,098 $6,307 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $253 $1,708 $3,098 $6,187 Investor C Shares $253 $1,708 $3,098 $6,307 21 [GRAPHIC] About the sub-adviser Gartmore is this Fund's sub-adviser. Christopher Palmer, CFA, a senior investment manager on the Gartmore Emerging Markets Team, makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about Gartmore on page 33. [GRAPHIC] What's an emerging market? This Fund considers a country to be an emerging market if: o the International Finance Corporation has defined it as an emerging market, o it has a low-to-middle income economy according to the World Bank, or o it's listed as developing in World Bank publications. There are over 25 countries that currently qualify as emerging markets, including Argentina, Brazil, Chile, China, the Czech Republic, Colombia, Ecuador, Greece, Hong Kong, Indonesia, India, Malaysia, Mexico, the Philippines, Poland, Portugal, Peru, Russia, Singapore, South Africa, Thailand, Taiwan and Turkey. Nations Emerging Markets Fund [GRAPHIC] Investment objective The Fund seeks long-term capital growth by investing primarily in equity securities of companies in emerging market countries, such as those in Latin America, Eastern Europe, the Pacific Basin, the Far East and India. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in companies in emerging markets or developing countries. The Fund intends to invest in securities of companies in at least three of these countries at any one time. The Fund normally invests in common stocks, preferred stocks, convertible securities, equity interests in foreign investment funds or trusts, and depositary receipts. The Fund may invest in foreign currency exchange contracts to convert foreign currencies to and from the U.S. dollar, and to hedge against changes in foreign currency exchange rates. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The portfolio manager looks for emerging markets that are believed to have the potential for strong economic growth, and tries to avoid emerging markets that might be politically or economically risky. The portfolio manager starts with approximately 800 companies in the most promising markets, and: o uses fundamental research to select stocks, looking at earnings growth, financial resources, marketability, and other factors o visits companies to confirm the corporate and industry factors that led to a stock's selection as a potential investment o regularly reviews the Fund's investments to determine whether companies are meeting expected return targets and whether their fundamental financial health has changed The portfolio manager may sell a security when its price reaches the target set by the portfolio manager, when there is a deterioration in the growth prospects of the company or its industry, when the portfolio manager believes other investments are more attractive, and for other reasons. 22 [GRAPHIC] You'll find more about other risks of investing in this fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Emerging Markets Fund has the following risks: o Investment strategy risk - The portfolio manager invests in securities of companies in emerging markets, which have high growth potential, but can be more volatile than securities in more developed markets. There is a risk that the value of these investments will not rise as high as the portfolio manager expects, or will fall. o Foreign investment risk - Because the Fund invests primarily in foreign securities, it can be affected by the risks of foreign investing. Funds that invest in foreign securities may be affected by changes in currency exchange rates and the costs of converting currencies; foreign government controls on foreign investment, repatriation of capital, and currency and exchange; foreign taxes; inadequate supervision and regulation of some foreign markets; difficulty selling some investments which may increase volatility; different settlement practices or delayed settlements in some markets; difficulty getting complete or accurate information about foreign companies; less strict accounting, auditing and financial reporting standards than those in the U.S.; political, economic or social instability; and difficulty enforcing legal rights outside the U.S. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Emerging markets risk - Securities issued by companies in developing or emerging market countries, like those in Eastern Europe, the Middle East, Asia or Africa, may be more sensitive to the risks of foreign investing. In particular, these countries may experience instability resulting from rapid social, political and economic development. Many of these countries are dependent on international trade, which makes them sensitive to world commodity prices and economic downturns in other countries. Some emerging countries have a higher risk of currency devaluations, and some countries may experience long periods of high inflation or rapid changes in inflation rates. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Futures risk - This Fund may use futures contracts to convert currencies and to hedge against changes in foreign currency exchange rates. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 23 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1996 1997 1998 1999 2000 8.50% -3.20% -25.78% 96.09% -35.30% *Year-to-date return as of June 30, 2001: -0.08% Best and worst quarterly returns during this period Best: 4th quarter 1999: 48.17% Worst: 3rd quarter 1998: -24.26% [GRAPHIC] The Fund's returns in this table reflect sales charges if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P/IFC Investables Index, an unmanaged index that tracks more than 1,400 stocks in 25 emerging markets in Asia, Latin America, Eastern Europe, Africa and the Middle East. The index is weighted by market capitalization and is not available for investment. Since 1 year 5 years inception* Investor A Shares -39.03% -1.40% -1.68% Investor B Shares -38.89% -1.33% -1.52% Investor C Shares -36.41% -0.82% -1.24% S&P/IFC Investables Index -30.28% -3.25% -3.19% *The inception date of Investor A Shares, Investor B Shares and Investor C Shares is June 30, 1995. The return for the index shown is from that date. 24 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 1.00% 1.00% 1.00% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.82% 0.82% 0.82% ---- -------- -------- Total annual Fund operating expenses 2.07% 2.82% 2.82% ==== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 25 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $773 $1,187 $1,626 $2,841 Investor B Shares $785 $1,174 $1,689 $2,969 Investor C Shares $385 $ 894 $1,489 $3,147 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $285 $874 $1,489 $2,969 Investor C Shares $285 $874 $1,489 $3,147 26 [GRAPHIC] Other important information You'll find specific information about each Fund's principal investments, strategies and risks in the descriptions starting on page 4. The following are some other risks and information you should consider before you invest: o Changing investment objectives and policies - The investment objective and certain investment policies of any Fund can be changed without shareholder approval. Other investment policies may be changed only with shareholder approval. o Holding other kinds of investments - The Funds may hold investments that aren't part of their principal investment strategies. Please refer to the SAI for more information. The portfolio managers or management team can also choose not to invest in specific securities described in this prospectus and in the SAI. o Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest up to 25% of their assets in Nations Money Market Funds. BA Advisors and its affiliates are entitled to receive fees from the Nations Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Funds for services provided directly. BA Advisors may waive fees which it is entitled to receive from either the Nations Money Market Funds or the Funds. o Investing defensively - A Fund may temporarily hold investments that are not part of its investment objective or its principal investment strategies to try to protect it during a market or economic downturn or because of political or other conditions. A Fund may not achieve its investment objective while it is investing defensively. o Securities lending program - A Fund may lend portfolio securities to approved broker-dealers or other financial institutions on a fully collateralized basis in order to earn additional income. There may be delays in receiving additional collateral after the loan is made or in recovering the securities loaned. o Emerging markets risk - Securities issued by companies in developing or emerging market countries, like those in Eastern Europe, the Middle East, Asia or Africa, may be more sensitive to the risks of foreign investing. In particular, these countries may experience instability resulting from rapid social, political and economic development. Many of these countries are dependent on international trade, which makes them sensitive to world commodity prices and economic downturns in other countries. Some emerging countries have a higher risk of currency devaluation, and some countries may experience long periods of high inflation or rapid changes in inflation rates. 27 o Bank of America and its affiliates - Bank of America and its affiliates currently provide services to some or all of the Funds, including investment advisory, investment sub-advisory, co-administration and brokerage services, and are paid for providing these services. Bank of America and its affiliates also may, at times, provide other services and be compensated for them, including transfer agency, interfund lending and securities lending services, or make loans to the Funds. Finally, Bank of America or its affiliates may serve as counterparties in transactions with Nations Funds where permitted by law or regulation, and may receive compensation in that capacity. o Portfolio turnover - A Fund that replaces -- or turns over -- more than 100% of its investments in a year is considered to trade frequently. Frequent trading can result in larger distributions of short-term capital gains to shareholders. These gains are taxable at higher rates than long-term capital gains. Frequent trading can also mean higher brokerage and other transaction costs, which could reduce the Fund's returns. The Funds generally buy securities for capital appreciation, investment income, or both, and don't engage in short-term trading. The annual portfolio turnover rate for Nations Global Value Fund is expected to be no more than 100%. You'll find the portfolio turnover rate for each other Fund in Financial highlights. 28 [GRAPHIC] How the Funds are managed [GRAPHIC] Banc of America Advisors, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Investment adviser BA Advisors is the investment adviser to over 75 mutual fund portfolios in the Nations Funds Family, including the International/Global Stock Funds described in this prospectus. BA Advisors is a registered investment adviser. It's a wholly-owned subsidiary of Bank of America, which is owned by Bank of America Corporation. Nations Funds pays BA Advisors an annual fee for its investment advisory services. The fee is calculated as a percentage of the average daily net assets of each Fund and is paid monthly. BA Advisors uses part of this money to pay investment sub-advisers for the services they provide to each Fund. BA Advisors has agreed to waive fees and/or reimburse expenses for certain Funds until July 31, 2002. You'll find a discussion of any waiver and/or reimbursement in the Fund descriptions. There is no assurance that BA Advisors will continue to waive and/or reimburse any fees and/or expenses after this date. The following chart shows the maximum advisory fees BA Advisors can receive, along with the actual advisory fees it received during the Funds' last fiscal year: Annual investment advisory fee, as a % of average daily net assets
Maximum Actual fee paid advisory fee last fiscal year Nations Global Value Fund 0.90% N/A Nations International Value Fund(1) 0.90% 0.80% Nations International Equity Fund(1) 0.80% 0.80% Nations Marsico International Opportunities Fund(1) 0.80% N/A Nations Emerging Markets Fund 1.00% 0.98%
(1)These Funds don't have their own investment adviser because they invest in Nations International Value Master Portfolio, Nations International Equity Master Portfolio and Nations Marsico International Opportunities Master Portfolio, respectively. BA Advisors is the investment adviser to each Master Portfolio. 29 Investment sub-advisers Nations Funds and BA Advisors engage one or more investment sub-advisers for each Fund to make day-to-day investment decisions for the Fund. BA Advisors retains ultimate responsibility (subject to Board oversight) for overseeing the sub-advisers and evaluates the Funds' needs and available sub-advisers' skills and abilities on an ongoing basis. Based on its evaluations, BA Advisors may at times recommend to a Fund's Board that the Fund: o change, add or terminate one or more sub-advisers; o continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or o materially change a sub-advisory agreement with a sub-adviser. Applicable law requires a Fund to obtain shareholder approval in order to act on most of these types of recommendations, even if the Fund's Board has approved the proposed action and believes that the action is in shareholders' best interests. BA Advisors and the Funds have applied for relief from the SEC to permit the Funds to act on many of BA Advisors' recommendations with approval only by the Funds' Board and not by Fund shareholders. BA Advisors or a Fund would inform the Fund's shareholders of any actions taken in reliance on this relief. Until BA Advisors and the Funds obtain the relief, each Fund will continue to submit these matters to shareholders for their approval to the extent required by applicable law. [GRAPHIC] Brandes Investment Partners, L.P. 11988 El Camino Real Suite 500 San Diego, California 92130 Brandes Investment Partners, L.P. Founded in 1974, Brandes is an investment advisory firm with 56 investment professionals who manage more than $50 billion in assets. Brandes uses a value-oriented approach to managing international investments, seeking to build wealth by buying high quality, undervalued stocks. Brandes is the investment sub-adviser to Nations Global Value Fund and Nations International Value Master Portfolio. Brandes' Large Cap Investment Committee is responsible for making the day-to-day investment decisions for the Funds and the Master Portfolio. Performance of other international/global stock accounts managed by Brandes Nations Global Value Fund commenced its operations on April 16, 2001. Nations International Value Master Portfolio (including its predecessors) has been in operation since December 27, 1995. The tables below are designed to show you how composites of similar equity accounts managed by Brandes performed over various periods in the past. The accounts comprising the Brandes Global Equity composite have investment objectives, policies and strategies that are substantially similar to Nations Global Value Fund. The Brandes Global Equity composite includes all accounts managed by Brandes that are substantially similar to Nations Global Value Fund. 30 The table below shows the returns for the Brandes Global Equity composite compared with the MSCI World Index for the periods ending March 31, 2001 and December 31 of prior years. The returns of the Brandes Global Equity composite reflect deductions of account fees and expenses, and assume all dividends and distributions have been reinvested. The returns of the MSCI World Index assume all dividends and distributions have been reinvested. Average annual total returns as of March 31, 2001 Brandes Global Equity MSCI World Composite (%) Index (%) one year 23.32% (25.10)% three years 12.05% 0.93% five years 19.48% 8.21% ten years 18.58% 9.37% Annual total returns as of December 31 Brandes Global Equity MSCI World Composite (%) Index (%) 2000 23.16% (13.18)% 1999 20.92% 24.93% 1998 13.08% 24.34% 1997 28.14% 15.76% 1996 22.38% 13.48% 1995 20.81% 20.72% 1994 (2.34)% 5.08% 1993 39.71% 22.50% 1992 12.23% (5.23)% 1991 37.07% 18.29% 1990 (11.79)% (17.02)% 1989 13.04% 16.61% 1988 26.02% 23.29% 1987 (2.57)% 16.16% 1986 20.77% 41.89% 1985 35.55% 40.57% 1984 7.09% 4.72% 1983 39.91% 21.93% 1982 29.86% 9.71% 1981 13.56% (4.78)% 1980 34.28% 25.67% This information is designed to demonstrate the historical track record of Brandes. It does not indicate how the Fund has performed or will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's expenses. The performance reflected in the composite has been calculated in compliance with the AIMR Performance Presentation Standards which differ from the method used by the SEC. The Brandes composite includes global equity accounts managed by Brandes. The accounts don't pay the same expenses that mutual funds pay and aren't subject to the diversification rules, tax restrictions and investment limits under the 1940 Act or Subchapter M of the Internal Revenue Code. Returns could have been lower if the composite had been subject to these expenses and regulations. The aggregate returns of the accounts in the composite may not reflect the returns of any particular account of Brandes. 31 The fund and the accounts comprising the Brandes composite's investment objective, policies and strategies are substantially similar to Nations International Value Master Portfolio. The table below shows the returns for the Brandes composite compared with the MSCI EAFE Index for the periods ending December 31, 2000. The returns of the Brandes composite reflect deductions of account fees and expenses, and assume all dividends and distributions have been reinvested. Average annual total returns as of December 31, 2000 Brandes MSCI EAFE Composite (%) Index (%) one year 2.80% (14.17)% three years 22.03% 9.35% five years 20.47% 7.13% ten years 19.38% 6.42% Annual total returns as of December 31 Brandes MSCI EAFE Composite (%) Index (%) 2000 2.80% (14.17)% 1999 53.67% 29.96% 1998 15.03% 20.33% 1997 20.05% 1.78% 1996 16.34% 6.05% 1995 13.75% 11.21% 1994 (2.98)% 7.78% 1993 40.86% 32.56% 1992 6.28% (12.17)% 1991 40.17% 12.13% This information is designed to demonstrate the historical track record of Brandes. It does not indicate how the Fund has performed or will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's expenses. The Brandes composite includes Brandes International Equity Fund (since 1995) and international equity accounts managed by Brandes. The accounts don't pay the same expenses that mutual funds pay and aren't subject to the diversification rules, tax restrictions and investment limits under the 1940 Act or Subchapter M of the Internal Revenue Code. Returns could have been lower if the composite had been subject to these expenses and regulations. The aggregate returns of the accounts in the composite may not reflect the returns of any particular account of Brandes. 32 [GRAPHIC] Gartmore Global Partners Gartmore House 8 Fenchurch Place London EC3M 4PH, England Gartmore Global Partners Gartmore is a global asset manager dedicated to serving the needs of U.S. based investors. Gartmore was formed in 1995 as a registered investment adviser and manages more than $991 million in assets. Gartmore is a general partnership which is an indirect wholly-owned subsidiary of Nationwide Mutual Insurance Company. Gartmore generally follows a growth philosophy, which is reflected in its active management of market allocation and stock selection. Gartmore is co-investment sub-adviser to: o Nations International Equity Master Portfolio Gartmore is the investment sub-adviser to: o Nations Emerging Markets Fund Gartmore's Global Equities Portfolio Construction Team is responsible for the day-to-day investment decisions for its portion of the Master Portfolio. Christopher Palmer has been responsible since August 1999 for investments in developing countries, and has been the principal portfolio manager of Nations Emerging Markets Fund since that time. He joined Gartmore in 1995 and is a senior investment manager on the Gartmore Emerging Markets Team. Before he joined Gartmore, Mr. Palmer worked for Unifund, S.A., a private investment bank, in its Mexico City and Hong Kong offices, and managed global derivatives, credit and counterparty credit risk as vice president in the Institutional Credit Department of Bear Stearns & Co. He graduated from Colgate University in 1986 with a BA Honors degree in History and completed an MBA in Finance at New York University in 1988. Mr. Palmer was awarded the CFA designation by the Association of Investment Management and Research in 1993. [GRAPHIC] INVESCO Global Asset Management (N.A), Inc. 1360 Peachtree Street, N.E. Atlanta, Georgia 30309 INVESCO Global Asset Management (N.A), Inc. INVESCO Global is a division of AMVESCAP PLC, a publicly traded UK financial holding company located in London. INVESCO Global is one of the three investment sub-advisers to Nations International Equity Master Portfolio. INVESCO's International Equity Portfolio Management Team is responsible for making the day-to-day investment decisions for its portion of the Master Portfolio. [GRAPHIC] Putnam Investment Management LLC One Post Office Square Boston, Massachusetts 02109 Putnam Investment Management LLC Putnam is a wholly-owned subsidiary of Putnam Investments, Inc., which, except for shares held by employees, is owned by Marsh & McLennan Companies. Putnam is one of three investment sub-advisers to Nations International Equity Master Portfolio. Putnam's Core International Equity Group is responsible for making the day-to-day investment decisions for its portion of the Fund. 33 [GRAPHIC] Marsico Capital Management, LLC 1200 17th Street Suite 1300 Denver, Colorado 80202 Marsico Capital Management, LLC Marsico Capital is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Marsico Capital is a full service investment advisory firm founded by Thomas F. Marsico in September 1997. Marsico Capital currently has over $13 billion in assets under management. Marsico Capital is the investment sub-adviser to Nations Marsico International Opportunities Master Portfolio. James G. Gendelman is the portfolio manager of Nations Marsico International Opportunities Master Portfolio. Prior to joining Marsico Capital in May, 2000, Mr. Gendelman spent thirteen years as a Vice President of International Sales for Goldman, Sachs & Co. He holds a Bachelor's degree in Accounting from Michigan State University and an MBA in Finance from the University of Chicago. Mr. Gendelman was an accountant for Ernst & Young from 1983 to 1985. [GRAPHIC] Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 Other service providers The Funds are distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. Stephens may pay commissions, distribution (12b-1) and shareholder servicing fees, and/or other compensation to companies for selling shares and providing services to investors. BA Advisors is also co-administrator of the Funds, and assists in overseeing the administrative operations of the Funds. The Funds pay BA Advisors and Stephens a combined fee of 0.22% for their services, plus certain out-of-pocket expenses. The fee is calculated as an annual percentage of the average daily net assets of the Funds, and is paid monthly. [GRAPHIC] PFPC Inc. 400 Bellevue Parkway Wilmington, Delaware 19809 PFPC Inc. (PFPC) is the transfer agent for the Funds' shares. Its responsibilities include processing purchases, sales and exchanges, calculating and paying distributions, keeping shareholder records, preparing account statements and providing customer service. 34 About your investment - -------------------------------------------------------------------------------- [GRAPHIC] We've used the term, investment professional, to refer to the person who has assisted you with buying Nations Funds. Selling agent or servicing agent (sometimes referred to as a selling agent) means the company that employs your investment professional. Selling and servicing agents include banks, brokerage firms, mutual fund dealers and other financial institutions, including affiliates of Bank of America. [GRAPHIC] For more information about how to choose a share class, contact your investment professional or call us at 1.800.321.7854. [GRAPHIC] Before you invest, please note that, over time, distribution (12b-1) and shareholder servicing fees will increase the cost of your investment, and may cost you more than any sales charges you may pay. For more information, see How selling and servicing agents are paid. [GRAPHIC] Choosing a share class Before you can invest in the Funds, you'll need to choose a share class. There are three classes of shares of each Fund offered by this prospectus. Each class has its own sales charges and fees. The table below compares the charges and fees and other features of the share classes.
Investor A Investor B Investor C Shares Shares Shares Maximum amount no limit $250,000 no limit you can buy Maximum front-end 5.75% none none sales charge Maximum deferred none(1) 5.00%(2) 1.00%(3) sales charge Maximum annual 0.25% 0.75% 0.75% distribution distribution distribution distribution and shareholder (12b-1)/service fee (12b-1) fee and (12b-1) fee and servicing fees 0.25% service fee 0.25% service fee Conversion feature none yes none
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. The share class you choose will depend on how much you're investing, how long you're planning to stay invested, and how you prefer to pay the sales charge. The total cost of your investment over the time you expect to hold your shares will be affected by the distribution (12b-1) and shareholder servicing fees, as well as by the amount of any front-end sales charge or contingent deferred sales charge (CDSC) that applies and when you're required to pay the charge. You should think about these things carefully before you invest. Investor A Shares have a front-end sales charge, which is deducted when you buy your shares. This means that a smaller amount is invested in the Funds, unless you qualify for a waiver or reduction of the sales charge. However, Investor A Shares have lower ongoing distribution (12b-1) and/or shareholder servicing fees than Investor B and Investor C Shares. This means that Investor A Shares can be expected to pay relatively higher dividends per share. 35 Investor B Shares have limits on how much you can invest. When you buy Investor B or Investor C Shares, the full amount is invested in the Funds. However, you may pay a CDSC when you sell your shares. Over time, Investor B and Investor C Shares can incur distribution (12b-1) and shareholder servicing fees that are equal to or more than the front-end sales charge, and the distribution (12b-1) and shareholder servicing fees you would pay for Investor A Shares. Although the full amount of your purchase is invested in the Funds, any positive investment return on this money may be partially or fully offset by the expected higher annual expenses of Investor B and Investor C Shares. You should also consider the conversion feature for Investor B Shares, which is described in About Investor B Shares. [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by a Fund every business day. [GRAPHIC] About Investor A Shares There is no limit to the amount you can invest in Investor A Shares. You generally will pay a front-end sales charge when you buy your shares, or in some cases, a CDSC when you sell your shares. Front-end sales charge You'll pay a front-end sales charge when you buy Investor A Shares, unless: o you qualify for a waiver of the sales charge. You can find out if you qualify for a waiver in the section, When you might not have to pay a sales charge - Front end sales charges o you're reinvesting distributions The sales charge you'll pay depends on the Fund you're buying and the amount you're investing -- generally, the larger the investment, the smaller the percentage sales charge.
Amount retained Sales charge Sales charge by selling agents as a % of the as a % of the as a % of the offering price net asset value offering price Amount you bought per share per share per share $0-$49,999 5.75% 6.10% 5.00% $50,000-$99,999 4.50% 4.71% 3.75% $100,000-$249,999 3.50% 3.63% 2.75% $250,000-$499,999 2.50% 2.56% 2.00% $500,000-$999,999 2.00% 2.04% 1.75% $1,000,000 or more 0.00% 0.00% 1.00%(1)
(1)1.00% on the first $3,000,000, 0.50% on the next $47,000,000, 0.25% on amounts over $50,000,000. Stephens pays the amount retained by selling agents on investments of $1,000,000 or more, but may be reimbursed when a CDSC is deducted if the shares are sold within eighteen months from the time they were bought. Please see How selling and servicing agents are paid for more information. 36 Contingent deferred sales charge If you own or buy $1,000,000 or more of Investor A Shares, there is one situation when you'll pay a CDSC: o If you buy your shares on or after August 1, 1999 and sell them within 18 months of buying them, you'll pay a CDSC of 1.00%. The CDSC is calculated from the day your purchase is accepted (the trade date). We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. You won't pay a CDSC on any increase in net asset value since you bought your shares, or on any shares you receive from reinvested distributions. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. [GRAPHIC] About Investor B Shares You can buy up to $250,000 of Investor B Shares. You don't pay a sales charge when you buy Investor B Shares, but you may have to pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC when you sell your Investor B Shares, unless: o you bought the shares on or after January 1, 1996 and before August 1, 1997 o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge - Contingent deferred sales charges. The CDSC you pay depends on when you bought your shares, how much you bought in some cases, and how long you held them.
If you sell your shares during the following year: You'll pay a CDSC of: - --------------------------------- ------------------------------------------------------------------------- Shares you bought Shares Shares on or after you you bought Shares you bought between 1/1/1996 bought after 8/1/1997 and 11/15/1998 and before before 11/15/1998 in the following amounts: 8/1/1997 1/1/1996 ------------ ------------------------------------ ------------- --------- $250,000- $500,000- $0-$249,999 $499,999 $999,999 the first year you own them 5.0% 5.0% 3.0% 2.0% none 5.0% the second year you own them 4.0% 4.0% 2.0% 1.0% none 4.0% the third year you own them 3.0% 3.0% 1.0% none none 3.0% the fourth year you own them 3.0% 3.0% none none none 2.0% the fifth year you own them 2.0% 2.0% none none none 2.0% the sixth year you own them 1.0% 1.0% none none none 1.0% after six years of owning them none none none none none none
37 The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor B Shares. Please see How selling and servicing agents are paid for more information. About the conversion feature Investor B Shares generally convert automatically to Investor A Shares according to the following schedule:
Will convert to Investor A Shares Investor B Shares you bought after you've owned them for after November 15, 1998 eight years between August 1, 1997 and November 15, 1998 $0-$249,000 nine years $250,000-$499,999 six years $500,000-$999,999 five years before August 1, 1997 nine years
The conversion feature allows you to benefit from the lower operating costs of Investor A Shares, which can help increase total returns. Here's how the conversion works: o We won't convert your shares if you tell your investment professional, selling agent or the transfer agent within 90 days before the conversion date that you don't want your shares to be converted. Remember, it's in your best interest to convert your shares because Investor A Shares have lower expenses. o Shares are converted at the end of the month in which they become eligible for conversion. Any shares you received from reinvested distributions on those shares will convert to Investor A Shares at the same time. o You'll receive the same dollar value of Investor A Shares as the Investor B Shares that were converted. No sales charge or other charges apply. o Investor B Shares that you received from an exchange of Investor B Shares of another Nations Fund will convert based on the day you bought the original shares. Your conversion date may be later if you exchanged to or from a Nations Money Market Fund. o Conversions are free from federal tax. 38 [GRAPHIC] About Investor C Shares There is no limit to the amount you can invest in Investor C Shares. You don't pay a sales charge when you buy Investor C Shares, but you may pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC of 1.00% when you sell Investor C Shares within one year of buying them, unless: o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver on in the section When you might not have to pay a sales charge - Contingent deferred sales charges. The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor C Shares. Please see How selling and servicing agents are paid for more information. [GRAPHIC] Please contact your investment professional for more information about reductions and waivers of sales charges. You should tell your investment professional that you may qualify for a reduction or a waiver before buying shares. We can change or cancel these terms at any time. Any change or cancellation applies only to future purchases. When you might not have to pay a sales charge Front-end sales charges (Investor A Shares) There are three ways you can lower the front-end sales charge you pay on Investor A Shares: o Combine purchases you've already made Rights of accumulation allow you to combine the value of Investor A, Investor B and Investor C Shares you already own with Investor A Shares you're buying to calculate the sales charge. The sales charge is based on the total value of the shares you already own, or the original purchase cost, whichever is higher, plus the value of the shares you're buying. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify for rights of accumulation. o Combine purchases you plan to make By signing a letter of intent, you can combine the value of shares you already own with the value of shares you plan to buy over a 13-month period to calculate the sales charge. o You can choose to start the 13-month period up to 90 days before you sign the letter of intent. o Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. o If you don't buy as much as you planned within the period, you must pay the difference between the charges you've paid and the charges that actually apply to the shares you've bought. 39 o Your first purchase must be at least 5% of the minimum amount for the sales charge level that applies to the total amount you plan to buy. o If the purchase you've made later qualifies for a reduced sales charge through the 90-day backdating provisions, we'll make an adjustment for the lower charge when the letter of intent expires. Any adjustment will be used to buy additional shares at the reduced sales charge. o Combine purchases with family members You can receive a quantity discount by combining purchases of Investor A Shares that you, your spouse and children under age 21 make on the same day. Some distributions or payments from the dissolution of certain qualified plans also qualify for the quantity discount. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: o full-time employees and retired employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries and the immediate families of these people o banks, trust companies and thrift institutions, acting as fiduciaries o individuals receiving a distribution from a Bank of America trust or other fiduciary account may use the proceeds of that distribution to buy Investor A Shares without paying a front-end sales charge, as long as the proceeds are invested in the Funds within 90 days of the date of distribution o Nations Funds' Trustees, Directors and employees of its investment sub-advisers o registered broker/dealers that have entered into a Nations Funds dealer agreement with Stephens may buy Investor A Shares without paying a front-end sales charge for their investment account only o registered personnel and employees of these broker/dealers and their family members may buy Investor A Shares without paying a front-end sales charge according to the internal policies and procedures of the employing broker/dealer as long as these purchases are made for their own investment purposes o employees or partners of any service provider to the Funds o investors who buy through accounts established with certain fee-based investment advisers or financial planners, wrap fee accounts and other managed agency/asset allocation accounts o shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at net asset value 40 The following plans can buy Investor A Shares without paying a front-end sales charge: o pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the Internal Revenue Code of 1986, as amended (the tax code) o employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must: o have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or o sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or o be an employer-sponsored plan with at least 100 eligible participants, or o be a participant in an alliance program that has signed an agreement with the Fund or a selling agent o certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors You can also buy Investor A Shares without paying a sales charge if you buy the shares within 120 days of selling the same Fund. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. Contingent deferred sales charges (Investor A, Investor B and Investor C Shares) You won't pay a CDSC on the following transactions: o shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner o distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors o the following retirement plan distributions: o lump-sum or other distributions from a qualified corporate or self-employed retirement plan following the retirement (or following attainment of age 59 1/2 in the case of a "key employee" of a "top heavy" plan) o distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 o a tax-free return of an excess contribution to an IRA o distributions from a qualified retirement plan that aren't subject to the 10% additional federal withdrawal tax under Section 72(t)(2) of the tax code 41 o payments made to pay medical expenses which exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least 12 weeks o shares sold under our right to liquidate a shareholder's account, including instances where the aggregate net asset value of Investor A, Investor B or Investor C Shares held in the account is less than the minimum account size o if you exchange Investor B or Investor C Shares of a Nations Fund that were bought through a Bank of America employee benefit plan for Investor A Shares of a Nations Fund o withdrawals made under the Automatic Withdrawal Plan described in Buying, selling and exchanging shares, if the total withdrawals of Investor A, Investor B or Investor C Shares made in a year are less than 12% of the total value of those shares in your account. A CDSC may only apply to Investor A Shares if you bought more than $1,000,000 We'll also waive the CDSC on the sale of Investor A or Investor C Shares bought before September 30, 1994 by current or retired employees of Bank of America Corporation (and its predecessors) and its affiliates, or by current or former trustees or directors of the Nations Funds or other management companies managed by Bank of America. You won't pay a CDSC on the sale of Investor B or Investor C Shares if you reinvest any of the proceeds in the same Fund within 120 days of the sale. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. 42 [GRAPHIC] Buying, selling and exchanging shares [GRAPHIC] When you sell shares of a mutual fund, the fund is effectively "buying" them back from you. This is called a redemption. You can invest in the Funds through your selling agent or directly from Nations Funds. We encourage you to consult with an investment professional who can open an account for you with a selling agent and help you with your investment decisions. Once you have an account, you can buy, sell and exchange shares by contacting your investment professional or selling agent. They will look after any paperwork that's needed to complete a transaction and send your order to us. You should also ask your selling agent about its limits, fees and policies for buying, selling and exchanging shares, which may be different from those described here, and about its related programs and services. The table on the next page summarizes some key information about buying, selling and exchanging shares. You'll find sales charges and other fees that apply to these transactions in Choosing a share class. The Funds also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. Please contact your investment professional, or call us at 1.800.321.7854 if you have any questions or you need help placing an order. 43
Ways to buy, sell or How much you can buy, exchange sell or exchange Other things to know ------------------ ----------------------------------------- -------------------------------------------------- Buying shares In a lump sum minimum initial investment: There is no limit to the amount you can invest in o $1,000 for regular accounts Investor A and C Shares. You can invest up to o $500 for traditional and Roth IRA $250,000 in Investor B Shares. accounts o $250 for certain fee-based accounts o no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: o $100 for all accounts Using our minimum initial investment: You can buy shares twice a month, monthly or Systematic o $100 quarterly, using automatic transfers from your Investment Plan minimum additional investment: bank account. o $50 - -------------------- ------------------ ----------------------------------------- -------------------------------------------------- Selling shares In a lump sum o you can sell up to $50,000 of your We'll deduct any CDSC from the amount you're shares by telephone, otherwise there selling and send you or your selling agent the are no limits to the amount you can sell balance, usually within three business days of o other restrictions may apply to receiving your order. withdrawals from retirement plan If you paid for your shares with a check that accounts wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared. - -------------------- ------------------ ----------------------------------------- -------------------------------------------------- Using our o minimum $25 per withdrawal Your account balance must be at least $10,000 Automatic to set up the plan. You can make withdrawals Withdrawal Plan twice a month, monthly, quarterly, bi-annually or annually. We'll send your money by check or deposit it directly to your bank account. No CDSC is deducted if you withdraw 12% or less of the value of your shares in a class. - -------------------- ------------------ ----------------------------------------- -------------------------------------------------- Exchanging shares In a lump sum o minimum $1,000 per exchange You can exchange your Investor A Shares for Investor A shares of any other Nations Fund, except Index Funds. You won't pay a front-end sales charge, CDSC or redemption fee on the shares you're exchanging. You can exchange your Investor B Shares for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You can exchange your Investor C Shares for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of a Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Using our o minimum $25 per exchange You must already have an investment in the Automatic Funds into which you want to exchange. You can Exchange Feature make exchanges monthly or quarterly.
44 [GRAPHIC] A business day is any day that the New York Stock Exchange (NYSE) is open. A business day ends at the close of regular trading on the NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes early, the business day ends as of the time the NYSE closes. The NYSE is closed on weekends and on the following national holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. How shares are priced All transactions are based on the price of a Fund's shares -- or its net asset value per share. We calculate net asset value per share for each class of each Fund at the end of each business day. First, we calculate the net asset value for each class of a Fund by determining the value of the Fund's assets in the class and then subtracting its liabilities. Next, we divide this amount by the number of shares that investors are holding in the class. Valuing securities in a Fund The value of a Fund's assets is based on the total market value of all of the securities it holds. The prices reported on stock exchanges and securities markets around the world are usually used to value securities in a Fund. If prices aren't readily available, or the value of a security has been materially affected by events occurring after a foreign exchange closes, we'll base the price of a security on its fair value. When a Fund uses fair value to price securities it may value those securities higher or lower than another fund that uses market quotations to price the same securities. We use the amortized cost method, which approximates market value, to value short-term investments maturing in 60 days or less. International markets may be open on days when U.S. markets are closed. The value of foreign securities owned by a Fund could change on days when Fund shares may not be bought or sold. How orders are processed Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents before the end of a business day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive that day's net asset value per share. Orders received after the end of a business day will receive the next business day's net asset value per share. The business day that applies to your order is also called the trade date. We may refuse any order to buy or exchange shares. If this happens, we'll return any money we've received to your selling agent. Telephone orders You can place orders to buy, sell or exchange by telephone if you complete the telephone authorization section of our account application and send it to us. Here's how telephone orders work: o If you sign up for telephone orders after you open your account, you must have your signature guaranteed. o Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. o We'll take reasonable steps to confirm that telephone instructions are genuine. For example, we require proof of your identification before we will act on instructions received by telephone and may record telephone conversations. If we and our service providers don't take these steps, we may be liable for any losses from unauthorized or fraudulent instructions. o Telephone orders may be difficult to complete during periods of significant economic or market change. 45 [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by a Fund every business day. [GRAPHIC] Buying shares Here are some general rules for buying shares: o You buy Investor A Shares at the offering price per share. You buy Investor B and Investor C Shares at net asset value per share. o If we don't receive your money within three business days of receiving your order, we'll refuse the order. o Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. o Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. Minimum initial investment The minimum initial amount you can buy is usually $1,000. If you're buying shares through one of the following accounts or plans, the minimum initial amount you can buy is: o $500 for traditional and Roth individual retirement accounts (IRAs) o $250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts o $100 using our Systematic Investment Plan o There is no minimum for 401(k) plans, simplified employee pension plans (SEPs), salary reduction-simplified employee pension plans (SAR-SEPs), Savings Incentives Match Plans for Employees (SIMPLE IRAs), salary reduction-IRAs (SAR-IRAs) or other similar kinds of accounts. However, if the value of your account falls below $1,000 for 401(k) plans or $500 for the other plans within one year after you open your account, we may sell your shares. We'll give you 60 days notice in writing if we're going to do this Minimum additional investment You can make additional purchases of $100, or $50 if you use our Systematic Investment Plan. 46 [GRAPHIC] For more information about telephone orders, see How orders are processed. Systematic Investment Plan You can make regular purchases of $50 or more using automatic transfers from your bank account to the Funds you choose. You can contact your investment professional or us to set up the plan. Here's how the plan works: o You can buy shares twice a month, monthly or quarterly. o You can choose to have us transfer your money on or about the 15th or the last day of the month. o Some exceptions may apply to employees of Bank of America and its affiliates, and to plans set up before August 1, 1997. For details, please contact your investment professional. [GRAPHIC] Selling shares Here are some general rules for selling shares: o We'll deduct any CDSC from the amount you're selling and send you the balance. o If you're selling your shares through a selling agent, we'll normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. Your selling agent is responsible for depositing the sale proceeds to your account on time. o If you're selling your shares directly through us, we'll normally send the sale proceeds by mail or electronic transfer them to your bank account within three business days after the Fund receives your order. o You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. o If you paid for your shares with a check that wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared, whichever is later. o If you hold any shares in certificate form, you must sign the certificates (or send a signed stock power with them) and send them to PFPC. Your signature must be guaranteed unless you've made other arrangements with us. We may ask for any other information we need to prove that the order is properly authorized. o Under certain circumstances allowed under the Investment Company Act of 1940 (1940 Act), we can pay you in securities or other property when you sell your shares. o We can delay payment of the sale proceeds for up to seven days. o Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. 47 We may sell your shares: o if the value of your account falls below $500. We'll give you 60 days notice in writing if we're going to do this o if your selling agent tells us to sell your shares under arrangements made between the selling agent and you o under certain other circumstances allowed under the 1940 Act Automatic Withdrawal Plan The Automatic Withdrawal Plan lets you withdraw $25 or more twice a month, monthly, quarterly, bi-annually or annually. You can contact your investment professional or us to set up the plan. Here's how the plan works: o Your account balance must be at least $10,000 to set up the plan. o If you set up the plan after you've opened your account, your signature must be guaranteed. o You can choose to have us transfer your money on or about the 10th or 25th of the month. o You won't pay a CDSC on Investor A, Investor B or Investor C Shares if you withdraw 12% or less of the value of those shares in a year. Otherwise, we'll deduct any CDSC from the withdrawals. o We'll send you a check or deposit the money directly to your bank account. o You can cancel the plan by giving your selling agent or us 30 days notice in writing. It's important to remember that if you withdraw more than your investment in the Fund is earning, you'll eventually use up your original investment. [GRAPHIC] You should make sure you understand the investment objective and principal investment strategies of the Fund you're exchanging into. Please read its prospectus carefully. [GRAPHIC] Exchanging shares You can sell shares of a Fund to buy shares of another Nations Fund. This is called an exchange. You might want to do this if your investment goals or tolerance for risk changes. Here's how exchanges work: o You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. o The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. o You may only make exchanges into a Fund that is legally sold in your state of residence. 48 o You generally may only make an exchange into a Fund that is accepting investments. o We may limit the number of exchanges you can make within a specified period of time. o We may change or cancel your right to make an exchange by giving the amount of notice required by regulatory authorities (generally 60 days for a material change or cancellation). o You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. Exchanging Investor A Shares You can exchange Investor A Shares of a Fund for Investor A Shares of any other Nations Fund except Index Funds. Here are some rules for exchanging Investor A Shares: o You won't pay a front-end sales charge on the shares of the Fund you're exchanging. o You won't pay a CDSC, if applicable, on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC at that time will be based on the period from when you bought the original shares until when you sold the shares you received from the exchange. o You won't pay a redemption fee on the shares you're exchanging. Any redemption fee will be deducted when you sell the shares you received from the exchange. Any redemption fee will be paid to the original Fund. Exchanging Investor B Shares You can exchange Investor B Shares of a Fund for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Investor C Shares of a Nations Money Market Fund through an exchange of Investor B Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Investor C Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. 49 Exchanging Investor C Shares You can exchange Investor C Shares of a Fund for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of a Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Daily Shares of a Nations Money Market Fund through an exchange of Investor C Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Daily Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. Automatic Exchange Feature The Automatic Exchange Feature lets you exchange $25 or more of Investor A, Investor B or Investor C Shares every month or every quarter. You can contact your investment professional or us to set up the plan. Here's how automatic exchanges work: o Send your request to PFPC in writing or call 1.800.321.7854. o If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. o You must already have an investment in the Funds you want to exchange. o You can choose to have us transfer your money on or about the 1st or the 15th day of the month. o The rules for making exchanges apply to automatic exchanges. 50 [GRAPHIC] How selling and servicing agents are paid Selling and servicing agents usually receive compensation based on your investment in the Funds. The kind and amount of the compensation depends on the share class in which you invest. Selling agents typically pay a portion of the compensation they receive to their investment professionals. Commissions Your selling agent may receive an up-front commission (reallowance) when you buy shares of a Fund. The amount of this commission depends on which share class you choose: o up to 5.00% of the offering price per share of Investor A Shares. The commission is paid from the sales charge we deduct when you buy your shares o up to 4.00% of the net asset value per share of Investor B Shares. The commission is not deducted from your purchase -- we pay your selling agent directly o up to 1.00% of the net asset value per share of Investor C Shares. The commission is not deducted from your purchase -- we pay your selling agent directly If you buy Investor B or Investor C Shares you will be subject to higher distribution (12b-1) and shareholder servicing fees and may be subject to a CDSC when you sell your shares. [GRAPHIC] The financial institution or intermediary that buys shares for you is also sometimes referred to as a selling agent. The distribution fee is often referred to as a "12b-1" fee because it's paid through a plan approved under Rule 12b-1 under the 1940 Act. Your selling agent may charge other fees for services provided to your account. Distribution (12b-1) and shareholder servicing fees Stephens and selling and servicing agents may be compensated for selling shares and providing services to investors under distribution and shareholder servicing plans. The amount of the fee depends on the class of shares you own:
Maximum annual distribution (12b-1) and shareholder servicing fees (as an annual % of average daily net assets) Investor A Shares 0.25% combined distribution (12b-1) and shareholder servicing fee Investor B Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee Investor C Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee
Fees are calculated daily and paid monthly. Because these fees are paid out of the Funds' assets on an ongoing basis, they will increase the cost of your investment over time, and may cost you more than any sales charges you may pay. The Funds pay these fees to Stephens and/or to eligible selling and servicing agents and financial institutions, including BA Advisors or its affiliates, for as long as the plans continue. We may reduce or discontinue payments at any time. 51 Other compensation Selling and servicing agents may also receive: o a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds o additional amounts on all sales of shares: o up to 1.00% of the offering price per share of Investor A Shares o up to 1.00% of the net asset value per share of Investor B Shares o up to 1.00% of the net asset value per share of Investor C Shares o non-cash compensation like trips to sales seminars, tickets to sporting events, theater or other entertainment, opportunities to participate in golf or other outings and gift certificates for meals or merchandise This compensation, which is not paid by the Funds, is discretionary and may be available only to selected selling and servicing agents. For example, Stephens sometimes sponsors promotions involving Banc of America Investment Services, Inc., an affiliate of BA Advisors, and certain other selling or servicing agents. Selected selling or servicing agents also may receive compensation for opening or servicing a minimum number of accounts. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. 52 [GRAPHIC] Distributions and taxes [GRAPHIC] The power of compounding Reinvesting your distributions buys you more shares of a Fund -- which lets you take advantage of the potential for compound growth. Putting the money you earn back into your investment means it, in turn, may earn even more money. Over time, the power of compounding has the potential to significantly increase the value of your investment. There is no assurance, however, that you'll earn more money if you reinvest your distributions. About distributions A mutual fund can make money two ways: o It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. o A fund can also have capital gain if the value of its investments increases. If a fund sells an investment at a gain, the gain is realized. If a fund continues to hold the investment, any gain is unrealized. A mutual fund is not subject to federal income tax as long as it distributes its net investment income and realized capital gain to its shareholders. The Funds intend to pay out a sufficient amount of their income and capital gain to their shareholders so the Funds won't have to pay any federal income tax. When a Fund makes this kind of a payment, it's split among all shares, and is called a distribution. All of the Funds distribute any net realized capital gain at least once a year. The frequency of distributions of net investment income varies by Fund: Frequency of Fund income distributions Nations Global Value Fund annually Nations International Value Fund annually Nations International Equity Fund quarterly Nations Marsico International Opportunities Fund quarterly Nations Emerging Markets Fund quarterly Any distribution you receive is based on the number of shares you hold on the record date, which is usually the day the distribution is declared (daily dividend Funds) or the day before the distribution is declared (all other Funds). Shares are eligible to receive net investment income distributions from the settlement date (daily dividend Funds), trade date (all other Funds) or realized capital gain from the trade date of the purchase up to and including the day before the shares are sold. Different share classes of a Fund usually pay different net investment income distribution amounts, because each class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. We'll automatically reinvest distributions in additional shares of the same Fund unless you tell us you want to receive your distributions in cash. You can do this by writing to us at the address on the back cover or by calling us at 1.800.321.7854. We generally pay cash distributions within five business days after the end of the month, quarter or year in which the distribution was made. If you sell all of your shares, we'll normally pay any distribution that applies to those shares in cash within five business days after the sale was made. 53 If you buy shares of a Fund shortly before it makes a distribution, you will, in effect, receive part of your purchase back in the distribution, which is subject to tax. Similarly, if you buy shares of a Fund that holds securities with unrealized capital gain, you will, in effect, receive part of your purchase back if and when the Fund sells those securities and distributes the gain. This distribution is also subject to tax. The Funds have built up, or have the potential to build up, high levels of unrealized capital gain. [GRAPHIC] This information is a summary of how federal income taxes may affect your investment in the Funds. It is not intended as a substitute for careful tax planning. You should consult with your own tax adviser about your situation, including any foreign, state and local taxes that may apply. [GRAPHIC] For more information about taxes, please see the SAI. How taxes affect your investment Distributions that come from net investment income, net short-term capital gain and certain other items generally are taxable to you as ordinary income. Corporate shareholders generally won't be able to deduct any distributions from the Funds when determining their taxable income. Distributions that come from net long-term capital gain generally are taxable to you as long-term capital gain. In general, all distributions are taxable to you when paid, whether they are paid in cash or automatically reinvested in additional shares of the Fund. However, any distributions declared to shareholders of record in October, November or December of one year and distributed in January of the following year will be taxable as if they had been paid to you on December 31 of the first year. We'll send you a notice every year that tells you how much you've received in distributions during the year and their federal tax status. Foreign, state and local taxes may also apply to these distributions. Foreign taxes Mutual funds that maintain most of their portfolio in foreign securities -- like the International/Global Stock Funds -- have special tax considerations. You'll generally be required to: o include in your gross income your proportional amount of foreign taxes paid by the fund o treat this amount as foreign taxes you paid directly o either deduct this amount when calculating your income, or subject to certain conditions and limitations, claim this amount as a foreign tax credit against your federal income tax liability In general, if you are an individual, each year you can claim up to $300 ($600 if you're filing jointly) of foreign taxes paid (or deemed paid) by you as a foreign tax credit against your federal income tax liability. 54 Withholding tax We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts to be paid for in securities or other property and exchanges) if: o you haven't given us a correct Taxpayer Identification Number (TIN) and haven't certified that the TIN is correct and withholding doesn't apply o the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records o the IRS informs us that you're otherwise subject to backup withholding The IRS may also impose penalties against you if you don't give us a correct TIN. Amounts we withhold are applied to your federal income tax liability. You may receive a refund from the IRS if the withholding tax results in an overpayment of taxes. We're also normally required by federal law to withhold tax on distributions (other than capital gain distribution) paid to foreign shareholders. Taxation of redemptions and exchanges Your redemptions (including redemptions paid in securities) and exchanges of Fund shares will usually result in a taxable capital gain or loss, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. 55 [GRAPHIC] Financial highlights The financial highlights table is designed to help you understand how the Funds have performed for the past five years or, if shorter, the period of the Fund's operations. Certain information reflects financial results for a single Fund share. The total investment return line indicates how much an investment in the Fund would have earned, assuming all dividends and distributions had been reinvested. Financial highlights for Investor A, Investor B and Investor C Shares of Nations Global Value Fund are not provided because these classes of shares had not yet commenced operations during the period indicated. This information, except as noted below, has been audited by PricewaterhouseCoopers LLP. The financial highlights of Nations International Value Fund for the period ended May 15, 1998 and for the year ended November 30, 1997 were audited by other independent accountants. The independent accountants' report and Nations Funds financial statements are incorporated by reference into the SAI. Please see the back cover to find out how you can get a copy. 56
Nations International Value Fund For a Share outstanding throughout each period Year ended Year ended Period ended Period ended Year ended Period ended Investor A Shares* 03/31/01 03/31/00# 03/31/99# 05/15/98 11/30/97 11/30/96** Operating performance: Net asset value, beginning of period $ 18.77 $ 14.43 $ 15.44 $ 13.13 $ 11.29 $ 10.00 Net investment income 0.27 0.36 0.14 0.08 0.01 0.04 Net realized and unrealized gain/(loss) on investments (0.39) 4.72 0.36 2.52 1.91 1.31 Net increase/(decrease) in net asset value from operations (0.12) 5.08 0.50 2.60 1.92 1.35 Distributions: Dividends from net investment income (0.19) (0.25) (0.17) -- (0.01) (0.04) Dividends in excess of net investment income -- -- -- -- (0.05) -- Distributions from net realized capital gains (1.20) (0.49) (1.34) (0.29) (0.02) (0.02) Total dividends and distributions (1.39) (0.74) (1.51) (0.29) (0.08) (0.06) Net asset value, end of period $ 17.26 $ 18.77 $ 14.43 $ 15.44 $ 13.13 $ 11.29 Total return++ (0.72)% 35.86% 1.75% 20.22% 17.11% 13.54% ================================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $353,646 $186,649 $5,960 $5,128 $4,259 $ 115 Ratio of operating expenses to average net assets 1.38% 1.49%(a) 1.55%+ 1.81%+ 1.73% 0.00%+ Ratio of net investment income to average net assets 1.64% 1.86% 1.11%+ 1.21%+ 0.26% 1.83%+ Portfolio turnover rate -- 12%(b) 44% 88% 29% 50% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.48% 1.59%(a) 1.64%+ 1.82%+ 1.93% 57.40%+
* The financial information for the fiscal periods through May 22, 1998 reflect the financial information for the Emerald International Equity Fund's Retail Shares, which were reorganized into the International Value Fund Investor A Shares as of May 22, 1998. ** International Value Fund Investor A Shares commenced operations on December 27, 1995. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure.
Nations International Value Fund For a Share outstanding throughout each period Year ended Year ended Period ended Investor B Shares 03/31/01 03/31/00# 03/31/99*# Operating performance: Net asset value, beginning of period $ 18.64 $ 14.40 $ 14.33 Net investment income 0.16 0.22 0.06 Net realized and unrealized gain/(loss) on investments (0.40) 4.66 0.76 Net increase/(decrease) in net asset value from operations (0.24) 4.88 0.82 Distributions: Dividends from net investment income (0.13) (0.15) (0.13) Distributions from net realized capital gains (1.20) (0.49) (0.62) Total dividends and distributions (1.33) (0.64) (0.75) Net asset value, end of period $ 17.07 $ 18.64 $ 14.40 Total return++ (1.42)% 34.51% 1.25% ================================================================================================ Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $80,655 $50,999 $4,296 Ratio of operating expenses to average net assets 2.13% 2.24%(a) 2.30%+ Ratio of net investment income to average net assets 0.89% 1.11% 0.36%+ Portfolio turnover rate -- 12%(b) 44% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.23% 2.34%(a) 2.39%+
* International Value Fund Investor B Shares commenced operations on May 22, 1998. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure. 57
Nations International Value Fund For a Share outstanding throughout each period Year ended Year ended Period ended Investor C Shares 03/31/01 03/31/00# 03/31/99*# Operating performance: Net asset value, beginning of period $ 18.65 $ 14.41 $ 13.33 Net investment income 0.16 0.21 0.06 Net realized and unrealized gain/(loss) on investments (0.41) 4.69 1.77 Net increase/(decrease) in net asset value from operations (0.25) 4.90 1.83 Distributions: Dividends from net investment income (0.13) (0.17) (0.13) Distributions from net realized capital gains (1.20) (0.49) (0.62) Total dividends and distributions (1.33) (0.66) (0.75) Net asset value, end of period $ 17.07 $ 18.65 $ 14.41 Total return++ (1.45)% 34.64% 3.98% ================================================================================================ Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $48,784 $13,725 $ 182 Ratio of operating expenses to average net assets 2.13% 2.24%(a) 2.30%+ Ratio of net investment income to average net assets 0.89% 1.11% 0.36%+ Portfolio turnover rate -- 12%(b) 44% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.23% 2.34%(a) 2.39%+
* International Value Fund Investor C Shares commenced operations on June 15, 1998. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure.
Nations International Equity Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor A Shares 03/31/01# 03/31/00# 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $ 16.51 $ 13.97 $ 14.67 $ 13.01 $ 13.39 Net investment income/(loss) 0.07 0.06 0.08 0.07 0.05 Net realized and unrealized gain/(loss) on investments (4.38) 4.86 0.40 1.94 0.11 Net increase/(decrease) in net asset value from operations (4.31) 4.92 0.48 2.01 0.16 Distributions: Dividends from net investment income (0.09) (0.05) (0.11) (0.15) (0.09) Distributions in excess of net investment income -- -- -- (0.04) (0.00)* Distributions from net realized capital gains (1.01) (2.33) (1.07) (0.16) (0.42) Distributions in excess of net realized capital gains (0.15) -- -- -- (0.03) Total dividends and distributions (1.25) (2.38) (1.18) (0.35) (0.54) Net asset value, end of year $ 10.95 $ 16.51 $ 13.97 $ 14.67 $ 13.01 Total return++ (27.54)% 39.54% 3.59% 15.77% 1.08% =================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $46,770 $43,111 $12,785 $13,477 $9,443 Ratio of operating expenses to average net assets 1.40% 1.39% 1.38% 1.39% 1.41% Ratio of net investment income/(loss) to average net assets 0.64% 0.44% 0.54% 0.51% 0.37% Portfolio turnover rate -- 129%## 146% 64% 36% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.41% 1.43% 1.38% 1.39% 1.41%
* Amount represents less than $0.01 per share. ++ 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 results prior to conversion to a master-feeder structure. 58
Nations International Equity Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor B Shares 03/31/01# 03/31/00# 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $ 16.06 $ 13.75 $ 14.56 $ 12.83 $ 13.27 Net investment income/(loss) 0.00 (0.05) (0.03) (0.03) (0.05) Net realized and unrealized gain/(loss) on investments (4.27) 4.72 0.38 1.92 0.10 Net increase/(decrease) in net asset value from operation (4.27) 4.67 0.35 1.89 0.05 Distributions: Dividends from net investment income (0.07) (0.03) (0.09) -- (0.04) Distributions in excess of net investment income -- -- -- -- (0.00)* Distributions from net realized capital gains (1.01) (2.33) (1.07) (0.16) (0.42) Distributions in excess of net realized capital gains (0.15) -- -- -- (0.03) Total dividends and distributions (1.23) (2.36) (1.16) (0.16) (0.49) Net asset value, end of year $ 10.56 $ 16.06 $ 13.75 $ 14.56 $ 12.83 Total return++ (28.11)% 38.14% 2.65% 14.93% 0.28% ==================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's): $20,747 $32,073 $28,266 $34,119 $36,698 Ratio of operating expenses to average net assets 2.15% 2.14% 2.13% 2.14% 2.16% Ratio of net investment income/(loss) to average net assets (0.11)% (0.31)% (0.21)% (0.24)% (0.38)% Portfolio turnover rate -- 129%## 146% 64% 36% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.16% 2.18% 2.13% 2.14% 2.16%
* Amount represents less than $0.01 per share. ++ 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 results prior to conversion to a master-feeder structure.
Nations International Equity Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor C Shares 03/31/01# 03/31/00# 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $ 15.72 $ 13.52 $ 14.34 $ 12.74 $ 13.13 Net investment income/(loss) (0.02) (0.03) (0.03) (0.01) 0.02 Net realized and unrealized gain/(loss) on investments (4.17) 4.60 0.37 1.89 0.10 Net increase/(decrease) in net asset value from operations (4.19) 4.57 0.34 1.88 0.12 Distributions: Dividends from net investment income (0.07) (0.04) (0.09) (0.10) (0.06) Distributions in excess of net investment income -- -- -- (0.02) (0.00)* Distributions from net realized capital gains (1.01) (2.33) (1.07) (0.16) (0.42) Distributions in excess of net realized capital gains (0.15) -- -- -- (0.03) Total dividends and distributions (1.23) (2.37) (1.16) (0.28) (0.51) Net asset value, end of year $ 10.30 $ 15.72 $ 13.52 $ 14.34 $ 12.74 Total return++ (28.22)% 38.12% 2.63% 15.05% 0.77% =================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 1,166 $ 987 $ 824 $ 933 $ 988 Ratio of operating expenses to average net assets 2.15% 2.14% 2.13% 1.97% 1.66% Ratio of net investment income/(loss) to average net assets (0.11)% (0.31)% (0.21)% (0.07)% 0.12% Portfolio turnover rate -- 129%## 146% 64% 36% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.16% 2.18% 2.13% 1.97% 1.66%
* Amount represents less than $0.01 per share. ++ 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 results prior to conversion to a master-feeder structure. 59 Nations Marsico International Opportunities Fund For a Share outstanding throughout the period
Period ended Investor A Shares 03/31/01#* Operating performance: Net asset value, beginning of period $ 10.00 Net investment income/(loss) (0.01) Net realized and unrealized gain/(loss) on investments (1.98) Net increase/(decrease) in net asset value from operations (1.99) Net asset value, end of period $ 8.01 Total return++ (19.90)% ================================================================== Ratios to average net assets supplemental data: Net assets at end of period (in 000's) $ 2,797 Ratio of operating expenses to average net assets 1.72%+ Ratio of net investment income/(loss) to average net assets (0.13)%+ Portfolio turnover rate 442% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 6.53%+
* Marsico International Opportunities Fund Investor A Shares commenced operations on August 1, 2000. + Annualized. ++Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income/(loss) has been calculated using the monthly average shares method. Nations Marsico International Opportunities Fund For a Share outstanding throughout the period Period ended Investor B Shares 03/31/01#* Operating performance: Net asset value, beginning of period $ 10.00 Net investment income/(loss) (0.08) Net realized and unrealized gain/(loss) on investments (1.95) Net increase/(decrease) in net asset value from operations (2.03) Net asset value, end of period $ 7.97 Total return++ (20.30)% ================================================================== Ratios to average net assets supplemental data: Net assets at end of period (in 000's) $ 2,031 Ratio of operating expenses to average net assets 2.47%+ Ratio of net investment income/(loss) to average net assets (0.88)%+ Portfolio turnover rate 442% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 7.28%+ * Marsico International Opportunities Fund Investor B Shares commenced operations on August 1, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income/(loss) has been calculated using the monthly average shares method. 60 Nations Marsico International Opportunities Fund For a Share outstanding throughout the period Period ended Investor C Shares 03/31/01#* Operating performance: Net asset value, beginning of period $ 10.00 Net investment income/(loss) (0.09) Net realized and unrealized gain/(loss) on investments (1.94) Net increase/(decrease) in net asset value from operations (2.03) Net asset value, end of period $ 7.97 Total return++ (20.30)% ================================================================== Ratios to average net assets supplemental data: Net assets at end of period (in 000's) $ 974 Ratio of operating expenses to average net assets 2.47%+ Ratio of net investment income/(loss) to average net assets (0.88)%+ Portfolio turnover rate 442% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 7.28%+ * Marsico International Opportunities Fund Investor C Shares commenced operations on August 1, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income/(loss) has been calculated using the monthly average shares method.
Nations Emerging Markets Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor A Shares 03/31/01# 03/31/00# 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $ 15.65 $ 8.09 $ 10.57 $ 11.39 $ 10.32 Net investment income/(loss) (0.04) (0.09) 0.10 0.01 (0.01) Net realized and unrealized gain/(loss) on investments (6.75) 7.65 (2.52) (0.75) 1.21 Net increase/(decrease) in net asset value from operations (6.79) 7.56 (2.42) (0.74) 1.20 Distributions: Dividends from net investment income (0.02) -- (0.06) (0.08) (0.02) Distributions in excess of net investment income (0.00)## -- -- -- (0.05) Distributions from net realized capital gains -- -- -- -- (0.06) Total dividends and distributions (0.02) -- (0.06) (0.08) (0.13) Net asset value, end of year $ 8.84 $ 15.65 $ 8.09 $ 10.57 $ 11.39 Total return++ (43.38)% 93.33% (22.90)% (6.60)% 11.74% ====================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 3,851 $3,087 $ 951 $ 652 $ 894 Ratio of operating expenses to average net assets 2.05% 2.15% 2.03%(a) 1.82% 1.99% Ratio of operating expenses to average net assets including interest expense 2.09% 2.16% (b) -- -- Ratio of net investment income/(loss) to average net assets (0.65)% (0.65)% 1.41% 0.11% (0.12)% Portfolio turnover rate 97% 61% 71% 63% 31% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.11% 2.79% 2.23%(a) 1.82% 1.99%
++ 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 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%. 61
Nations Emerging Markets Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor B Shares 03/31/01# 03/31/00# 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $ 15.32 $ 7.99 $ 10.49 $ 11.31 $ 10.26 Net investment income/(loss) (0.17) (0.16) 0.05 (0.07) (0.09) Net realized and unrealized gain/(loss) on investments (6.53) 7.49 (2.50) (0.75) 1.20 Net increase/(decrease) in net asset value from operations (6.70) 7.33 (2.45) (0.82) 1.11 Distributions: Dividends from net investment income -- -- (0.05) -- -- Distributions from net realized capital gains -- -- -- -- (0.06) Total dividends and distributions -- -- (0.05) -- (0.06) Net asset value, end of year $ 8.62 $ 15.32 $ 7.99 $ 10.49 $ 11.31 Total return++ (43.73)% 91.74% (23.42)% (7.25)% 10.88% ===================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 1,728 $3,468 $ 1,579 $1,247 $1,499 Ratio of operating expenses to average net assets 2.80% 2.90% 2.78%(a) 2.57% 2.74% Ratio of operating expenses to average net assets including interest expense 2.84% 2.91% (b) -- -- Ratio of net investment income/(loss) to average net assets (1.40)% (1.40)% 0.66% (0.64)% (0.87)% Portfolio turnover rate 97% 61% 71% 63% 31% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.86% 3.54% 2.98%(a) 2.57% 2.74%
++ 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 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%.
Nations Emerging Markets Fund For a Share outstanding throughout each year Year ended Year ended Year ended Year ended Year ended Investor C Shares 03/31/01# 03/31/00# 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $ 15.31 $ 7.98 $ 10.47 $ 11.34 $ 10.27 Net investment income/(loss) (0.16) (0.14) 0.05 (0.05) (0.04) Net realized and unrealized gain/(loss) on investments (6.54) 7.47 (2.49) (0.75) 1.20 Net increase/(decrease) in net asset value from operations (6.70) 7.33 (2.44) (0.80) 1.16 Distributions: Dividends from net investment income -- -- (0.05) (0.07) (0.01) Distributions in excess of net investment income -- -- -- -- (0.02) Distributions from net realized capital gains -- -- -- -- (0.06) Total dividends and distributions -- -- (0.05) (0.07) (0.09) Net asset value, end of year $ 8.61 $ 15.31 $ 7.98 $ 10.47 $ 11.34 Total return++ (43.73)% 91.73% (23.37)% (7.17)% 11.34% ==================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 65 $ 120 $ 86 $ 293 $ 226 Ratio of operating expenses to average net assets 2.80% 2.90% 2.78%(a) 2.40% 2.24% Ratio of operating expenses to average net assets including interest expense 2.84% 2.91% (b) -- -- Ratio of net investment income/(loss) to average net assets (1.40)% (1.40)% 0.66% (0.47)% (0.37)% Portfolio turnover rate 97% 61% 71% 63% 31% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.86% 3.54% 2.98%(a) 2.40% 2.24%
++ 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 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%. 62 [GRAPHIC] This glossary includes explanations of the important terms that may be used in this prospectus. Some of the terms explained may apply to Nations Funds not included in this prospectus. [GRAPHIC] Terms used in this prospectus Amortized cost method - under Rule 2a-7 of the 1940 Act, the method of calculating an investment company's net asset value whereby portfolio securities are valued at the Fund's acquisition cost as adjusted for amortization of premium or accretion of discount rather than at their current market value. Asset-backed security - a debt security that gives an investor an interest in a pool of assets that is collateralized or "backed" by one or more kinds of assets, including automobile loans or credit card receivables, generally issued by banks, credit card companies or other lenders. Asset-backed securities typically make periodic payments, which may be interest or a combination of interest and a portion of the principal of the underlying assets. Average dollar-weighted maturity - the average length of time until the debt securities held by a Fund reach maturity. In general, the longer the average dollar-weighted maturity, the more a Fund's share price will fluctuate in response to changes in interest rates. Bank obligation - a money market instrument issued by a domestic or U.S. branch of a foreign bank, including certificates of deposit, time deposits and bankers' acceptances. Capital gain or loss - the difference between the purchase price of a security and its selling price. An investor realizes a capital gain when it sells a security for more than it paid for it. An investor realizes a capital loss when it sells a security for less than it paid for it. Cash equivalents - short-term, interest-bearing instruments which can easily be converted into cash, including U.S. government obligations, bank obligations, and certain asset-backed securities, foreign government securities and commercial paper issued by U.S. and foreign issuers which, at the time of investment, is rated at least Prime-2 by Moody's Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch). Collateralized mortgage obligation (CMO) - a type of mortgage-backed security. CMO payment obligations are covered by interest and/or principal payments from a pool of mortgages. In addition, the underlying assets of a CMO are typically separated into classes, called tranches, based on maturity. Each tranche pays a different rate of interest. CMOs are not generally issued by the U.S. government, its agencies or instrumentalities. Commercial paper - a short-term corporate obligation. Commercial paper is typically considered a money market instrument. Common stock - a security that represents part equity ownership in a company. Common stock typically allows an investor to vote at shareholder meetings and to share in the company's profits by receiving dividends. 63 Convertible debt - a debt security that can be exchanged for common stock (or another type of security) on a specified basis and date. Convertible security - a security that can be exchanged for common stock (or another type of security) at a specified rate. Convertible securities include convertible debt, rights and warrants. Crossing networks - an electronic system where anonymous parties can match buy and sell transactions. These transactions don't affect the market, and transaction costs are extremely low. CSFB Convertible Securities Index - 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. Debt security - a security issued by a governmental body or company (the issuer) to help fund their operations or major projects. The issuer pays interest at a specified rate on a specified date or dates, and repays the principal when the security matures. Short-term debt securities include money market instruments such as treasury bills. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Depositary receipts - evidence of the deposit of a security with a custodian bank. American Depositary Receipts (ADRs), for example, are certificates traded in U.S. markets representing an interest of a foreign company. They were created to make it possible for foreign issuers to meet U.S. security registration requirements. Other examples include ADSs, GDRs and EDRs. Derivatives - A derivative is a financial contract whose value is based upon, or "derived" from, an underlying financial asset (such as a stock or a bond), a commodity (such as gold), a market index (such as the S&P 500) or a reference rate (such as the prime lending interest rate). Examples of derivative instruments include futures, options, index-, equity-, commodity- and currency-linked securities, warrants and swap contracts. For a detailed description of the derivatives described here, see the SAI. Diversified - A diversified fund, as defined by the 1940 Act, must have at least 75% of its total assets in cash and cash equivalents, government securities, securities of other investment companies, or other securities. For purposes of this calculation, the fund may not count securities of a single issuer that comprise more than 5% of the fund's assets. Dividend yield - rate of return of dividends paid on a common or preferred stock. It equals the amount of the annual dividend on a stock expressed as a percentage of the stock's current market value. Duration - a security's or portfolio's sensitivity to changes in interest rates. For example, if interest rates rise by one percentage point, the share price of a fund with a duration of five years would decline by about 5%. If interest rates fall by one percentage point, the fund's share price would rise by about 5%. 64 Equity security - an investment that gives an investor an equity ownership right in a company. Equity securities (or "equities") include common and preferred stock, rights and warrants. First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds and has the highest short-term rating from a nationally recognized statistical rating organization (NRSRO), or if unrated, is determined by the Fund's portfolio management team to be of comparable quality, or is a money market fund or a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Foreign security - a debt or equity security determined by a Fund's portfolio management team to be foreign based on an issuer's domicile, its principle place of business, the source of its revenues or other factors. Forward foreign currency contracts - a forward foreign currency contract includes an obligation to purchase or sell a foreign currency at a specified future date. Forward purchase agreement - a contract obligating one party to buy and another party to sell an equity security, commodity, currency or other financial instrument at a specific future date. Fundamental analysis - a method of securities analysis that tries to evaluate the intrinsic, or "true," value of a particular stock. It includes a study of the overall economy, industry conditions and the financial condition and management of a company. Futures contract - a contract to buy or sell underlying instruments at a specified price on a specified future date. The price is typically set through a futures exchange. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to NRSROs such as S&P and Moody's. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by a Fund's Board. Please see the SAI for more information about credit ratings. High yield debt security - debt securities that, at the time of purchase, are rated "BB" or below by S&P or "Ba" or below by Moody's, or that are unrated and determined by the portfolio management team to be of comparable quality. Interest rate swap - an agreement between two parties to exchange periodic interest payments based on a predetermined principal amount. Investment grade - a debt security that has been given a medium to high credit rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating by other NRSROs) based on the issuer's ability to pay interest and repay principal on time. The portfolio management team may consider an unrated debt security to be investment grade if the team believes it is of comparable quality. Please see the SAI for more information about credit ratings. 65 Lehman Aggregate Bond Index - an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government/Corporate Bond Index - an unmanaged index of U.S. government, U.S. Treasury and agency securities, and corporate and Yankee bonds. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Liquidity - a measurement of how easily a security can be bought or sold at a price that is close to its market value. Money market instrument - a short-term debt security that is considered to mature in 13 months or less. Money market instruments include U.S. Treasury obligations, U.S. government obligations, certificates of deposit, bankers' acceptances, commercial paper, repurchase agreements and certain municipal securities. Mortgage-backed security or Mortgage-related security - a debt security that gives you an interest in, and is backed by, a pool of residential mortgages issued by the U.S. government or by financial institutions. The underlying mortgages may be guaranteed by the U.S. government or one of its agencies, authorities or instrumentalities. Mortgage-backed securities typically make monthly payments, which are a combination of interest and a portion of the principal of the underlying mortgages. MSCI EAFE Index - Morgan Stanley Capital International Europe, Australasia and Far East Index is an unmanaged, capitalization-weighted index. The index reflects the relative size of each market consisting of securities listed on exchanges in European, Australasian and Far Eastern markets and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investment. It is not available for investment. MSCI World Index - Morgan Stanley Capital International World Index is an unmanaged index consisting of securities listed on exchanges in the major European and Asian countries, Australia and the U.S. and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investing. It is not available for investment. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public or private projects and services. "General obligations" are typically backed by the issuer's full taxing and revenue-raising powers. "Revenue securities" depend on the income earned by a specific project or authority, like road or bridge tolls, user fees for water or revenues from a utility. Interest income from municipal securities that pay for "public" projects and services is exempt from federal income taxes and is generally exempt from state taxes if an investor lives in the state that issued the security. If an investor lives in the municipality that issued the security, interest income may also be exempt from local taxes. 66 Non-diversified - a fund that holds securities of fewer issuers than other kinds of funds. Non-diversified funds tend to have greater price swings than more diversified funds because events affecting one or more of its securities may have a disproportionately large effect on the fund. NRSRO - A nationally recognized statistical rating organization, such as S&P or Moody's. Options - An option is the right to buy or sell a security based on an agreed upon price at a specified time. For example, an option may give the holder of a stock the right to sell the stock to another party, allowing the seller to profit if the price has fallen below the agreed price. Options may also be based on the movement of an index such as the S&P 500. Over-the-counter market - a market where dealers trade securities through a telephone or computer network rather than through a public stock exchange. Preferred stock - a type of equity security that gives you a limited ownership right in a company, with certain preferences or priority over common stock. Preferred stock generally pays a fixed annual dividend. If the company goes bankrupt, preferred shareholders generally receive their share of the company's remaining assets before common shareholders and after bondholders and other creditors. Ownership of preferred stock typically does not come with certain voting rights that come with common stock. Pre-refunded bond - a bond that is repaid before its maturity date. The repayment is generally financed by a new issue. Issuers generally pre-refund bonds during periods of lower interest rates to reduce their interest costs. Price-to-earnings ratio (P/E ratio) - the current price of a share divided by its actual or estimated earnings per share. The P/E ratio is one measure of the value of a company. Private placement - a private placement is the sale of stocks, bonds or other investments directly to a qualified investor without having to register the offering with the SEC or other comparable foreign regulatory authorities. Qualified investors are typically large institutional investors or high net worth individuals. Securities acquired through private placements generally may not be resold. Quantitative analysis - an analysis of financial information about a company or security to identify securities that have the potential for growth or are otherwise suitable for a fund to buy. Real Estate Investment Trust (REIT) - a portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls, and real-estate-related loans or interests. Repurchase agreement - a short-term (often overnight) investment arrangement. The investor agrees to buy certain securities from the borrower and the borrower promises to buy them back at a specified date and price. The difference between the purchase price paid by the investor and the repurchase price paid by the borrower represents the investor's return. Repurchase agreements are popular because they provide low-risk returns and can allow a fund to remain fully invested. 67 Reverse repurchase agreement - a repurchase agreement in which an investor sells a security to another party, like a bank or dealer, in return for cash, and agrees to buy the security back at a specified date and price. Reverse repurchase agreements are, in effect, loans to a fund. Right - a temporary privilege allowing investors who already own a common stock to buy additional shares directly from the company at a specified price or formula. Russell 1000 Index - 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. The Russell 3000 Index is a listing of 3000 corporations by the Frank Russell Company that is intended to be representative of the U.S. economy. The Russell 1000 is considered a "large cap" index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 2000 Index - 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. 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. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 3000 Growth Index - an unmanaged index comprised of securities in the Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies based on total market capitalization, with a greater than average growth orientation. Companies in the Russell 3000 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. S&P 500(1) - Standard & Poor's 500 Composite Stock Price Index, an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 68 S&P/BARRA Value Index(1) - an unmanaged index of a subset of stocks from the S&P 500 that have low price-to-book ratios relative to the S&P 500 as a whole. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P/IFC Investables Index - an unmanaged index that tracks more than 1,400 stocks in 25 emerging markets in Asia, Latin America, Eastern Europe, Africa and the Middle East. The index is weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P MidCap 400(1) - an unmanaged index of 400 domestic stocks chosen for market size, liquidity and industry representation. The index is weighted by market value, and is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SmallCap 600(1) - Standard & Poor's SmallCap 600 Index, an unmanaged index of 600 common stocks, weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SuperComposite 1500(1) - an unmanaged index created by Standard & Poors combining the companies represented in three other indices -- the S&P 500, MidCap 400, and SmallCap 600. The index represents 87% of the total capitalization of U.S. equity markets. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds, but is not a first-tier security. Senior security - a debt security that allows holders to receive their share of a company's remaining assets in a bankruptcy before other bondholders, creditors, and common and preferred shareholders. Settlement date - the date on which an order is settled either by payment or delivery of securities. Total return swap - an agreement between two parties to exchange periodic interest payments for the total return of an equity or fixed income instrument. Trade date - the effective date of a purchase, sale or exchange transaction, or other instructions sent to us. The trade date is determined by the day and time we receive the order or instructions in a form that's acceptable to us. U.S. government obligations - a wide range of debt securities issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities. U.S. Treasury obligation - a debt security issued by the U.S. Treasury. Warrant - a certificate that gives you the right to buy common shares at a specified price within a specified period of time. 69 Zero-coupon bond - a bond that makes no periodic interest payments. Zero coupon bonds are sold at a deep discount to their face value and mature at face value. The difference between the face value at maturity and the purchase price represents the return. (1)S&P and BARRA have not reviewed any stock included in the S&P SuperComposite 1500, S&P 500, S&P SmallCap 600, S&P MidCap 400 Index or BARRA Value Index for its investment merit. S&P and BARRA determine and calculate their indices independently of the Funds and are not a sponsor or affiliate of the Funds. S&P and BARRA give no information and make no statements about the suitability of investing in the Funds or the ability of their indices to track stock market performance. S&P and BARRA make no guarantees about the indices, any data included in them and the suitability of the indices or their data for any purpose. "Standard and Poor's," "S&P 500" and "S&P 600" are trademarks of The McGraw-Hill Companies, Inc. 70 (THIS PAGE INTENTIONALLY LEFT BLANK) [GRAPHIC] Where to find more information You'll find more information about Nations Funds International/Global Stock Funds in the following documents: Annual and semi-annual reports The annual and semi-annual reports contain information about Fund investments and performance, the financial statements and the independent accountants' reports. The annual report also includes a discussion about the market conditions and investment strategies that had a significant effect on each Fund's performance during the period covered. [GRAPHIC] Statement of Additional Information The SAI contains additional information about the Funds and their policies. The SAI is legally part of this prospectus (it's incorporated by reference). A copy has been filed with the SEC. You can obtain a free copy of these documents, request other information about the Funds and make shareholder inquiries by contacting Nations Funds: By telephone: 1.800.321.7854 By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nations-funds.com Information about the Funds can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. The reports and other information about the Funds are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. SEC file numbers: Nations Reserves, 811-6030 Nations Funds Trust, 811-09645 INTERPROIX-8/01 [NATIONS FUNDS LOGO] [GRAPHIC] Stock Funds Prospectus -- Investor A, B and C Shares August 1, 2001 Nations Convertible Securities Fund Nations Asset Allocation Fund Nations Equity Income Fund Nations Classic Value Fund Nations Value Fund Nations Blue Chip Fund Nations Strategic Growth Fund Nations Marsico Growth & Income Fund Nations Capital Growth Fund Nations Aggressive Growth Fund Nations Marsico Focused Equities Fund Nations MidCap Growth Fund Nations Marsico 21st Century Fund Nations Small Company Fund Nations Financial Services Fund The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. - ------------------------ Not FDIC Insured - ------------------------ May Lose Value - ------------------------ No Bank Guarantee - ------------------------ [NATIONS FUNDS] An overview of the Funds - -------------------------------------------------------------------------------- [GRAPHIC] Terms used in this prospectus In this prospectus, we, us and our refer to the Nations Funds family (Nations Funds or Nations Funds Family). Some other important terms we've used may be new to you. These are printed in italics where they first appear in a section and are described in Terms used in this prospectus. [GRAPHIC] You'll find Terms used in this prospectus on page 135. Your investment in these Funds is not a bank deposit and is not insured or guaranteed by Bank of America, N.A. (Bank of America), the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Your investment may lose money. Affiliates of Bank of America are paid for the services they provide to the Funds. This booklet, which is called a prospectus, tells you about Nations Funds Stock Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. About the Funds Stock Funds invest primarily in equity securities of U.S. companies. Within the Stock Funds category is Nations Asset Allocation Fund. This Fund invests in a mix of equity and fixed income securities, as well as money market instruments. The Funds also have different risk/return characteristics because they invest in different kinds of securities. Equity securities have the potential to provide you with higher returns than many other kinds of investments, but they also tend to have the highest risk. Fixed income securities have the potential to increase in value because when interest rates fall, the value of these securities tends to rise. When interest rates rise, however, the value of these securities tends to fall. Other things can also affect the value of fixed income securities. Money market instruments include short-term debt securities that are government issued or guaranteed or have relatively low risk. Over time, the return on these investments may be lower than the return on other kinds of investments. In every case, there's a risk that you'll lose money or you may not earn as much as you expect. Choosing the right Funds for you Not every Fund is right for every investor. When you're choosing a Fund to invest in, you should consider things like your investment goals, how much risk you can accept and how long you're planning to hold your investment. 2 The Stock Funds focus on long-term growth. They may be suitable for you if: o you have longer-term investment goals o they're part of a balanced portfolio o you want to try to protect your portfolio against a loss of buying power that inflation can cause over time They may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with equity securities o you have short-term investment goals o you're looking for a regular stream of income Nations Asset Allocation Fund invests in a mix of equity and fixed income securities, as well as money market instruments. It may be suitable for you if: o you're looking for both long-term growth and income o you want a diversified portfolio in a single mutual fund It may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with equity and fixed income securities o you have short-term investment goals o you're looking for a regular stream of income You'll find a discussion of each Fund's principal investments, strategies and risks in the Fund descriptions that start on page 6. For more information If you have any questions about the Funds, please call us at 1.800.321.7854 or contact your investment professional. You'll find more information about the Funds in the Statement of Additional Information (SAI). The SAI includes more detailed information about each Fund's investments, policies, performance and management, among other things. Please turn to the back cover to find out how you can get a copy. 3 What's inside - -------------------------------------------------------------------------------- [GRAPHIC] Banc of America Advisors, LLC Banc of America Advisors, LLC (BA Advisors) is the investment adviser to each of the Funds. BA Advisors is responsible for the overall management and supervision of the investment management of each Fund. BA Advisors and Nations Funds have engaged sub-advisers, which are responsible for the day-to-day investment decisions for each of the Funds. [GRAPHIC] You'll find more about BA Advisors and the sub-advisers starting on page 82. [GRAPHIC] About the Funds Nations Convertible Securities Fund 6 Sub-adviser: Banc of America Capital Management, LLC - ---------------------------------------------------------- Nations Asset Allocation Fund 11 Sub-advisers: Banc of America Capital Management, LLC and Chicago Equity Partners, LLC - ---------------------------------------------------------- Nations Equity Income Fund 17 Sub-adviser: Banc of America Capital Management, LLC - ---------------------------------------------------------- Nations Classic Value Fund 22 Sub-adviser: Brandes Investment Partners, L.P. - ---------------------------------------------------------- Nations Value Fund 26 Sub-adviser: Banc of America Capital Management, LLC - ---------------------------------------------------------- Nations Blue Chip Fund 31 Sub-adviser: Chicago Equity Partners, LLC - ---------------------------------------------------------- Nations Strategic Growth Fund 36 Sub-adviser: Banc of America Capital Management, LLC - ---------------------------------------------------------- Nations Marsico Growth & Income Fund 40 Sub-adviser: Marsico Capital Management, LLC - ---------------------------------------------------------- Nations Capital Growth Fund 45 Sub-adviser: Banc of America Capital Management, LLC - ---------------------------------------------------------- Nations Aggressive Growth Fund 50 Sub-adviser: Banc of America Capital Management, LLC - ---------------------------------------------------------- Nations Marsico Focused Equities Fund 56 Sub-adviser: Marsico Capital Management, LLC - ---------------------------------------------------------- Nations MidCap Growth Fund 61 Sub-adviser: Banc of America Capital Management, LLC - ---------------------------------------------------------- Nations Marsico 21st Century Fund 66 Sub-adviser: Marsico Capital Management, LLC - ---------------------------------------------------------- Nations Small Company Fund 70 Sub-adviser: Banc of America Capital Management, LLC - ---------------------------------------------------------- Nations Financial Services Fund 76 Sub-adviser: Banc of America Capital Management, LLC - ---------------------------------------------------------- Other important information 80 - ---------------------------------------------------------- -- How the Funds are managed 82 4 [GRAPHIC] About your investment Information for investors Choosing a share class 90 About Investor A Shares 91 Front-end sales charge 91 Contingent deferred sales charge 92 About Investor B Shares 92 Contingent deferred sales charge 92 About Investor C Shares 94 Contingent deferred sales charge 94 When you might not have to pay a sales charge 94 Buying, selling and exchanging shares 98 How orders are processed 100 How selling and servicing agents are paid 106 Distributions and taxes 108 - ---------------------------------------------------------------- Financial highlights 111 - ---------------------------------------------------------------- Terms used in this prospectus 135 - ---------------------------------------------------------------- Where to find more information back cover 5 [GRAPHIC] About the sub-adviser Banc of America Capital Management, LLC (BACAP) is this Fund's sub-adviser. BACAP's Income Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 84. [GRAPHIC] What are convertible securities? Convertible securities, which include convertible bonds and convertible preferred stocks, can be exchanged for common stock at a specified rate. The common stock it converts to is called the "underlying" common stock. Convertible securities typically: o have higher income potential than the underlying common stock o are affected less by changes in the stock market than the underlying common stock o have the potential to increase in value if the value of the underlying common stock increases Nations Convertible Securities Fund [GRAPHIC] 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. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in convertible securities mostly issued by U.S. issuers. The Fund may invest up to 15% of its assets in Eurodollar convertible securities. Most convertible securities are not investment grade. The team generally chooses convertible securities that are rated at least "B" by a nationally recognized statistical rating organization (NRSRO). The team may choose unrated securities if it believes they are of comparable quality at the time of investment. The Fund may invest directly in equity securities. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team looks for opportunities to participate in the growth potential of the underlying common stocks, while earning income that is generally higher than the income these stocks earn. When identifying individual investments, the team evaluates a number of factors, including: o the issuer's financial strength and revenue outlook o earnings trends, including changes in earnings estimates o the security's conversion feature and other characteristics The team tries to limit conversion costs and generally sells securities when they take on the trading characteristics of the underlying common stock. The team also may convert securities to common shares when it believes it's appropriate to do so. 6 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Convertible Securities Fund has the following risks: o Investment strategy risk - The team chooses convertible securities that it believes have the potential for long-term growth. There is a risk that the value of these investments will not rise as high as the team expects, or will fall. The issuer of a convertible security may have the option to redeem it at a specified price. If a convertible security is redeemed, the Fund may accept the redemption, convert the convertible security to common stock, or sell the convertible security to a third party. Any of these transactions could affect the Fund's ability to meet its objective. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Interest rate risk - The prices of the Fund's fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Fixed income securities with the lowest investment grade rating or that aren't investment grade are more speculative in nature than securities with higher ratings, and they tend to be more sensitive to credit risk, particularly during a downturn in the economy. 7 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE]
38.24% 21.34% 22.71% -5.85% 24.11% 19.45% 21.96% 6.58% 26.76% 14.86% - --------------------------------------------------------------------------------------- 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
*Year-to-date return as of June 30, 2001: -5.31% Best and worst quarterly returns during this period Best: 1st quarter 1991: 17.59% Worst: 3rd quarter 1998: -9.41% [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the CSFB Convertible Securities Index, a widely-used unmanaged index that measures the performance of convertible securities. The index is not available for investment. Since 1 year 5 years 10 years inception* Investor A Shares 8.23% 16.33% 17.75% 15.71% Investor B Shares 9.62% -- -- 14.48% Investor C Shares 13.22% -- -- 16.58% CSFB Convertible Securities Index -7.83% 13.21% 14.72% 10.73%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are September 25, 1987, July 15, 1998 and October 21, 1996, respectively. The return for the index shown is from inception of Investor A Shares. 8 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.65% 0.65% 0.65% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.35% 0.35% 0.35% ----- -------- -------- Total annual Fund operating expenses 1.25% 2.00% 2.00% ===== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 9 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $695 $949 $1,223 $2,002 Investor B Shares $703 $927 $1,278 $2,134 Investor C Shares $303 $627 $1,078 $2,327 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $203 $627 $1,078 $2,134 Investor C Shares $203 $627 $1,078 $2,327 10 [GRAPHIC] About the sub-advisers This Fund is managed by two sub-advisers: BACAP and Chicago Equity Partners, LLC (Chicago Equity). Chicago Equity's Equity Management Team makes the day-to-day investment decisions for the equity portion of the Fund. BACAP's Fixed Income Management Team makes the day-to-day investment decisions for the fixed income and money market portions of the Fund. [GRAPHIC] You'll find more about BACAP and Chicago Equity, starting on page 84. Nations Asset Allocation Fund [GRAPHIC] Investment objective The Fund seeks to obtain long-term growth from capital appreciation, and dividend and interest income. [GRAPHIC] Principal investment strategies The Fund invests in a mix of equity and fixed income securities, as well as cash equivalents, including U.S. government obligations, commercial paper and other short-term, interest-bearing instruments. The equity securities the Fund invests in are primarily common stock of blue chip companies. These companies are well established, nationally known companies that have a long record of profitability and a reputation for quality management, products and services. The fixed income securities the Fund invests in are primarily investment grade bonds and notes; however, the Fund may invest up to 10% of its total assets in high yield debt securities. The Fund normally invests at least 25% of its assets in senior securities. The Fund may also invest up to 35% of its assets in mortgage-backed and asset-backed securities. In the fixed income portion of its portfolio, the Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options, and other derivative instruments to seek to enhance returns, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in an underlying asset. [GRAPHIC] What is an asset allocation fund? This asset allocation fund invests in a mix of equity and fixed income securities, and cash equivalents. Each of these "asset classes" has different risk/return characteristics. The portfolio management team changes the mix based on its assessment of the expected risks and returns of each class. Asset allocation funds like this one can provide a diversified asset mix for you in a single investment. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team uses asset allocation as its principal investment approach. The team actively allocates assets among the three asset classes based on its assessment of the expected risks and returns of each class. For the equity portion of the Fund, the team uses quantitative analysis to analyze fundamental information about securities and identify value. Starting with a universe of approximately 2000 common stocks, the team uses a multi-factor computer model to rank securities, based on the following criteria, among others: o changes in actual and expected earnings o unexpected changes in earnings o price-to-earnings ratio o dividend discount model o price-to-cash flow The team tries to manage risk by matching the market capitalization, style and industry weighting characteristics of the S&P SuperComposite 1500. The team focuses on selecting individual stocks to try to provide higher returns than the S&P 500 while maintaining a level of risk similar to the index. The team may sell a security when the Fund's asset allocation changes, there is a deterioration in the issuer's financial situation, when the team believes other investments are more attractive, and for other reasons. 11 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Asset Allocation Fund has the following risks: o Investment strategy risk - The team uses an asset allocation strategy to try to achieve the highest total return. There is a risk that the mix of investments will not produce the returns the team expects, or will fall in value. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Interest rate risk - The prices of the Fund's fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Mortgage-related risk - The value of the Fund's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Fund may have to reinvest this money in mortgage-backed or other securities that have lower yields. 12 o Asset-backed securities risk - Payment of interest and repayment of principal may be impacted by the cash flows generated by the assets backing these securities. The value of the Fund's asset-backed securities may also be affected by changes in interest rates, the availability of information concerning the interests in and structure of the pools of purchase contracts, financing leases or sales agreements that are represented by these securities, the creditworthiness of the servicing agent for the pool, the originator of the loans or receivables, or the entities that provide any supporting letters of credit, surety bonds, or other credit enhancements. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 13 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. The information about the performance for the period prior to June 8, 2001, reflects performance information for a predecessor fund which was reorganized into the Fund on June 8, 2001. The predecessor fund had an identical investment objective and principal investment strategies. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 26.90% 15.66% 21.38% 21.09% 11.11% -0.75% - ---------------------------------------------------- 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -3.93% Best and worst quarterly returns during this period Best: 4th quarter 1998: 12.77% Worst: 3rd quarter 1998: -4.34% [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the indices do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500 and the Lehman Aggregate Bond Index. The S&P 500 is an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The Lehman Aggregate Bond Index is an index made up of the Lehman Government/Corporate Bond Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. The indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. The indices are not available for investment. Since 1 year 5 years inception* Investor A Shares -6.47% 12.05% 12.10% Investor B Shares -6.09% -- 4.40% Investor C Shares -2.39% -- 11.97% S&P 500 -9.10% 18.33% 17.91% Lehman Aggregate Bond Index 11.63% 6.46% 6.56%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are January 18, 1994, July 15, 1998 and November 11, 1996, respectively. The returns for the indices shown are from inception of Investor A Shares. 14 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.65% 0.65% 0.65% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.35% 0.35% 0.35% ----- -------- -------- Total annual Fund operating expenses 1.25% 2.00% 2.00% ===== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a shares class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 15 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $695 $949 $1,223 $2,002 Investor B Shares $703 $927 $1,278 $2,134 Investor C Shares $303 $627 $1,078 $2,327 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $203 $627 $1,078 $2,134 Investor C Shares $203 $627 $1,078 $2,327 16 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Income Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 84. [GRAPHIC] Why invest in an equity income fund? Equity income funds are generally considered to be a more conservative equity investment because they invest in large, well-established companies that pay regular dividends. These companies tend to be less volatile than other kinds of companies. Nations Equity Income Fund [GRAPHIC] Investment objective The Fund seeks current income and growth of capital by investing in companies with above-average dividend yields. [GRAPHIC] Principal investment strategies The Fund normally invests in 60 to 85 companies with an average market capitalization of at least $3 billion. The Fund seeks to provide a higher yield than the S&P 500. The Fund generally invests at least 65% of its assets in common stocks that pay dividends and that are listed on a national exchange or are traded on an established over-the-counter market. The Fund may invest up to 20% of its assets in convertible securities, including registered investment companies that invest in convertible securities. The Fund may also invest up to 5% of its assets in real estate investment trusts. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team evaluates the overall economy, industry conditions and the financial conditions and management of each company, using a process called fundamental analysis, to identify stocks of attractive companies. When selecting investments, the team looks at, among other things: o value characteristics like earnings yield and cash flow o growth potential for a company's stock price and earnings o current income yield and the potential for growth in income The team may use various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: o may limit the number of buy and sell transactions it makes o will try to sell shares that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when its price reaches the target set by the team, when there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, and for other reasons. 17 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Equity Income Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have the potential for dividend growth and capital appreciation. There is a risk that dividend payments and the value of these investments will not rise as high as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Real estate investment trust risk - Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry. o Convertible securities risk - The issuer of a convertible security may have the option to redeem it at a specified price. If a convertible security is redeemed, the Fund may accept the redemption, convert the convertible security to common stock, or sell the convertible security to a third party. Any of these transactions could affect the Fund's ability to meet its objective. o Investment in other Nations Funds - The Fund may pursue its convertible securities strategy by investing in Nations Convertible Securities Fund, rather than directly in convertible securities. BA Advisors and its affiliates are entitled to receive fees from Nations Convertible Securities Fund for providing advisory and other services, in addition to the fees which they are entitled to receive from Nations Equity Income Fund for services provided directly. BA Advisors and its affiliates may waive fees which they are entitled to receive from either Fund. 18 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR GRAPH APPEARS HERE] 9.77% 12.47% -1.29% 27.35% 19.61% 25.72% 3.25% 2.63% -10.76% - ----------------------------------------------------------------------------- 1992 1993 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -6.26% Best and worst quarterly returns during this period Best: 4th quarter 1998: 14.21% Worst: 3rd quarter 1998: -14.55% [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment. Since 1 year 5 years inception* Investor A Shares -15.92% 6.08% 9.32% Investor B Shares -15.70% 6.37% 8.31% Investor C Shares -12.28% 6.79% 9.05% S&P 500 -9.10% 18.33% 16.42% *The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are April 16, 1991, June 7, 1993 and June 17, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 19 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.65% 0.65% 0.65% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.31% 0.31% 0.31% ----- ----- ----- Total annual Fund operating expenses 1.21% 1.96% 1.96% ===== ===== =====
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 20 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $691 $938 $1,203 $1,960 Investor B Shares $699 $915 $1,257 $2,091 Investor C Shares $299 $615 $1,057 $2,285 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $199 $615 $1,057 $2,091 Investor C Shares $199 $615 $1,057 $2,285 21 [GRAPHIC] About the sub-adviser Brandes Investment Partners, L.P. (Brandes) is this Fund's sub-adviser. Brandes' Large Cap Investment Committee makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about Brandes on page 87. [GRAPHIC] What is the Graham and Dodd approach to investing? Benjamin Graham is widely regarded as the founder of this classic value approach to investing and a pioneer in modern security analysis. In his 1934 book, Security Analysis, co-written by David Dodd, Graham introduced the idea that stocks should be chosen by identifying the "true" long-term -- or intrinsic -- value of a company based on measurable data. Benjamin Graham and David Dodd have never had any affiliation with the Fund. The management team follows this approach, looking at each stock as though it's a business that's for sale. By buying stocks at what it believes are favorable prices, the team looks for the potential for appreciation over the business cycle, and for a margin of safety against price declines. Nations Classic Value Fund [GRAPHIC] Investment objective The Fund seeks growth of capital by investing in companies believed to be undervalued. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in equity securities of U.S. companies that are believed to be undervalued. The Fund focuses its investments in large and medium-sized companies. The Fund generally holds 40 to 75 equity securities. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The management team uses the "Graham and Dodd" value-approach to selecting securities and managing the Fund. The team invests in a company when its current price appears to be below its "true" long-term -- or intrinsic -- value. The team uses fundamental analysis to determine intrinsic value, and will look at a company's earnings, book value, cash flow, capital structure, and management record, as well as its industry and its position in the industry. This analysis includes a review of company reports, filings with the SEC, computer databases, industry publications, general and business publications, brokerage firm research reports and other information sources, as well as interviews with company management. The team may sell a security when its price reaches the target set by the team, when there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, and for other reasons. 22 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Limits on investments To help manage risk, the Fund has certain limits on its investments. These limits apply at the time an investment is made: o The Fund will normally invest no more than 5% of its assets in a single security. o It may not invest more than the greater of: o 20% of its assets in a single industry, or o 150% of the weighting of a single industry in the S&P 500 (limited to less than 25% of its assets in a single industry, other than U.S. government securities). [GRAPHIC] Risks and other things to consider Nations Classic Value Fund has the following risks: o Investment strategy risk - The team chooses stocks it believes are undervalued or out of favor with the expectation that these stocks will eventually rise in value. There is a risk that the value of these investments will not rise as high or as quickly as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund it will have the additional risks of investing in a master portfolio. [GRAPHIC] For information about the performance of other stock accounts managed by Brandes, see How the Funds are managed. [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. 23 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses (Expenses that are deducted from the Fund's assets) Management fees 0.65% 0.65% 0.65% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses(4) 0.48% 0.48% 0.48% ----- ------ ------ Total annual Fund operating expenses(5) 1.38% 2.13% 2.13% ===== ====== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)Other expenses are based on estimates for the current fiscal year. (5)The Fund's investment adviser and/or some of its other service providers have agreed to limit total annual operating expenses to the levels shown above until July 31, 2002. There is no guarantee that these limitations will continue after this date. The investment adviser is entitled to reimbursement from the Fund of any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this agreement if such reimbursements do not cause the Fund's expenses to exceed the existing expense limitations. 24 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years Investor A Shares $708 $988 Investor B Shares $716 $967 Investor C Shares $316 $667 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years Investor B Shares $216 $667 Investor C Shares $216 $667 25 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Value Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 84. [GRAPHIC] What is value investing? Value investing means looking for "undervalued" companies -- quality companies that may be currently out of favor and selling at a reduced price, but that have good potential to increase in value. The team uses fundamental and quantitative analysis to help decide whether the current stock price of a company may be lower than the company's true value, and then looks for things that could trigger a rise in price, like a new product line, new pricing or a change in management. This trigger is often called a "catalyst." Nations Value Fund [GRAPHIC] Investment objective The Fund seeks growth of capital by investing in companies that are believed to be undervalued. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in common stocks of U.S. companies. It generally invests in companies in a broad range of industries with market capitalizations of at least $1 billion and daily trading volumes of at least $3 million. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The management team uses fundamental and quantitative analysis to identify stocks of companies that it believes are undervalued and have the potential for price appreciation, looking at, among other things: o mature, fundamentally sound businesses that are believed to be attractively priced due to investor indifference or unpopularity o various measures of relative valuation, including expected cash flow return (based upon the company's expected earnings and dividends), price-to-earnings ratio, price-to-current book value ratio, dividend yield, and enterprise value-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratio. The team believes that companies with lower relative valuations are generally more likely to provide better opportunities for capital appreciation o the stock's estimated intrinsic valuation per share, relative to its current stock price o a potential "catalyst" for improved stock valuation and stock price appreciation. This could take the form of anticipated earnings growth, company restructuring, changes in management, new product opportunities, business model changes, or other anticipated improvements in micro and macroeconomic factors The team may use various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: o may limit the number of buy and sell transactions it makes o will try to sell shares that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when its price reaches the target set by the team, there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, and for other reasons. 26 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Value Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes are undervalued, with the expectation that they will rise in value. There is a risk that the value of these investments will not rise as high as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. 27 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE]
25.86% 7.12% 16.06% -3.08% 35.78% 20.85% 26.30% 17.14% 0.99% 3.66% - ------------------------------------------------------------------------------------ 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
*Year-to-date return as of June 30, 2001: -5.39% Best and worst quarterly returns during this period Best: 4th quarter 1998: 19.39% Worst: 3rd quarter 1998: -12.32% [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the indices do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500 and the S&P/BARRA Value Index. The S&P 500 is an unmanaged index of 500 widely held common stocks. The S&P/BARRA Value Index is an unmanaged index of a subset of stocks from the S&P 500 that have low price-to-book ratios relative to the S&P 500 as a whole. The indices are weighted by market capitalization and are not available for investment. Since 1 year 5 years 10 years inception* Investor A Shares -2.29% 12.02% 13.77% 12.75% Investor B Shares -1.15% 12.37% -- 13.36% Investor C Shares 2.07% 12.77% -- 13.48% S&P 500 -9.10% 18.33% 17.44% 15.53% S&P/BARRA Value Index 6.08% 16.81% 16.88% 14.61%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are December 6, 1989, June 7, 1993 and June 17, 1992, respectively. The returns for the indices shown are from inception of Investor A Shares. 28 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.65% 0.65% 0.65% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.29% 0.29% 0.29% ----- ------ ------ Total annual Fund operating expenses 1.19% 1.94% 1.94% ===== ====== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 29 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $689 $932 $1,193 $1,938 Investor B Shares $697 $909 $1,247 $2,070 Investor C Shares $297 $609 $1,047 $2,264 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $197 $609 $1,047 $2,070 Investor C Shares $197 $609 $1,047 $2,264 30 [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Chicago Equity is its sub-adviser. Chicago Equity's Equity Management Team makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about Chicago Equity on page 88. [GRAPHIC] Why invest in Nations Blue Chip Fund? Nations Blue Chip Fund may be suitable for investors who are looking for a "core" equity holding for their portfolio. It's considered to be a more conservative equity investment because it invests in a broad range of large, well-established companies. These companies tend to be less volatile than other kinds of companies. Nations Blue Chip Fund [GRAPHIC] Investment objective The Fund seeks to achieve long-term capital appreciation through investments in blue chip stocks. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations Blue Chip Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in blue chip stocks. These are stocks of well-established, nationally known companies that have a long record of profitability and a reputation for quality management, products and services. The Master Portfolio primarily invests in blue chip stocks that are included in the S&P 500, but may invest up to 15% of its assets in stocks that are not included in the index. It usually holds between 160 and 185 stocks. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team uses quantitative analysis to analyze fundamental information about securities and identify value. Starting with a universe of approximately 600 common stocks, the team uses a multi-factor computer model to rank securities, based on the following criteria, among others: o changes in actual and expected earnings o unexpected changes in earnings o price-to-earnings ratio o dividend discount model o price-to-cash flow The team tries to manage risk by matching the market capitalization, style and industry weighting characteristics of the S&P 500. The team focuses on selecting individual stocks to try to provide higher returns than the S&P 500 while maintaining a level of risk similar to the index. The team may sell a security when there is a development in the company or its industry that causes earnings estimates to fall, when the team believes other investments are more attractive, and for other reasons. 31 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Blue Chip Fund has the following risks: o Investment strategy risk - The Master Portfolio uses quantitative analysis to select blue chip stocks that are believed to have the potential for long-term growth. There is a risk that the value of these investments will not rise as high as expected, or will fall. o Stock market risk - The value of the stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 32 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 35.78% 23.76% 32.70% 27.86% 21.16% -9.28% - ----------------------------------------------------- 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -9.28% Best and worst quarterly returns during this period Best: 4th quarter 1998: 23.71% Worst: 3rd quarter 1998: -12.18% [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment. Since 1 year 5 years inception* Investor A Shares -14.50% 16.81% 16.93% Investor B Shares -14.10% -- 3.96% Investor C Shares -10.76% -- 15.74% S&P 500 -9.10% 18.33% 17.91% *The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are January 13, 1994, July 15, 1998 and November 11, 1996, respectively. The return for the index shown is from inception of Investor A Shares. 33 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.65% 0.65% 0.65% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.31% 0.31% 0.31% ----- ------ ------ Total annual Fund operating expenses 1.21% 1.96% 1.96% ===== ====== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. 34 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $691 $938 $1,203 $1,960 Investor B Shares $699 $915 $1,257 $2,091 Investor C Shares $299 $615 $1,057 $2,285 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $199 $615 $1,057 $2,091 Investor C Shares $199 $615 $1,057 $2,285 35 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Growth Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 84. [GRAPHIC] Minimizing taxes The Fund's proactive tax management strategy may help reduce capital gains distributions. The tax management strategy seeks to limit portfolio turnover, offset capital gains with capital losses and sell securities that have the lowest tax burden on shareholders. Nations Strategic Growth Fund [GRAPHIC] Investment objective The Fund seeks long-term, after-tax returns by investing in a diversified portfolio of common stocks. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in common stocks of companies that it selects from most major industry sectors. The Fund normally holds 60 to 80 securities, which include common stocks, preferred stocks and convertible securities like warrants and rights. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team identifies stocks using a disciplined analytical process. Starting with a universe of companies with market capitalizations of at least $1 billion, the team assesses the investment potential of these companies and their industries by evaluating: o the growth prospects of the company's industry o the company's relative competitive position in the industry The team believes that this analysis identifies companies with favorable long-term growth potential, competitive advantages and sensible business strategies. The team then uses quantitative analysis to decide when to invest, evaluating each company's earnings trends and stock valuations, among other things, to try to determine when it is reasonably valued. In actively managing the portfolio, the team considers the characteristics of the S&P 500 as a general baseline. The index characteristics evaluated by the team include risk and sector diversification, as well as individual securities holdings. The team may use various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains and income distributed to shareholders. For example, the team: o will focus on long-term investments to try to limit the number of buy and sell transactions o will try to sell securities that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss o invests primarily in securities with lower dividend yields o may use options, instead of selling securities While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when it believes that the profitability of the company's industry is beginning to decline, there is a meaningful deterioration in the company's competitive position, the company's management fails to execute its business strategy, when the team considers the security's price to be overvalued, and for other reasons. 36 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Strategic Growth Fund has the following risks: o Investment strategy risk - The team chooses stocks that are believed to have the potential for long-term growth. There is a risk that the value of these investments will not rise as expected, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Convertible securities risk - The issuer of a convertible security may have the option to redeem it at a specified price. If a convertible security is redeemed, the Fund may accept the redemption, convert the convertible security to common stock, or sell the convertible security to a third party. Any of these transactions could affect the Fund's ability to meet its objective. o Technology and technology-related risk - The Fund may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new markets entrants. [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] -12.55% ------- 2000 * Year-to-date return as of June 30, 2001: -7.20% Best and worst quarterly returns during this period Best: 1st quarter 2000: 4.62% Worst: 4th quarter 2000: -11.60% 37 [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment. Since 1 year inception* Investor A Shares -17.58% -2.29% Investor B Shares -17.48% -1.12% Investor C Shares -14.06% -0.45% S&P 500 -9.10% 0.74% *The inception date of Investor A Shares, Investor B Shares and Investor C Shares is August 2, 1999. The return for the index shown is from that date. [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.65% 0.65% 0.65% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.29% 0.29% 0.29% ----- ------ ------ Total annual Fund operating expenses 1.19% 1.94% 1.94% ===== ====== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 38 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $689 $932 $1,193 $1,938 Investor B Shares $697 $909 $1,247 $2,070 Investor C Shares $297 $609 $1,047 $2,264 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $197 $609 $1,047 $2,070 Investor C Shares $197 $609 $1,047 $2,264 39 [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Marsico Capital Management, LLC (Marsico Capital) is its sub-adviser. Thomas F. Marsico is its portfolio manager and makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about Marsico Capital and Mr. Marsico on page 85. [GRAPHIC] Why invest in a growth and income fund? Growth and income funds can invest in a mix of equity and fixed income securities. This can help reduce volatility and provide the Fund with the flexibility to shift among securities that offer the potential for higher returns. While this Fund invests in a wide range of companies and industries, it holds fewer investments than other kinds of funds. This means it can have greater price swings than more diversified funds. It also means it may have relatively higher returns when one of its investments performs well, or relatively lower returns when an investment performs poorly. Nations Marsico Growth & Income Fund [GRAPHIC] Investment objective The Fund seeks long-term growth of capital with a limited emphasis on income. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations Marsico Growth & Income Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio invests primarily in equity securities of large capitalization companies that are selected for their growth potential. It invests at least 25% of its assets in securities that are believed to have income potential, and generally holds 35 to 50 securities. It may hold up to 25% of its assets in foreign securities. Marsico Capital may shift assets between growth and income securities based on its assessment of market, financial and economic conditions. The Master Portfolio, however, is not designed to produce a consistent level of income. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Marsico Capital uses an approach that combines "top-down" economic analysis with "bottom-up" stock selection. The "top-down" approach takes into consideration such macroeconomic factors as interest rates, inflation, the regulatory environment and the global competitive landscape. In addition, Marsico Capital also examines such factors as the most attractive global investment opportunities, industry consolidation and the sustainability of economic trends. As a result of the "top-down" analysis, Marsico Capital identifies sectors, industries and companies which it believes should benefit from the overall trends observed. Marsico Capital then looks for individual companies with earnings growth potential that may not be recognized by the market at large. In determining whether a particular company is suitable for investment, Marsico Capital focuses on a number of different attributes including the company's specific market expertise or dominance, its franchise durability and pricing power, solid fundamentals (strong balance sheet, improving returns on equity, ability to generate free cash flow), strong management and reasonable valuations in the context of projected growth rates. As part of this fundamental, "bottom-up" research, Marsico Capital may visit with various levels of a company's management as well as with its customers, suppliers and competitors. Marsico Capital also prepares detailed earnings and cash flow models of companies. These models permit it to project earnings growth and other important characteristics under different scenarios. Each model is customized to follow a particular company and is intended to replicate and describe a company's past, present and future performance. The models are comprised of quantitative information and detailed narratives that reflect updated interpretations of corporate data. Marsico Capital may sell a security when it believes there is a deterioration in the company's financial situation, the security is overvalued, when there is a negative development in the company's competitive, regulatory or economic environment, and for other reasons. 40 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Marsico Growth & Income Fund has the following risks: o Investment strategy risk - Marsico Capital uses an investment strategy that tries to identify equities with growth or income potential. There is a risk that the value of these investments will not rise as high as Marsico Capital expects, or will fall. o Stock market risk - The value of the stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Master Portfolio may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. o Interest rate risk - The prices of the Master Portfolio's fixed income securities will tend to fall when interest rates rise and to rise when interest rates fall. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Master Portfolio could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. o Foreign investment risk - Because the Master Portfolio may invest up to 25% of its assets in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 41 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. For information about the performance of other stock funds managed by Thomas Marsico, see How the Funds are managed. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 38.62% 52.11% -15.47% - -------------------------- 1998 1999 2000 *Year-to-date return as of June 30, 2001: -12.49% Best and worst quarterly returns during this period Best: 4th quarter 1999: 35.19% Worst: 3rd quarter 1998: -12.24% [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment. Since 1 year inception* Investor A Shares -20.32% 18.88% Investor B Shares -20.26% 19.75% Investor C Shares -16.91% 20.49% S&P 500 -9.10% 12.26% *The inception date of Investor A Shares, Investor B Shares and Investor C Shares is December 31, 1997. The return for the index shown is from that date. 42 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.75% 0.75% 0.75% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.35% 0.35% 0.35% ----- ------ ------ Total annual Fund operating expenses 1.35% 2.10% 2.10% ===== ====== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. 43 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $705 $979 $1,273 $2,109 Investor B Shares $713 $958 $1,329 $2,240 Investor C Shares $313 $658 $1,129 $2,431 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $213 $658 $1,129 $2,240 Investor C Shares $213 $658 $1,129 $2,431 44 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Growth Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 84. [GRAPHIC] What is a growth fund? Growth funds invest in companies that have the potential for significant increases in revenue or earnings. These are typically companies that are developing or applying new technologies, products or services in growing industry sectors. Nations Capital Growth Fund [GRAPHIC] Investment objective The Fund seeks growth of capital by investing in companies that are believed to have superior earnings growth potential. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in common stocks of companies that have one or more of the following characteristics: o above-average earnings growth compared with the S&P 500 o established operating histories, strong balance sheets and favorable financial performance o above-average return on equity compared with the S&P 500 The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team identifies stocks using a disciplined analytical process. Starting with a universe of companies with market capitalization of at least $1 billion, the team assesses the investment potential of these companies and their industries by evaluating: o the growth prospects of the company's industry o the company's relative competitive position in the industry The team believes that this analysis identifies companies with favorable long-term growth potential, competitive advantages and sensible business strategies. The team then uses quantitative analysis to decide when to invest, evaluating each company's earnings trends and stock valuations, among other things, to try to determine when it is reasonably valued. In actively managing the portfolio, the team considers the characteristics of the S&P 500 as a general baseline. The index characteristics evaluated by the team include risk and sector diversification, as well as individual securities holdings. The team may use various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: o may limit the number of buy and sell transactions it makes o will try to sell shares that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when its price reaches the target set by the team, the company's growth prospects are deteriorating, when the team believes other investments are more attractive, and for other reasons. 45 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Capital Growth Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have superior growth potential and are selling at reasonable prices, with the expectation that they will rise in value. There is a risk that the value of these investments will not rise as high as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Fund may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new markets entrants. 46 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR GRAPH APPEARS HERE] 7.53% -1.55% 28.56% 18.29% 30.36% 29.73% 23.57% -12.17% - ---------------------------------------------------------------------- 1993 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -10.31% Best and worst quarterly returns during this period Best: 4th quarter 1998: 28.21% Worst: 3rd quarter 1998: -14.93% [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment. Since 1 year 5 years inception* Investor A Shares -17.23% 15.40% 14.26% Investor B Shares -16.39% 15.71% 14.77% Investor C Shares -13.53% 16.10% 14.33% S&P 500 -9.10% 18.33% 17.32% *The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are October 2, 1992, June 7, 1993 and October 2, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 47 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.65% 0.65% 0.65% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.29% 0.29% 0.29% ----- ------ ------ Total annual Fund operating expenses 1.19% 1.94% 1.94% ===== ====== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 48 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $689 $932 $1,193 $1,938 Investor B Shares $697 $909 $1,247 $2,070 Investor C Shares $297 $609 $1,047 $2,264 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $197 $609 $1,047 $2,070 Investor C Shares $197 $609 $1,047 $2,264 49 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Growth Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 84. [GRAPHIC] What is a growth fund? Growth funds invest in companies that have the potential for significant increases in revenue or earnings. These are typically companies that are developing or applying new technologies, products or services in growing industry sectors. Nations Aggressive Growth Fund [GRAPHIC] Investment objective The Fund seeks capital appreciation. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in common stocks of large and medium-sized U.S. companies. These companies typically have a market capitalization of $1 billion or more. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team identifies stocks using a disciplined analytical process. Starting with a universe of companies with market capitalization of at least $1 billion, the team assesses the investment potential of these companies and their industries by evaluating: o the growth prospects of the company's industry o the company's relative competitive position in the industry The team believes that this analysis identifies companies with favorable long-term growth potential, competitive advantages and sensible business strategies. The team then uses quantitative analysis to decide when to invest, evaluating each company's earnings trends and stock valuations, among other things, to try to determine when it is reasonably valued. In actively managing the portfolio, the team considers the characteristics of the Russell 3000 Growth Index as a general baseline. The index characteristics evaluated by the team include risk and sector diversification, as well as individual securities holdings. The resulting portfolios typically consist of between 50 and 75 securities. The team may use various strategies, to the extent consistent with the Fund's investment objective, to try to reduce the amount of capital gains it distributes to shareholders. For example, the team: o will focus on long-term investments to try and limit the number of buy and sell transactions o will try to sell securities that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss o will invest primarily in securities with lower dividend yields o may use options instead of selling securities While the Fund tries to manage capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when it forecasts a decline in industry profitability, it believes company's competitive position erodes significantly, management strategies prove ineffective or a company's price exceeds the team's price target for the security, and for other reasons. 50 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Aggressive Growth Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have superior growth potential and are selling at reasonable prices, with the expectation that they will rise in value. There is a risk that the value of these investments will not rise as high as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in the U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Fund may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new markets entrants. 51 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Prior to April 17, 2000, the Fund had a different investment objective and principal investment strategies. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] - -6.42% 27.30% 21.90% 29.59% 25.57% 8.83% -26.40% - ------------------------------------------------------------ 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -21.20% Best and worst quarterly returns during this period Best: 4th quarter 1998: 24.55% Worst: 4th quarter 2000: -24.08% 52 [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the indices do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Russell 3000 Growth Index, an index comprised of securities in the Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies based on total market capitalization. Prior to August 1, 2001, the Fund compared its performance to the Russell 1000 Growth Index. The Fund changed the index to which it compares its performance because the Russell 3000 Growth Index is considered to be a more appropriate comparison. The indices are unmanaged and are not available for investment. Since 1 year 5 years inception* Investor A Shares -30.65% 8.41% 10.16% Investor B Shares -30.05% 8.66% 10.95% Investor C Shares -27.56% 9.03% 11.25% Russell 3000 Growth Index -22.42% 17.06% 17.38% Russell 1000 Growth Index -22.42% 18.15% 18.31% *The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are July 26, 1993, May 20, 1994 and May 10, 1995, respectively. The returns for the indices shown are from inception of Investor A Shares. 53 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.65% 0.65% 0.65% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.35% 0.35% 0.35% ----- ------ ------ Total annual Fund operating expenses 1.25% 2.00% 2.00% ===== ====== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 54 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $695 $949 $1,223 $2,002 Investor B Shares $703 $927 $1,278 $2,134 Investor C Shares $303 $627 $1,078 $2,327 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $203 $627 $1,078 $2,134 Investor C Shares $203 $627 $1,078 $2,327 55 [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Marsico Capital is its sub-adviser. Thomas F. Marsico is its portfolio manager and makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about Marsico Capital and Mr. Marsico on page 85. [GRAPHIC] What is a focused fund? A focused fund invests in a small number of companies with earnings that are believed to have the potential to grow significantly. This Fund focuses on large, established and well-known U.S. companies. Because a focused fund holds fewer investments than other kinds of funds, it can have greater price swings than more diversified funds. It may earn relatively higher returns when one of its investments performs well, or relatively lower returns when an investment performs poorly. Nations Marsico Focused Equities Fund [GRAPHIC] Investment objective The Fund seeks long-term growth of capital. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations Marsico Focused Equities Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in common stocks of large companies. The Master Portfolio, which is non-diversified, generally holds a core position of 20 to 30 common stocks. It may invest up to 25% of its assets in foreign securities. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Marsico Capital uses an approach that combines "top-down" economic analysis with "bottom-up" stock selection. The "top-down" approach takes into consideration such macroeconomic factors as interest rates, inflation, the regulatory environment and the global competitive landscape. In addition, Marsico Capital also examines such factors as the most attractive global investment opportunities, industry consolidation and the sustainability of economic trends. As a result of the "top-down" analysis, Marsico Capital identifies sectors, industries and companies which it believes should benefit from the overall trends observed. Marsico Capital then looks for individual companies with earnings growth potential that may not be recognized by the market at large. In determining whether a particular company is suitable for investment, Marsico Capital focuses on a number of different attributes including the company's specific market expertise or dominance, its franchise durability and pricing power, solid fundamentals (strong balance sheet, improving returns on equity, ability to generate free cash flow), strong management and reasonable valuations in the context of projected growth rates. As part of this fundamental, "bottom-up" research, Marsico Capital may visit with various levels of a company's management as well as with its customers, suppliers and competitors. Marsico Capital also prepares detailed earnings and cash flow models of companies. These models permit it to project earnings growth and other important characteristics under different scenarios. Each model is customized to follow a particular company and is intended to replicate and describe a company's past, present and future performance. The models are comprised of quantitative information and detailed narratives that reflect updated interpretations of corporate data. Marsico Capital may sell a security when it believes there is a deterioration in the company's financial situation, the security is overvalued, when there is a negative development in the company's competitive, regulatory or economic environment, and for other reasons. 56 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Marsico Focused Equities Fund has the following risks: o Investment strategy risk - There is a risk that the value of the Master Portfolio's investments will not rise as high as Marsico Capital expects, or will fall. o Holding fewer investments - The Master Portfolio is considered to be non-diversified because it may hold fewer investments than other kinds of equity funds. This increases the risk that its value could go down significantly if even only one of its investments performs poorly. The value of the Master Portfolio will tend to have greater price swings than the value of more diversified equity funds. The Master Portfolio may become a diversified fund by limiting the investments in which more than 5% of its total assets are invested. o Stock market risk - The value of the stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Master Portfolio may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new markets entrants. o Foreign investment risk - Because the Master Portfolio may invest up to 25% of its assets in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 57 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. For information about the performance of other stock funds managed by Thomas Marsico, see How the Funds are managed. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 50.14% 52.85% -17.32% - ------------------------- 1998 1999 2000 *Year-to-date return as of June 30, 2001: -14.12% Best and worst quarterly returns during this period Best: 4th quarter 1999: 33.11% Worst: 4th quarter 2000: -12.85% [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Shares class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment. Since 1 year inception* Investor A Shares -22.07% 21.38% Investor B Shares -22.00% 22.39% Investor C Shares -18.73% 23.16% S&P 500 -9.10% 12.26% *The inception date of Investor A Shares, Investor B Shares and Investor C Shares is December 31, 1997. The return for the index shown is from that date. 58 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.75% 0.75% 0.75% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.34% 0.34% 0.34% ----- ------ ------ Total annual Fund operating expenses 1.34% 2.09% 2.09% ===== ====== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. 59 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $704 $976 $1,268 $2,098 Investor B Shares $712 $955 $1,324 $2,229 Investor C Shares $312 $655 $1,124 $2,421 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $212 $655 $1,124 $2,229 Investor C Shares $212 $655 $1,124 $2,421 60 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Growth Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 84. [GRAPHIC] What is a midcap growth fund? A midcap growth fund invests in medium-sized companies whose earnings are expected to grow or to continue growing. These companies may be expanding in existing markets, entering into new markets, developing new products or increasing their profit margins by gaining market share or streamlining their operations. These companies can have better potential for rapid earnings than larger companies. They may, however, have a harder time securing financing and may be more sensitive to a setback in sales than larger, more established companies. Nations MidCap Growth Fund [GRAPHIC] Investment objective The Fund seeks capital appreciation by investing in emerging growth companies that are believed to have superior long-term earnings growth prospects. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in companies chosen from a universe of medium capitalization companies. The Fund generally holds securities of between 60 and 100 issuers, which include common stocks, preferred stocks and convertible securities like warrants, rights and convertible debt. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team identifies stocks using a disciplined analytical process. Starting with a universe of companies with market capitalization of at least $1 billion, the team assesses the investment potential of these companies and their industries by evaluating: o the growth prospects of the company's industry o the company's relative competitive position in the industry The team believes that this analysis identifies companies with favorable long-term growth potential, competitive advantages and sensible business strategies. The team then uses quantitative analysis to decide when to invest, evaluating each company's earnings trends and stock valuations, among other things, to try to determine when it is reasonably valued. In actively managing the portfolio, the team considers the characteristics of the S&P MidCap 400 as a general baseline. The index characteristics evaluated by the team include risk and sector diversification, as well as individual securities holdings. The team may use various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: o may limit the number of buy and sell transactions it makes o will try to sell shares that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when its price reaches the target set by the team, the company's growth prospects are deteriorating, when the team believes other investments are more attractive, and for other reasons. 61 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations MidCap Growth Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have the potential for superior long-term growth. There is a risk that the value of these investments will not rise as high as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Fund may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new markets entrants. 62 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 11.66% 0.39% 29.71% 18.32% 20.48% 3.30% 43.45% 14.30% - -------------------------------------------------------------------- 1993 1994 1995 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -8.70% Best and worst quarterly returns during this period Best: 4th quarter 1999: 32.63% Worst: 3rd quarter 1998: -26.48% [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P MidCap 400, an unmanaged index of 400 domestic stocks chosen for market size, liquidity and industry representation. The index is weighted by market value, and is not available for investment. Since 1 year 5 years inception* Investor A Shares 7.74% 17.87% 16.69% Investor B Shares 9.03% 18.18% 17.90% Investor C Shares 12.76% 18.59% 16.82% S&P MidCap 400 17.51% 20.41% 17.82% *The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are December 10, 1992, June 7, 1993 and December 18, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 63 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.65% 0.65% 0.65% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.33% 0.33% 0.33% ----- ------ ------ Total annual Fund operating expenses 1.23% 1.98% 1.98% ===== ====== ======
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 64 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $693 $944 $1,213 $1,981 Investor B Shares $701 $921 $1,268 $2,113 Investor C Shares $301 $621 $1,068 $2,306 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $201 $621 $1,068 $2,113 Investor C Shares $201 $621 $1,068 $2,306 65 [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Marsico Capital is its sub-adviser. James A. Hillary is its portfolio manager and makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about Marsico Capital and Mr. Hillary on page 85. [GRAPHIC] What is a multi-cap fund? A multi-cap fund invests in companies across the capitalization spectrum -- small, medium-sized and large companies. As a multi-cap fund, this Fund may invest in large, established and well-known U.S. and foreign companies, as well as small, new and relatively unknown companies that are believed to have the potential to grow significantly. Nations Marsico 21st Century Fund [GRAPHIC] Investment objective The Fund seeks long-term growth of capital. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations Marsico 21st Century Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio is an aggressive growth fund that primarily invests in equity securities of companies of any capitalization size. The Master Portfolio will focus on paradigm shifting technologies and companies seeking to take advantage of technological innovations in the way business is conducted. The Master Portfolio may invest without limit in foreign securities. The Master Portfolio also may invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Marsico Capital uses an approach that combines "top-down" economic analysis with "bottom-up" stock selection. The "top-down" approach takes into consideration such macroeconomic factors as interest rates, inflation, the regulatory environment and the global competitive landscape. In addition, Marsico Capital also examines such factors as the most attractive global investment opportunities, industry consolidation and the sustainability of economic trends. As a result of the "top-down" analysis, Marsico Capital identifies sectors, industries and companies which it believes should benefit from the overall trends observed. Marsico Capital then looks for individual companies with earnings growth potential that may not be recognized by the market at large. In determining whether a particular company is suitable for investment, Marsico Capital focuses on a number of different attributes including the company's specific market expertise or dominance, its franchise durability and pricing power, solid fundamentals (strong balance sheet, improving returns on equity, ability to generate free cash flow), strong management and reasonable valuations in the context of projected growth rates. As part of this fundamental, "bottom-up" research, Marsico Capital may visit with various levels of a company's management as well as with its customers, suppliers and competitors. Marsico Capital also prepares detailed earnings and cash flow models of companies. These models permit it to project earnings growth and other important characteristics under different scenarios. Each model is customized to follow a particular company and is intended to replicate and describe a company's past, present and future performance. The models are comprised of quantitative information and detailed narratives that reflect updated interpretations of corporate data. Marsico Capital may sell a security when it believes there is a deterioration in the company's financial situation, the security is overvalued, when there is a negative development in the company's competitive, regulatory or economic environment, and for other reasons. 66 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Marsico 21st Century Fund has the following risks: o Investment strategy risk - There is a risk that the value of the Master Portfolio's investments will not rise as high as Marsico Capital expects, or will fall. o Stock market risk - The value of any stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Small company risk - Stocks of smaller companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains but also carry more risk. o Technology and technology-related risk - The Master Portfolio may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new markets entrants. o Foreign investment risk - Because the Master Portfolio may invest without limitation in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 67 [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.75% 0.75% 0.75% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.60% 0.60% 0.60% ----- ----- ----- Total annual Fund operating expenses 1.60% 2.35% 2.35% ===== ===== =====
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Trend's most recent fiscal year and have been adjusted as necessary, to reflect current service provider fees. (5)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. 68 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $729 $1,052 $1,397 $2,369 Investor B Shares $738 $1,033 $1,455 $2,499 Investor C Shares $338 $ 733 $1,255 $2,686 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $238 $733 $1,255 $2,499 Investor C Shares $238 $733 $1,255 $2,686 69 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's SmallCap Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 84. [GRAPHIC] Why invest in a small company fund? A small company fund invests in smaller companies with promising products or that are operating in a dynamic field. These companies can have stronger potential for rapid earnings growth than larger companies. They may, however, have a harder time securing financing and may be more sensitive to a setback than larger, more established companies. The team looks for companies whose earnings are growing quickly, and whose share prices are reasonably valued. Nations Small Company Fund [GRAPHIC] Investment objective The Fund seeks long-term capital growth by investing primarily in equity securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in companies with a market capitalization of $2 billion or less. The Fund usually holds 75 to 130 equity securities. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team identifies stocks using a disciplined process based on the fundamental analysis of the overall economy, industry conditions, and the financial situation and management of each company. It generates ideas from: o company meetings/conferences o independent industry analysis o quantitative analysis o Wall Street (brokerage) research The team then conducts a rigorous qualitative analysis of each company being considered for investment. This involves, among other things: o gaining an in-depth understanding of the company's business o evaluating the company's growth potential, risks and competitive strengths o discussing its growth strategy with company management o validating the growth strategy with external research The team will only invest in a company when its stock price is attractive relative to its forecasted growth. The team may use various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: o may limit the number of buy and sell transactions it makes o will try to sell shares that have the lowest tax burden on shareholders o may offset capital gains by selling securities to realize a capital loss While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies also may be affected by changes in tax laws and regulations, or by court decisions. The team may sell a security when its price reaches the target set by the team, the company's growth prospects are deteriorating, when the team believes other investments are more attractive, and for other reasons. 70 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Small Company Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have the potential for long-term growth. There is a risk that the value of these investments will not rise as high as the team expects, or will fall. o Small company risk - Stocks of small companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains but also carry more risk. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Fund may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new markets entrants. 71 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 19.92% 19.47% 1.22% 54.51% -1.83% - ------------------------------------------ 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -8.38% Best and worst quarterly returns during this period Best: 4th quarter 1999: 43.14% Worst: 3rd quarter 1998: -25.80% 72 [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the indices do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Russell 2000 Growth Index, an index comprised of securities in the Russell 2000 Index, which is a measure of small company performance, with a greater than average growth orientation. Prior to August 1, 2001, the Fund compared its performance to the Russell 2000 Index. The Fund changed the index to which it compares its performance because the Russell 2000 Growth Index is considered to be a more appropriate comparison. The indices are unmanaged, weighted by market capitalization and are not available for investment. Since 1 year 5 years inception* Investor A Shares -7.46% 15.71% 15.25% Investor B Shares -6.89% 16.10% 15.75% Investor C Shares -3.42% -- 10.65% Russell 2000 Growth Index -22.43% 7.14% 7.48% Russell 2000 Index -3.02% 10.31% 10.70%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are December 12, 1995, December 12, 1995 and September 22, 1997, respectively. The returns for the indices shown are from inception of Investor A Shares. 73 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.90% 0.90% 0.90% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.30% 0.30% 0.30% ------ ----- ------ Total annual Fund operating expenses 1.45% 2.20% 2.20% Fee waivers and/or reimbursements (0.05)% (0.05)% (0.05)% ------ ----- ----- Total net expenses(5) 1.40% 2.15% 2.15% ====== ===== =====
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 74 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $709 $1,003 $1,319 $2,210 Investor B Shares $718 $983 $1,375 $2,340 Investor C Shares $318 $683 $1,175 $2,530 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $218 $683 $1,175 $2,340 Investor C Shares $218 $683 $1,175 $2,530 75 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Growth Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 84. [GRAPHIC] What does a financial services fund invest in? The financial services industry includes banks, brokerage firms, asset management firms, insurance companies and transaction processing companies, among others. Nations Financial Services Fund [GRAPHIC] Investment objective The Fund seeks growth of capital. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in equity securities of companies that are principally engaged in the financial services industry. The Fund, which is non-diversified, generally holds 40 to 60 securities. It may invest without limitation in foreign securities. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team identifies stocks using a disciplined analytical process. Starting with a universe of companies across the entire financial sector, the team assesses the investment potential of these companies by evaluating each company's relative competitive position in the industry. The team believes that this analysis identifies companies with favorable long-term growth potential, competitive advantages and sensible business strategies. The team then uses quantitative analysis to decide when to invest, evaluating each company's earnings trends and stock valuations, among other things, to try to determine when it's reasonably valued. In managing the portfolio, the team places an emphasis on companies believed to exhibit certain characteristics, such as companies that: o are increasing their revenues along with their earnings o can grow their revenues and earnings in a variety of interest rate environments o have both marketing expertise and superior technology The team may sell a security when it believes there is a deterioration in the company's financial situation, the security is overvalued, when there is a negative development in the company's competitive, regulatory or economic environment, and for other reasons. 76 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Financial Services Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have the potential for long-term growth. There is a risk that the value of the Fund's investments will not rise as high as the team expects, or will fall. o Holding fewer investments - The Fund is considered to be non-diversified because it may hold fewer investments than other kinds of equity funds. This increases the risk that its value could go down significantly if even only one of its investments performs poorly. The value of the Fund will tend to have greater price swings than the value of more diversified equity funds. The Fund may become a diversified fund by limiting the investments in which more than 5% of its total assets are invested. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Concentration risk - The Fund concentrates its investments in financial services companies and will be subject to the risks affecting the financial services industry generally. Legislative and regulatory developments may significantly affect this industry and consequently may subject the Fund's investments to greater market fluctuations. In addition, the Federal Reserve may adjust interest rates which can have a significant impact upon the profitability of financial services companies, and a corresponding impact upon the value of the Fund's investment. o Foreign investment risk - Because the Fund may invest without limitation in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 77 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses (Expenses that are deducted from the Fund's assets) Management fees 0.75% 0.75% 0.75% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses(4) 0.55% 0.55% 0.55% ----- ------ ------ Total annual Fund operating expenses(5) 1.55% 2.30% 2.30% ===== ====== ======
(1) A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2) This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3) This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4) Other expenses are based on estimates for the current fiscal year. (5) The Fund's investment adviser and/or some of its other service providers have agreed to limit total annual operating expenses to the levels shown above until July 31, 2002. There is no guarantee that these limitations will continue after this date. The investment adviser is entitled to reimbursement from the Fund of any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this agreement if such reimbursements do not cause the Fund's expenses to exceed the existing expense limitations. 78 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years Investor A Shares $724 $1,037 Investor B Shares $733 $1,018 Investor C Shares $333 $718 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years Investor B Shares $233 $718 Investor C Shares $233 $718 79 [GRAPHIC] Other important information You'll find specific information about each Fund's principal investments, strategies and risks in the descriptions starting on page 6. The following are some other risks and information you should consider before you invest: o Changing investment objectives and policies - The investment objective and certain investment policies of any Fund can be changed without shareholder approval. Other investment policies may be changed only with shareholder approval. o Holding other kinds of investments - The Funds may hold investments that aren't part of their principal investment strategies. Please refer to the SAI for more information. The portfolio managers or management team can also choose not to invest in specific securities described in this prospectus and in the SAI. o Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest up to 25% of their assets in Nations Money Market Funds. BA Advisors and its affiliates are entitled to receive fees from the Nations Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Funds for services provided directly. BA Advisors may waive fees which it is entitled to receive from either the Nations Money Market Funds or the Funds. o Foreign investment risk - Funds that invest in foreign securities may be affected by changes in currency exchange rates and the costs of converting currencies; foreign government controls on foreign investment, repatriation of capital, and currency and exchange; foreign taxes; inadequate supervision and regulation of some foreign markets; difficulty selling some investments, which may increase volatility; different settlement practices or delayed settlements in some markets; difficulty getting complete or accurate information about foreign companies; less strict accounting, auditing and financial reporting standards than those in the U.S.; political, economic or social instability; and difficulty enforcing legal rights outside the U.S. If a Fund invests in emerging markets there may be other risks involved, such as those of immature economies and less developed and more thinly traded securities markets. o Investing defensively - A Fund may temporarily hold investments that are not part of its investment objective or its principal investment strategies to try to protect it during a market or economic downturn or because of political or other conditions. A Fund may not achieve its investment objective while it is investing defensively. o Securities lending program - A Fund may lend portfolio securities to approved broker-dealers or other financial institutions on a fully collateralized basis in order to earn additional income. There may be delays in receiving additional collateral after the loan is made or in recovering the securities loaned. 80 o Bank of America and its affiliates - Bank of America and its affiliates currently provide services to some or all of the Funds, including investment advisory, investment sub-advisory, co-administration and brokerage services, and are paid for providing these services. Bank of America and its affiliates also may, at times, provide other services and be compensated for them, including transfer agency, interfund lending and securities lending services, or make loans to the Funds. Finally, Bank of America or its affiliates may serve as counterparties in transactions with Nations Funds where permitted by law or regulation, and may receive compensation in that capacity. o Portfolio turnover - A Fund that replaces -- or turns over -- more than 100% of its investments in a year is considered to trade frequently. Frequent trading can result in larger distributions of short-term capital gains to shareholders. These gains are taxable at higher rates than long-term capital gains. Frequent trading can also mean higher brokerage and other transaction costs, which could reduce the Fund's returns. The Funds generally buy securities for capital appreciation, investment income, or both, and don't engage in short-term trading. The annual portfolio turnover rates for Nations Classic Value Fund and Nations Financial Services Fund are expected to be no more than 50% and 100%, respectively. You'll find the portfolio turnover rate for each other Fund in Financial highlights. 81 [GRAPHIC] How the Funds are managed [GRAPHIC] Banc of America Advisors, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Investment adviser BA Advisors is the investment adviser to over 75 mutual fund portfolios in the Nations Funds Family, including the Funds described in this prospectus. BA Advisors is a registered investment adviser. It's a wholly-owned subsidiary of Bank of America, which is owned by Bank of America Corporation. Nations Funds pays BA Advisors an annual fee for its investment advisory services. The fee is calculated as a percentage of the average daily net assets of each Fund and is paid monthly. BA Advisors uses part of this money to pay investment sub-advisers for the services they provide to each Fund. BA Advisors has agreed to waive fees and/or reimburse expenses for certain Funds until July 31, 2002. You'll find a discussion of any waiver and/or reimbursement in the Fund descriptions. There is no assurance that BA Advisors will continue to waive and/or reimburse any fees and/or expenses after this date. The following chart shows the maximum advisory fees BA Advisors can receive, along with the actual advisory fees it received during the Funds' last fiscal year, after waivers and/or reimbursements: Annual investment advisory fee, as a % of average daily net assets Maximum Actual fee advisory paid last fee fiscal year Nations Convertible Securities Fund 0.65% 0.65% Nations Asset Allocation Fund 0.65% 0.63% Nations Equity Income Fund 0.65% 0.54% Nations Classic Value Fund 0.65% N/A Nations Value Fund 0.65% 0.65% Nations Blue Chip Fund1 0.65% 0.65% Nations Strategic Growth Fund 0.65% 0.65% Nations Marsico Growth & Income Fund(1) 0.75% 0.75% Nations Capital Growth Fund 0.65% 0.65% Nations Aggressive Growth Fund 0.65% 0.65% Nations Marsico Focused Equities Fund(1) 0.75% 0.75% Nations MidCap Growth Fund 0.65% 0.65% Nations Marsico 21st Century Fund(1) 0.75% N/A Nations Small Company Fund 0.90% 0.84% Nations Financial Services Fund 0.75% N/A (1) These Funds don't have their own investment adviser because they invest in Nations Blue Chip Master Portfolio, Nations Marsico Growth & Income Master Portfolio, Nations Marsico Focused Equities Master Portfolio and Nations Marsico 21st Century Master Portfolio, respectively. BA Advisors is the investment adviser to each Master Portfolio. 82 Investment sub-advisers Nations Funds and BA Advisors engage one or more investment sub-advisers for each Fund to make day-to-day investment decisions for the Fund. BA Advisors retains ultimate responsibility (subject to Board oversight) for overseeing the sub-advisers and evaluates the Funds' needs and available sub-advisers' skills and abilities on an ongoing basis. Based on its evaluations, BA Advisors may at times recommend to a Fund's Board that the Fund: o change, add or terminate one or more sub-advisers; o continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or o materially change a sub-advisory agreement with a sub-adviser. Applicable law requires a Fund to obtain shareholder approval in order to act on most of these types of recommendations, even if the Fund's Board has approved the proposed action and believes that the action is in shareholders' best interests. BA Advisors and the Funds have applied for relief from the SEC to permit the Funds to act on many of BA Advisors' recommendations with approval only by the Funds' Board and not by Fund shareholders. BA Advisors or a Fund would inform the Fund's shareholders of any actions taken in reliance on this relief. Until BA Advisors and the Funds obtain the relief, each Fund will continue to submit these matters to shareholders for their approval to the extent required by applicable law. 83 [GRAPHIC] Banc of America Capital Management, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Banc of America Capital Management, LLC BACAP is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Its management expertise covers all major domestic asset classes, including equity and fixed income securities, and money market instruments. Currently managing more than $125 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 60 funds in the Nations Funds Family. BACAP takes a team approach to investment management. Each team has access to the latest technology and analytical resources. BACAP is the investment sub-adviser to the Funds shown in the table below. The table also tells you which internal BACAP asset management team is responsible for making the day-to-day investment decisions for each Fund. Fund BACAP Team Nations Convertible Income Strategies Team Securities Fund Nations Asset Allocation Fund Fixed Income Management Team for the fixed income and money market portions of the Fund Nations Equity Income Fund Income Strategies Team Nations Value Fund Value Strategies Team Nations Strategic Growth Fund Growth Strategies Team Nations Capital Growth Fund Growth Strategies Team Nations Aggressive Growth Strategies Team Growth Fund Nations MidCap Growth Fund Growth Strategies Team Nations Small Company Fund SmallCap Strategies Team Nations Financial Services Fund Growth Strategies Team
84 [GRAPHIC] Marsico Capital Management, LLC 1200 17th Street Suite 1300 Denver, Colorado 80202 Marsico Capital Management, LLC Marsico Capital is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Marsico Capital is a full service investment advisory firm founded by Thomas F. Marsico in September 1997. Marsico Capital currently has over $13 billion in assets under management. Marsico Capital is the investment sub-adviser to: o Nations Marsico Growth & Income Master Portfolio o Nations Marsico Focused Equities Master Portfolio o Nations Marsico 21st Century Master Portfolio Thomas F. Marsico, Chairman and Chief Executive Officer of Marsico Capital, is the portfolio manager responsible for making the day-to-day investment decisions for Nations Marsico Growth & Income Master Portfolio and Nations Marsico Focused Equities Master Portfolio. Mr. Marsico was an executive vice president and portfolio manager at Janus Capital Corporation from 1988 until he formed Marsico Capital in September 1997. He has more than 20 years of experience as a securities analyst and portfolio manager. James A. Hillary is the portfolio manager of Nations Marsico 21st Century Master Portfolio. Mr. Hillary has eleven years of experience as a securities analyst and portfolio manager and is a founding member of Marsico Capital Management. Prior to joining Marsico Capital in 1997, Mr. Hillary was a portfolio manager at W.H. Reaves, a New Jersey-based money management firm where he managed equity mutual funds and separate accounts. He holds a Bachelor's degree from Rutgers University and a law degree from Fordham University. Mr. Hillary is also a certified public accountant. Performance of other stock funds managed by Thomas Marsico Nations Marsico Focused Equities Fund and Nations Marsico Growth & Income Fund have been in operation since December 31, 1997, so they have a relatively short performance history. The tables below are designed to show you how similar stock funds managed by Thomas Marsico performed in the past. The Janus Twenty Fund has an investment objective, policies and strategies that are substantially similar to Nations Marsico Focused Equities Fund. Mr. Marsico managed the Janus Twenty Fund from January 31, 1988 through August 11, 1997. He had full discretionary authority for selecting investments for that fund, which had approximately $6 billion in net assets on August 11, 1997. 85 The table below shows the returns for the Janus Twenty Fund compared with the S&P 500 for the periods ending August 7, 1997. The returns reflect deductions of fees and expenses, and assume all dividends and distributions have been reinvested. Average annual total returns as of August 7, 1997 Janus Twenty Fund (%) S&P 500 (%) one year 48.21 46.41 three years 32.07 30.63 five years 20.02 20.98 during the period of Mr. Marsico's management (January 31, 1988 to August 7, 1997) 23.38 18.20
This information is designed to show the historical track record of Mr. Marsico. It does not indicate how the Fund has performed or will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's expenses. The Janus Growth and Income Fund has an investment objective, policies and strategies that are substantially similar to Nations Marsico Growth & Income Fund. Mr. Marsico managed the Janus Growth and Income Fund from its inception on May 31, 1991 through August 11, 1997. He had full discretionary authority for selecting investments for that fund, which had approximately $1.7 billion in net assets on August 11, 1997. The table below shows the returns for the Janus Growth and Income Fund compared with the S&P 500 for the period ending August 7, 1997. The returns reflect deductions of fees and expenses, and assume all dividends and distributions have been reinvested. Average annual total returns as of August 7, 1997 Janus Growth and Income Fund (%) S&P 500 (%) one year 47.77 46.41 three years 31.13 30.63 five years 21.16 20.98 during the period of Mr. Marsico's management (May 31, 1991 to August 7, 1997) 21.19 18.59
This information is designed to show the historical track record of Mr. Marsico. It does not indicate how the Fund has performed or will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's expenses. 86 [GRAPHIC] Brandes Investment Partners, L.P. 11988 El Camino Real Suite 500 San Diego, California 92130 Brandes Investment Partners, L.P. Founded in 1974, Brandes is an investment advisory firm with 56 investment professionals who manage more than $50 billion in assets. Brandes uses a value-oriented approach to managing international investments, seeking to build wealth by buying high quality, undervalued stocks. Brandes is the investment sub-adviser to Nations Classic Value Fund. Brandes' Large Cap Investment Committee is responsible for making the day-to-day investment decisions for the Fund. Performance of other stock accounts managed by Brandes Nations Classic Value Fund commenced operations on April 16, 2001. The tables below are designed to show you how a composite of similar stock accounts managed by Brandes performed over various periods in the past. The accounts comprising the Brandes U.S. Value Equity composite have investment objectives, policies and strategies that are substantially similar to Nations Classic Value Fund. The Brandes U.S. Value Equity composite includes all accounts managed by Brandes that are substantially similar to Nations Classic Value Fund. The table below shows the returns for the Brandes U.S. Value Equity composite compared with the Russell 1000 Value Index for the periods ending March 31, 2001 and December 31 of prior years. The returns of the Brandes U.S. Value Equity composite reflect deductions of account fees and expenses, and assume all dividends and distributions have been reinvested. The returns of the Russell 1000 Value Index assume all dividends and distributions have been reinvested. Average annual total returns as of March 31, 2001 Brandes U.S. Value Equity Russell 1000 Composite (%) Value Index (%) one year 47.98% 0.27% three years 4.09% 3.85% five years 14.52% 14.24% since inception (6/30/91) 15.27% 15.65% 87 Annual total returns as of December 31 Brandes U.S. Value Equity Russell 1000 Composite (%) Value Index (%) 2000 34.46% 7.02% 1999 (12.45)% 7.35% 1998 1.69% 15.63% 1997 32.99% 35.18% 1996 29.47% 21.64% 1995 20.98% 38.36% 1994 ( 3.54)% (1.98)% 1993 24.00% 18.07% 1992 23.40% 13.58% This information is designed to demonstrate the historical track record of Brandes. It does not indicate how the Fund has performed or will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's expenses. The performance reflected in the composite has been calculated in compliance with the AIMR Performance Presentation Standards which differ from the method used by the SEC. The Brandes composite includes U.S. equity accounts managed by Brandes. The accounts don't pay the same expenses that mutual funds pay and aren't subject to the diversification rules, tax restrictions and investment limits under the 1940 Act or Subchapter M of the Internal Revenue Code. Returns could have been lower if the composite had been subject to these expenses and regulations. The aggregate returns of the accounts in the composite may not reflect the returns of any particular account of Brandes. [GRAPHIC] Chicago Equity Partners, LLC 180 North LaSalle Suite 3800 Chicago, Illinois 60601 Chicago Equity Partners, LLC Chicago Equity is a registered investment adviser and is owned by the firm's senior management. Chicago Equity is the investment sub-adviser to Nations Blue Chip Master Portfolio and is one of two sub-advisers to Nations Asset Allocation Fund. Chicago Equity's Equity Management Team is responsible for making the day-to-day investment decisions for Nations Blue Chip Master Portfolio and for the equity portion of Nations Asset Allocation Fund. 88 [GRAPHIC] Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 Other service providers The Funds are distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. Stephens may pay commissions, distribution (12b-1) and shareholder servicing fees, and/or other compensation to companies for selling shares and providing services to investors. BA Advisors is also co-administrator of the Funds, and assists in overseeing the administrative operations of the Funds. The Funds pay BA Advisors and Stephens a combined fee of 0.23% for their services, plus certain out-of-pocket expenses. The fee is calculated as an annual percentage of the average daily net assets of the Funds, and is paid monthly. [GRAPHIC] PFPC Inc. 400 Bellevue Parkway Wilmington, Delaware 19809 PFPC Inc. (PFPC) is the transfer agent for the Funds' shares. Its responsibilities include processing purchases, sales and exchanges, calculating and paying distributions, keeping shareholder records, preparing account statements and providing customer service. 89 About your investment - -------------------------------------------------------------------------------- [GRAPHIC] We've used the term, investment professional, to refer to the person who has assisted you with buying Nations Funds. Selling agent or servicing agent (sometimes referred to as a selling agent) means the company that employs your investment professional. Selling and servicing agents include banks, brokerage firms, mutual fund dealers and other financial institutions, including affiliates of Bank of America. [GRAPHIC] For more information about how to choose a share class, contact your investment professional or call us at 1.800.321.7854. [GRAPHIC] Before you invest, please note that, over time, distribution (12b-1) and shareholder servicing fees will increase the cost of your investment, and may cost you more than any sales charges you may pay. For more information, see How selling and servicing agents are paid. [GRAPHIC] Choosing a share class Before you can invest in the Funds, you'll need to choose a share class. There are three classes of shares of each Fund offered by this prospectus. Each class has its own sales charges and fees. The table below compares the charges and fees and other features of the share classes. Investor A Investor B Investor C Shares Shares Shares Maximum amount no limit $250,000 no limit you can buy Maximum front-end 5.75% none none sales charge Maximum deferred none(1) 5.00%(2) 1.00%(3) sales charge Maximum annual 0.25% distribution 0.75% distribution 0.75% distribution distribution (12b-1)/service (12b-1) fee and (12b-1) fee and and shareholder fee 0.25% service fee 0.25% service fee servicing fees Conversion feature none yes none
(1) A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2) This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3) This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. The share class you choose will depend on how much you're investing, how long you're planning to stay invested, and how you prefer to pay the sales charge. The total cost of your investment over the time you expect to hold your shares will be affected by the distribution (12b-1) and shareholder servicing fees, as well as by the amount of any front-end sales charge or contingent deferred sales charge (CDSC) that applies, and when you're required to pay the charge. You should think about these things carefully before you invest. Investor A Shares have a front-end sales charge, which is deducted when you buy your shares. This means that a smaller amount is invested in the Funds, unless you qualify for a waiver or reduction of the sales charge. However, Investor A Shares have lower ongoing distribution (12b-1) and/or shareholder servicing fees than Investor B and Investor C Shares. This means that Investor A Shares can be expected to pay relatively higher dividends per share. 90 Investor B Shares have limits on how much you can invest. When you buy Investor B or Investor C Shares, the full amount is invested in the Funds. However, you may pay a CDSC when you sell your shares. Over time, Investor B and Investor C Shares can incur distribution (12b-1) and shareholder servicing fees that are equal to or more than the front-end sales charge, and the distribution (12b-1) and shareholder servicing fees you would pay for Investor A Shares. Although the full amount of your purchase is invested in the Funds, any positive investment return on this money may be partially or fully offset by the expected higher annual expenses of Investor B and Investor C Shares. You should also consider the conversion feature for Investor B Shares, which is described in About Investor B Shares. [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by a Fund every business day. [GRAPHIC] About Investor A Shares There is no limit to the amount you can invest in Investor A Shares. You generally will pay a front-end sales charge when you buy your shares, or in some cases, a CDSC when you sell your shares. Front-end sales charge You'll pay a front-end sales charge when you buy Investor A Shares, unless: o you qualify for a waiver of the sales charge. You can find out if you qualify for a waiver in the section, When you might not have to pay a sales charge -- Front end sales charges o you're reinvesting distributions The sales charge you'll pay depends on the amount you're investing -- generally, the larger the investment, the smaller the percentage sales charge. Amount retained Sales charge Sales charge by selling agents as a % of the as a % of the as a % of the offering price net asset value offering price Amount you bought per share per share per share $0-$49,999 5.75% 6.10% 5.00% $50,000-$99,999 4.50% 4.71% 3.75% $100,000-$249,999 3.50% 3.63% 2.75% $250,000-$499,999 2.50% 2.56% 2.00% $500,000-$999,999 2.00% 2.04% 1.75% $1,000,000 or more 0.00% 0.00% 1.00%(1)
(1) 1.00% on the first $3,000,000, 0.50% on the next $47,000,000, 0.25% on amounts over $50,000,000. Stephens pays the amount retained by selling agents on investments of $1,000,000 or more, but may be reimbursed when a CDSC is deducted if the shares are sold within eighteen months from the time they were bought. Please see How selling and servicing agents are paid for more information. 91 Contingent deferred sales charge If you own or buy $1,000,000 or more of Investor A Shares, there is one situation when you'll pay a CDSC: o If you buy your shares on or after August 1, 1999 and sell them within 18 months of buying them, you'll pay a CDSC of 1.00%. The CDSC is calculated from the day your purchase is accepted (the trade date). We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. You won't pay a CDSC on any increase in net asset value since you bought your shares, or on any shares you receive from reinvested distributions. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. [GRAPHIC] About Investor B Shares You can buy up to $250,000 of Investor B Shares. You don't pay a sales charge when you buy Investor B Shares, but you may have to pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC when you sell your Investor B Shares, unless: o you bought the shares on or after January 1, 1996 and before August 1, 1997 o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge -- Contingent deferred sales charges The CDSC you pay depends on when you bought your shares, how much you bought in some cases, and how long you held them. If you sell your shares during the following year: You'll pay a CDSC of: - ---------------------------------- ------------------------------------------------------------------------- Shares you bought Shares Shares on or after you you bought Shares you bought between 1/1/1996 bought after 8/1/1997 and 11/15/1998 and before before 11/15/1998 in the following amounts: 8/1/1997 1/1/1996 ------------ ------------------------------------ ------------- --------- $250,000- $500,000- $0-$249,999 $499,999 $999,999 the first year you own them 5.0% 5.0% 3.0% 2.0% none 5.0% the second year you own them 4.0% 4.0% 2.0% 1.0% none 4.0% the third year you own them 3.0% 3.0% 1.0% none none 3.0% the fourth year you own them 3.0% 3.0% none none none 2.0% the fifth year you own them 2.0% 2.0% none none none 2.0% the sixth year you own them 1.0% 1.0% none none none 1.0% after six years of owning them none none none none none none
92 The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor B Shares. Please see How selling and servicing agents are paid for more information. About the conversion feature Investor B Shares generally convert automatically to Investor A Shares according to the following schedule: Will convert to Investor A Shares Investor B Shares you bought after you've owned them for after November 15, 1998 eight years between August 1, 1997 and November 15, 1998 $0-$249,000 nine years $250,000-$499,999 six years $500,000-$999,999 five years before August 1, 1997 nine years The conversion feature allows you to benefit from the lower operating costs of Investor A Shares, which can help increase total returns. Here's how the conversion works: o We won't convert your shares if you tell your investment professional, selling agent or the transfer agent within 90 days before the conversion date that you don't want your shares to be converted. Remember, it's in your best interest to convert your shares because Investor A Shares have lower expenses. o Shares are converted at the end of the month in which they become eligible for conversion. Any shares you received from reinvested distributions on these shares will convert to Investor A Shares at the same time. o You'll receive the same dollar value of Investor A Shares as the Investor B Shares that were converted. No sales charge or other charges apply. o Investor B Shares that you received from an exchange of Investor B Shares of another Nations Fund will convert based on the day you bought the original shares. Your conversion date may be later if you exchanged to or from a Nations Money Market Fund. o Conversions are free from federal tax. 93 [GRAPHIC] About Investor C Shares There is no limit to the amount you can invest in Investor C Shares. You don't pay a sales charge when you buy Investor C Shares, but you may pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC of 1.00% when you sell Investor C Shares within one year of buying them, unless: o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge -- Contingent deferred sales charges The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor C Shares. Please see How selling and servicing agents are paid for more information. [GRAPHIC] Please contact your investment professional for more information about reductions and waivers of sales charges. You should tell your investment professional that you may qualify for a reduction or a waiver before buying shares. We can change or cancel these terms at any time. Any change or cancellation applies only to future purchases. When you might not have to pay a sales charge Front-end sales charges (Investor A Shares) There are three ways you can lower the front-end sales charge you pay on Investor A Shares: o Combine purchases you've already made Rights of accumulation allow you to combine the value of Investor A, Investor B and Investor C Shares you already own with Investor A Shares you're buying to calculate the sales charge. The sales charge is based on the total value of the shares you already own, or the original purchase cost, whichever is higher, plus the value of the shares you're buying. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify for rights of accumulation. o Combine purchases you plan to make By signing a letter of intent, you can combine the value of shares you already own with the value of shares you plan to buy over a 13-month period to calculate the sales charge. o You can choose to start the 13-month period up to 90 days before you sign the letter of intent. o Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. o If you don't buy as much as you planned within the period, you must pay the difference between the charges you've paid and the charges that actually apply to the shares you've bought. 94 o Your first purchase must be at least 5% of the minimum amount for the sales charge level that applies to the total amount you plan to buy. o If the purchase you've made later qualifies for a reduced sales charge through the 90-day backdating provisions, we'll make an adjustment for the lower charge when the letter of intent expires. Any adjustment will be used to buy additional shares at the reduced sales charge. o Combine purchases with family members You can receive a quantity discount by combining purchases of Investor A Shares that you, your spouse and children under age 21 make on the same day. Some distributions or payments from the dissolution of certain qualified plans also qualify for the quantity discount. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: o full-time employees and retired employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries and the immediate families of these people o banks, trust companies and thrift institutions acting as fiducuaries o individuals receiving a distribution from a Bank of America trust or other fiduciary account may use the proceeds of that distribution to buy Investor A Shares without paying a front-end sales charge, as long as the proceeds are invested in the Funds within 90 days of the date of distribution o Nations Funds' Trustees, Directors and employees of its investment sub-advisers o registered broker/dealers that have entered into a Nations Funds dealer agreement with Stephens may buy Investor A Shares without paying a front-end sales charge for their investment account only o registered personnel and employees of these broker/dealers and their family members may buy Investor A Shares without paying a front-end sales charge according to the internal policies and procedures of the employing broker/dealer as long as these purchases are made for their own investment purposes o employees or partners of any service provider to the Funds o former shareholders of Class B Shares of the Special Equity Portfolio of The Capitol Mutual Funds who held these shares as of January 31, 1994 or received Investor A Shares of Nations Aggressive Growth Fund may buy Investor A Shares of Nations Aggressive Growth Fund without paying a front-end sales charge 95 o investors who buy through accounts established with certain fee-based investment advisers or financial planners, wrap fee accounts and other managed agency/asset allocation accounts o shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at net asset value The following plans can buy Investor A Shares without paying a front-end sales charge: o pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the Internal Revenue Code of 1986, as amended (the tax code) o employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must: o have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or o sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or o be an employer-sponsored plan with at least 100 eligible participants, or o be a participant in an alliance program that has signed an agreement with the Fund or a selling agent o certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors You can also buy Investor A Shares without paying a sales charge if you buy the shares within 120 days of selling the same Fund. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. 96 Contingent deferred sales charges (Investor A, Investor B and Investor C Shares) You won't pay a CDSC on the following transactions: o shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner o distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors o the following retirement plan distributions: o lump-sum or other distributions from a qualified corporate or self-employed retirement plan following the retirement (or following attainment of age 59 1/2 in the case of a "key employee" of a "top heavy" plan) o distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 o a tax-free return of an excess contribution to an IRA o distributions from a qualified retirement plan that aren't subject to the 10% additional federal withdrawal tax under Section 72(t)(2) of the tax code o payments made to pay medical expenses which exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least 12 weeks o shares sold under our right to liquidate a shareholder's account, including instances where the aggregate net asset value of Investor A, Investor B or Investor C Shares held in the account is less than the minimum account size o if you exchange Investor B or Investor C Shares of a Nations Fund that were bought through a Bank of America employee benefit plan for Investor A Shares of a Nations Fund o withdrawals made under the Automatic Withdrawal Plan described in Buying, selling and exchanging shares, if the total withdrawals of Investor A, Investor B or Investor C Shares made in a year are less than 12% of the total value of those shares in your account. A CDSC may only apply to Investor A Shares if you bought more than $1,000,000 We'll also waive the CDSC on the sale of Investor A or Investor C Shares bought before September 30, 1994 by current or retired employees of Bank of America Corporation (and its predecessors) and its affiliates, or by current or former trustees or directors of the Nations Funds or other management companies managed by Bank of America. You won't pay a CDSC on the sale of Investor B or Investor C Shares if you reinvest any of the proceeds in the same Fund within 120 days of the sale. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. 97 [GRAPHIC] Buying, selling and exchanging shares [GRAPHIC] When you sell shares of a mutual fund, the fund is effectively "buying" them back from you. This is called a redemption. You can invest in the Funds through your selling agent or directly from Nations Funds. We encourage you to consult with an investment professional who can open an account for you with a selling agent and help you with your investment decisions. Once you have an account, you can buy, sell and exchange shares by contacting your investment professional or selling agent. They will look after any paperwork that's needed to complete a transaction and send your order to us. You should also ask your selling agent about its limits, fees and policies for buying, selling and exchanging shares, which may be different from those described here, and about its related programs or services. The table on the next page summarizes some key information about buying, selling and exchanging shares. You'll find sales charges and other fees that apply to these transactions in Choosing a share class. The Funds also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. Please contact your investment professional, or call us at 1.800.321.7854 if you have questions or you need help placing an order. 98 Ways to buy, sell or How much you can buy, exchange sell or exchange Other things to know ----------------- ---------------------------------------- ----------------------------------------------------- Buying shares In a lump sum minimum initial investment: There is no limit to the amount you can invest in o $1,000 for regular accounts Investor A and C Shares. You can invest up to o $500 for traditional and Roth IRA $250,000 in Investor B Shares. accounts o $250 for certain fee-based accounts o no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: o $100 for all accounts Using our minimum initial investment: You can buy shares twice a month, monthly or Systematic o $100 quarterly, using automatic transfers from your Investment Plan minimum additional investment: bank account. o $50 - ------------------------------------------------------------------------------------------------------------------------------------ Selling shares In a lump sum o you can sell up to $50,000 of your We'll deduct any CDSC from the amount you're shares by telephone, otherwise there selling and send you or your selling agent the are no limits to the amount you can balance, usually within three business days of sell receiving your order. o other restrictions may apply to If you paid for your shares with a check that withdrawals from retirement plan wasn't certified, we'll hold the sale proceeds accounts when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared. Using our o minimum $25 per withdrawal Your account balance must be at least $10,000 Automatic to set up the plan. You can make withdrawals Withdrawal Plan twice a month, monthly, quarterly, bi-annually or annually. We'll send your money by check or deposit it directly to your bank account. No CDSC is deducted if you withdraw 12% or less of the value of your shares in a class. - ------------------------------------------------------------------------------------------------------------------------------------ Exchanging shares In a lump sum o minimum $1,000 per exchange You can exchange your Investor A Shares for Investor A shares of any other Nations Fund, except Index Funds. You won't pay a front-end sales charge, CDSC or redemption fee on the shares you're exchanging. You can exchange your Investor B Shares for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You can exchange your Investor C Shares for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of a Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Using our o minimum $25 per exchange You must already have an investment in the Automatic Funds into which you want to exchange. You can Exchange make exchanges monthly or quarterly. Feature
99 [GRAPHIC] A business day is any day that the New York Stock Exchange (NYSE) is open. A business day ends at the close of regular trading on the NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes early, the business day ends as of the time the NYSE closes. The NYSE is closed on weekends and on the following national holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. How shares are priced All transactions are based on the price of a Fund's shares -- or its net asset value per share. We calculate net asset value per share for each class of each Fund at the end of each business day. First, we calculate the net asset value for each class of a Fund by determining the value of the Fund's assets in the class and then subtracting its liabilities. Next, we divide this amount by the number of shares that investors are holding in the class. Valuing securities in a Fund The value of a Fund's assets is based on the total market value of all of the securities it holds. The prices reported on stock exchanges and securities markets around the world are usually used to value securities in a Fund. If prices aren't readily available, or the value of a security has been materially affected by events occurring after a foreign exchange closes, we'll base the price of a security on its fair value. When a Fund uses fair value to price securities it may value those securities higher or lower than another fund that uses market quotations to price the same securities. We use the amortized cost method, which approximates market value, to value short-term investments maturing in 60 days or less. International markets may be open on days when U.S. markets are closed. The value of foreign securities owned by a Fund could change on days when Fund shares may not be bought or sold. How orders are processed Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents before the end of a business day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive that day's net asset value per share. Orders received after the end of a business day will receive the next business day's net asset value per share. The business day that applies to your order is also called the trade date. We may refuse any order to buy or exchange shares. If this happens, we'll return any money we've received to your selling agent. Telephone orders You can place orders to buy, sell or exchange by telephone if you complete the telephone authorization section of our account application and send it to us. Here's how telephone orders work: o If you sign up for telephone orders after you open your account, you must have your signature guaranteed. o Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. o We'll take reasonable steps to confirm that telephone instructions are genuine. For example, we require proof of your identification before we will act on instructions received by telephone and may record telephone conversations. If we and our service providers don't take these steps, we may be liable for any losses from unauthorized or fraudulent instructions. o Telephone orders may be difficult to complete during periods of significant economic or market change. 100 [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by a Fund every business day. [GRAPHIC] Buying shares Here are some general rules for buying shares: o You buy Investor A Shares at the offering price per share. You buy Investor B and Investor C Shares at net asset value per share. o If we don't receive your money within three business days of receiving your order, we'll refuse the order. o Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. o Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. Minimum initial investment The minimum initial amount you can buy is usually $1,000. If you're buying shares through one of the following accounts or plans, the minimum initial amount you can buy is: o $500 for traditional and Roth individual retirement accounts (IRAs) o $250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts o $100 using our Systematic Investment Plan o There is no minimum for 401(k) plans, simplified employee pension plans (SEPs), salary reduction-simplified employee pension plans (SAR-SEPs), Savings Incentives Match Plans for Employees (SIMPLE IRAs), salary reduction-IRAs (SAR-IRAs) or other similar kinds of accounts. However, if the value of your account falls below $1,000 for 401(k) plans or $500 for the other plans within one year after you open your account, we may sell your shares. We'll give you 60 days notice in writing if we're going to do this Minimum additional investment You can make additional purchases of $100, or $50 if you use our Systematic Investment Plan. 101 [GRAPHIC] For more information about telephone orders, see How orders are processed. Systematic Investment Plan You can make regular purchases of $50 or more using automatic transfers from your bank account to the Funds you choose. You can contact your investment professional or us to set up the plan. Here's how the plan works: o You can buy shares twice a month, monthly or quarterly. o You can choose to have us transfer your money on or about the 15th or the last day of the month. o Some exceptions may apply to employees of Bank of America and its affiliates, and to plans set up before August 1, 1997. For details, please contact your investment professional. [GRAPHIC] Selling shares Here are some general rules for selling shares: o We'll deduct any CDSC from the amount you're selling and send you the balance. o If you're selling your shares through a selling agent, we'll normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. Your selling agent is responsible for depositing the sale proceeds to your account on time. o If you're selling your shares directly through us, we'll normally send the sale proceeds by mail or electronic transfer them to your bank account within three business days after the Fund receives your order. o You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. o If you paid for your shares with a check that wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared, whichever is later. o If you hold any shares in certificate form, you must sign the certificates (or send a signed stock power with them) and send them to PFPC. Your signature must be guaranteed unless you've made other arrangements with us. We may ask for any other information we need to prove that the order is properly authorized. o Under certain circumstances allowed under the Investment Company Act of 1940 (1940 Act), we can pay you in securities or other property when you sell your shares. o We can delay payment of the sale proceeds for up to seven days. o Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. 102 We may sell your shares: o if the value of your account falls below $500. We'll give you 60 days notice in writing if we're going to do this o if your selling agent tells us to sell your shares under arrangements made between the selling agent and you o under certain other circumstances allowed under the 1940 Act Automatic Withdrawal Plan The Automatic Withdrawal Plan lets you withdraw $25 or more twice a month, monthly, quarterly, bi-annually or annually. You can contact your investment professional or us to set up the plan. Here's how the plan works: o Your account balance must be at least $10,000 to set up the plan. o If you set up the plan after you've opened your account, your signature must be guaranteed. o You can choose to have us transfer your money on or about the 10th or the 25th of the month. o You won't pay a CDSC on Investor A, Investor B or Investor C Shares if you withdraw 12% or less of the value of those shares in a year. Otherwise, we'll deduct any CDSC from the withdrawals. o We'll send you a check or deposit the money directly to your bank account. o You can cancel the plan by giving your selling agent or us 30 days notice in writing. It's important to remember that if you withdraw more than your investment in the Fund is earning, you'll eventually use up your original investment. [GRAPHIC] You should make sure you understand the investment objective and principal investment strategies of the Fund you're exchanging into. Please read its prospectus carefully. [GRAPHIC] Exchanging shares You can sell shares of a Fund to buy shares of another Nations Fund. This is called an exchange. You might want to do this if your investment goals or tolerance for risk changes. Here's how exchanges work: o You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. o The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. o You may only make exchanges into a Fund that is legally sold in your state of residence. o You generally may only make an exchange into a Fund that is accepting investments. 103 o We may limit the number of exchanges you can make within a specified period of time. o We may change or cancel your right to make an exchange by giving the amount of notice required by regulatory authorities (generally 60 days for a material change or cancellation). o You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. Exchanging Investor A Shares You can exchange Investor A Shares of a Fund for Investor A Shares of any other Nations Fund, except Index Funds. Here are some rules for exchanging Investor A Shares: o You won't pay a front-end sales charge on the shares of the Fund you're exchanging. o You won't pay a CDSC, if applicable, on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC at that time will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. o You won't pay a redemption fee on the shares you're exchanging. Any redemption fee will be deducted when you sell the shares you received from the exchange. Any redemption fee will be paid to the original Fund. Exchanging Investor B Shares You can exchange Investor B Shares of a Fund for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Investor C Shares of a Nations Money Market Fund through an exchange of Investor B Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Investor C Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. 104 Exchanging Investor C Shares You can exchange Investor C Shares of a Fund for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of a Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Daily Shares of a Nations Money Market Fund through an exchange of Investor C Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Daily Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. Automatic Exchange Feature The Automatic Exchange Feature lets you exchange $25 or more of Investor A, Investor B or Investor C Shares every month or every quarter. You can contact your investment professional or us to set up the plan. Here's how automatic exchanges work: o Send your request to PFPC in writing or call 1.800.321.7854. o If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. o You must already have an investment in the Funds you want to exchange. o You can choose to have us transfer your money on or about the 1st or the 15th day of the month. o The rules for making exchanges apply to automatic exchanges. 105 [GRAPHIC] How selling and servicing agents are paid Selling and servicing agents usually receive compensation based on your investment in the Funds. The kind and amount of the compensation depends on the share class in which you invest. Selling agents typically pay a portion of the compensation they receive to their investment professionals. Commissions Your selling agent may receive an up-front commission (reallowance) when you buy shares of a Fund. The amount of this commission depends on which share class you choose: o up to 5.00% of the offering price per share of Investor A Shares. The commission is paid from the sales charge we deduct when you buy your shares o up to 4.00% of the net asset value per share of Investor B Shares. The commission is not deducted from your purchase -- we pay your selling agent directly o up to 1.00% of the net asset value per share of Investor C Shares. The commission is not deducted from your purchase -- we pay your selling agent directly If you buy Investor B or Investor C Shares you will be subject to higher distribution (12b-1) and shareholder servicing fees and may be subject to a CDSC when you sell your shares. [GRAPHIC] The financial institution or intermediary that buys shares for you is also sometimes referred to as a selling agent. The distribution fee is often referred to as a "12b-1" fee because it's paid through a plan approved under Rule 12b-1 under the 1940 Act. Your selling agent may charge other fees for services provided to your account. Distribution (12b-1) and shareholder servicing fees Stephens and selling and servicing agents may be compensated for selling shares and providing services to investors under distribution and shareholder servicing plans. The amount of the fee depends on the class of shares you own: Maximum annual distribution (12b-1) and shareholder servicing fees (as an annual % of average daily net assets) Investor A Shares 0.25% combined distribution (12b-1) and shareholder servicing fee Investor B Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee Investor C Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee
Fees are calculated daily and paid monthly. Because these fees are paid out of the Funds' assets on an ongoing basis, they will increase the cost of your investment over time, and may cost you more than any sales charges you may pay. The Funds pay these fees to Stephens and/or to eligible selling and servicing agents and financial institutions, including BA Advisors or its affiliates, for as long as the plans continue. We may reduce or discontinue payments at any time. 106 Other compensation Selling and servicing agents may also receive: o a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds o additional amounts on all sales of shares: o up to 1.00% of the offering price per share of Investor A Shares o up to 1.00% of the net asset value per share of Investor B Shares o up to 1.00% of the net asset value per share of Investor C Shares o non-cash compensation like trips to sales seminars, tickets to sporting events, theater or other entertainment, opportunities to participate in golf or other outings and gift certificates for meals or merchandise This compensation, which is not paid by the Funds, is discretionary and may be available only to selected selling and servicing agents. For example, Stephens sometimes sponsors promotions involving Banc of America Investment Services, Inc., an affiliate of BA Advisors, and certain other selling or servicing agents. Selected selling and servicing agents also may receive compensation for opening a minimum number of accounts. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. 107 [GRAPHIC] Distributions and taxes [GRAPHIC] The power of compounding Reinvesting your distributions buys you more shares of a Fund -- which lets you take advantage of the potential for compound growth. Putting the money you earn back into your investment means it, in turn, may earn even more money. Over time, the power of compounding has the potential to significantly increase the value of your investment. There is no assurance, however, that you'll earn more money if you reinvest your distributions. About distributions A mutual fund can make money two ways: o It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. o A fund can also have capital gain if the value of its investments increases. If a fund sells an investment at a gain, the gain is realized. If a fund continues to hold the investment, any gain is unrealized. A mutual fund is not subject to federal income tax as long as it distributes its net investment income and realized capital gain to its shareholders. The Funds intend to pay out a sufficient amount of their income and capital gain to their shareholders so the Funds won't have to pay any federal income tax. When a Fund makes this kind of a payment, it's split among all shares, and is called a distribution. All of the Funds distribute any net realized capital gain at least once a year. The frequency of distributions of net investment income varies by Fund: Frequency of Fund income distributions Nations Convertible Securities Fund quarterly Nations Asset Allocation Fund quarterly Nations Equity Income Fund monthly Nations Classic Value Fund annually Nations Value Fund monthly Nations Blue Chip Fund quarterly Nations Strategic Growth Fund monthly Nations Marsico Growth & Income Fund quarterly Nations Capital Growth Fund monthly Nations Aggressive Growth Fund monthly Nations Marsico Focused Equities Fund quarterly Nations MidCap Growth Fund quarterly Nations Marsico 21st Century Fund quarterly Nations Small Company Fund monthly Nations Financial Services Fund annually Any distribution you receive is based on the number of shares you hold on the record date, which is usually the day the distribution is declared (daily dividend Funds) or the day before the distribution is declared (all other Funds). Shares are eligible to receive net investment income distributions from the settlement date (daily dividend Funds), trade date (all other Funds) or realized capital gain from the trade date of the purchase up to and including the day before the shares are sold. 108 Different share classes of a Fund usually pay different net investment income distribution amounts, because each class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. We'll automatically reinvest distributions in additional shares of the same Fund unless you tell us you want to receive your distributions in cash. You can do this by writing to us at the address on the back cover, or by calling us at 1.800.321.7854. We generally pay cash distributions within five business days after the end of the month, quarter or year in which the distribution was made. If you sell all of your shares, we'll normally pay any distribution that applies to those shares in cash within five business days after the sale was made. If you buy shares of a Fund shortly before it makes a distribution, you will, in effect, receive part of your purchase back in the distribution, which is subject to tax. Similarly, if you buy shares of a Fund that holds securities with unrealized capital gain, you will, in effect, receive part of your purchase back if and when the Fund sells those securities and realizes and distributes the gain. This distribution is also subject to tax. Some Funds have built up, or have the potential to build up, high levels of unrealized capital gain. [GRAPHIC] This information is a summary of how federal income taxes may affect your investment in the Funds. It is not intended as a substitute for careful tax planning. You should consult with your own tax adviser about your situation, including any foreign, state and local taxes that may apply. [GRAPHIC] For more information about taxes, please see the SAI. How taxes affect your investment Distributions that come from net investment income, net short-term capital gain and certain other items generally are taxable to you as ordinary income. A portion of such distributions to corporate shareholders may qualify for the dividends-received deduction. Distributions that come from net long-term capital gain generally are taxable to you as long-term capital gain. In general, all distributions are taxable to you when paid, whether they are paid in cash or automatically reinvested in additional shares of the Fund. However, any distributions declared to shareholders of record in October, November or December of one year and distributed in January of the following year will be taxable as if they had been paid to you on December 31 of the first year. We'll send you a notice every year that tells you how much you've received in distributions during the year and their federal tax status. Foreign, state and local taxes may also apply to these distributions. 109 Withholding tax We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts to be paid for in securities or other property and exchanges) if: o you haven't given us a correct Taxpayer Identification Number (TIN) and haven't certified that the TIN is correct and withholding doesn't apply o the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records o the IRS informs us that you're otherwise subject to backup withholding The IRS may also impose penalties against you if you don't give us a correct TIN. Amounts we withhold are applied to your federal income tax liability. You may receive a refund from the IRS if the withholding tax results in an overpayment of taxes. We're also normally required by federal law to withhold tax on distributions (other than capital gain distributions) paid to foreign shareholders. Taxation of redemptions and exchanges Your redemptions (including redemptions paid in securities) and exchanges of Fund shares will usually result in a taxable capital gain or loss, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. 110 [GRAPHIC] Financial highlights The financial highlights table is designed to help you understand how the Funds have performed for the past five years or, if shorter, the period of the Fund's operations. Certain information reflects financial results for a single Fund share. The total investment return line indicates how much an investment in the Fund would have earned, assuming all dividends and distributions had been reinvested. Financial highlights for Investor A, Investor B and Investor C Shares of Nations Classic Value Fund and Nations Financial Services Fund are not provided because these classes of shares had not yet commenced operations during the period indicated. This information, except as noted below, has been audited by PricewaterhouseCoopers LLP. The financial highlights of Nations Small Company Fund for the period ended May 16, 1997 were audited by other independent accountants. The independent accountants' report and Nations Funds financial statements are incorporated by reference into the SAI. Please see the back cover to find out how you can get a copy. 111
Nations Convertible Securities Fund For a Share outstanding throughout each period Year ended Period ended Investor A Shares* 03/31/01 03/31/00# Operating performance: Net asset value, beginning of period $ 22.17 $ 18.31 Net investment income 0.51 0.46 Net realized and unrealized gain/(loss) on investments (2.05) 5.26 Net increase/(decrease) in net asset value from operations (1.54) 5.72 Distributions: Dividends from net investment income (0.55) (0.45) Distributions from net realized capital gains (3.97) (1.41) Distributions in excess of net realized capital gains (0.07) -- Total dividends and distributions (4.59) (1.86) Net asset value, end of period $ 16.04 $ 22.17 Total return++ (7.88)% 33.68% ============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $315,857 $369,488 Ratio of operating expenses to average net assets 1.24%(a)(b) 1.22%+(b) Ratio of net investment income/(loss) to average net assets 2.86% 1.96%+ Portfolio turnover rate 73% 65% Ratio of operating expenses to average net assets with waivers and/or expense reimbursements 1.25%(a) 1.23%+ Period ended Year ended Year ended Year ended Investor A Shares* 05/14/99 02/28/99 02/28/98 02/28/97** Operating performance: Net asset value, beginning of period $ 17.34 $ 17.28 $ 17.35 $ 16.42 Net investment income 0.12 0.51 0.58 0.57 Net realized and unrealized gain/(loss) on investments 0.96 0.25 2.89 2.34 Net increase/(decrease) in net asset value from operations 1.08 0.76 3.47 2.91 Distributions: Dividends from net investment income (0.11) (0.52) (0.59) (0.57) Distributions from net realized capital gains -- (0.18) (2.95) (1.41) Distributions in excess of net realized capital gains -- -- -- -- Total dividends and distributions (0.11) (0.70) (3.54) (1.98) Net asset value, end of period $ 18.31 $ 17.34 $ 17.28 $ 17.35 Total return++ 6.25% 4.64% 21.54% 18.53% ========================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $352,000 $356,000 $391,000 $309,000 Ratio of operating expenses to average net assets 1.30%+ 1.15%(a) 1.10%(a) 1.18%(a) Ratio of net investment income/(loss) to average net assets 3.07%+ 2.97% 3.35% 3.40% Portfolio turnover rate 16% 66% 69% 124% Ratio of operating expenses to average net assets with waivers and/or expense reimbursements 1.32%+ 1.16%(a) 1.12%(a) 1.19%(a)
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Capital Income Fund A Shares, which were reorganized into the Convertible Securities Investor A Shares 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. ** As of July 22, 1996, the Portfolio designated the existing series of shares as "A" Shares. + Annualized ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 112
Nations Convertible Securities Fund For a Share outstanding throughout each period Year ended Investor B Shares* 03/31/01 Operating performance: Net asset value, beginning of period $ 22.06 Net investment income 0.35 Net realized and unrealized gain/(loss) on investments (2.00) Net increase/(decrease) in net asset value from operations (1.65) Distributions: Dividends from net investment income (0.45) Distributions from net realized capital gains (3.97) Distributions in excess of net realized capital gains (0.07) Total dividends and distributions (4.49) Net asset value, end of period $ 15.92 Total return++ (8.49)% ====================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $49,763 Ratio of operating expenses to average net assets 1.99%(a)(b) Ratio of net investment income to average net assets 2.08% Portfolio turnover rate 73% Ratio of operating expenses to average net assets with waivers and/or expense reimbursements 2.00%(a) Period ended Period ended Period ended Investor B Shares* 03/31/00# 05/14/99 02/28/99** Operating performance: Net asset value, beginning of period $ 18.27 $ 17.30 $ 17.67 Net investment income 0.44 0.09 0.22 Net realized and unrealized gain/(loss) on investments 5.12 0.96 (0.17) Net increase/(decrease) in net asset value from operations 5.56 1.05 0.05 Distributions: Dividends from net investment income (0.36) (0.08) (0.24) Distributions from net realized capital gains (1.41) -- (0.18) Distributions in excess of net realized capital gains -- -- -- Total dividends and distributions (1.77) (0.08) (0.42) Net asset value, end of period $ 22.06 $ 18.27 $ 17.30 Total return++ 32.76% 6.10% 0.44% ============================================================================================================ Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $11,175 $4,000 $3,000 Ratio of operating expenses to average net assets 1.97%+(b) 2.06%+ 1.96%+(a) Ratio of net investment income to average net assets 1.21%+ 2.34%+ 2.14%+ Portfolio turnover rate 65% 16% 66% Ratio of operating expenses to average net assets with waivers and/or expense reimbursements 1.98%+ 2.08%+ 1.97%+(a)
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Capital Income Fund B Shares, which were reorganized into the Convertible Securities Investor B Shares 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 Investor B Shares commenced operations on July 15, 1998. + Annualized ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 113
Nations Convertible Securities Fund For a Share outstanding throughout each period Year ended Period ended Investor C Shares* 03/31/01 03/31/00# Operating performance: Net asset value, beginning of period $ 22.23 $ 18.35 Net investment income 0.35 0.38 Net realized and unrealized gain/(loss) on investments (2.02) 5.22 Net increase/(decrease) in net asset value from operations (1.67) 5.60 Distributions: Dividends from net investment income (0.44) (0.31) Distributions from net realized capital gains (3.97) (1.41) Distributions in excess of net realized capital gains (0.07) -- Total dividends and distributions (4.48) (1.72) Net asset value, end of period $ 16.08 $ 22.23 Total return++ (8.50)% 32.81% ============================================================================================ Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $9,827 $3,033 Ratio of operating expenses to average net assets 1.99%(a)(b) 1.97%+(b) Ratio of net investment income to average net assets 2.08% 1.21%+ Portfolio turnover rate 73% 65% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.00%(a) 1.98%+ Period ended Year ended Year ended Period ended Investor C Shares* 05/14/99 02/28/99 02/28/98 02/28/97** Operating performance: Net asset value, beginning of period $ 17.37 $ 17.24 $ 17.30 $ 16.24 Net investment income 0.10 0.40 0.48 0.32 Net realized and unrealized gain/(loss) on investments 0.97 0.31 2.89 2.43 Net increase/(decrease) in net asset value from operations 1.07 0.71 3.37 2.75 Distributions: Dividends from net investment income (0.09) (0.40) (0.48) (0.28) Distributions from net realized capital gains -- (0.18) (2.95) (1.41) Distributions in excess of net realized capital gains -- -- -- -- Total dividends and distributions (0.09) (0.58) (3.43) (1.69) Net asset value, end of period $ 18.35 $ 17.37 $ 17.24 $ 17.30 Total return++ 6.17% 4.29% 20.97% 17.47% ===================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $4,000 $4,000 $3,000 $1,000 Ratio of operating expenses to average net assets 1.80%+ 1.65%(a) 1.60% 1.66%+ Ratio of net investment income to average net assets 2.56%+ 2.45% 2.85% 2.85%+ Portfolio turnover rate 16% 66% 69% 124% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.07%+ 1.91%(a) 1.86% 1.91%+
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Capital Income Fund K Shares, which were reorganized into the Convertible Securities Investor C Shares 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 Investor C Shares commenced operations on October 21, 1996. + Annualized ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 114
Nations Asset Allocation Fund For a Share outstanding throughout each period Year ended Period ended Investor A Shares*,*** 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of period $ 24.35 $ 23.40 Net investment income 0.50 0.43 Net realized and unrealized gain/(loss) on investments (2.82) 1.59 Net increase/(decrease) in net asset value from operations (2.32) 2.02 Distributions: Dividends from net investment income (0.50) (0.35) Distributions from net realized capital gains (1.21) (0.72) Total dividends and distributions (1.71) (1.07) Net asset value, end of period $ 20.32 $ 24.35 Total return++ (10.05)% 8.99% =============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $231,520 $83,412 Ratio of operating expenses to average net assets 1.23%(a)(b) 1.20%+(a)(b) Ratio of net investment income/(loss) to average net assets 2.20% 1.60%+ Portfolio turnover rate 88% 84% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.25%(a) 1.27%+(a) Period ended Year ended Year ended Year ended Investor A Shares*,*** 05/14/99 2/28/99 2/28/98 2/28/97** Operating performance: Net asset value, beginning of period $ 22.50 $ 21.41 $ 19.40 $ 17.52 Net investment income 0.10 0.55 0.52 0.48 Net realized and unrealized gain/(loss) on investments 0.91 2.48 3.72 2.50 Net increase/(decrease) in net asset value from operations 1.01 3.03 4.24 2.98 Distributions: Dividends from net investment income (0.11) (0.45) (0.47) (0.46) Distributions from net realized capital gains -- (1.49) (1.76) (0.64) Total dividends and distributions (0.11) (1.94) (2.23) (1.10) Net asset value, end of period $ 23.40 $ 22.50 $ 21.41 $ 19.40 Total return++ 4.50% 14.72% 23.07% 17.64% ========================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $72,000 $72,000 $49,000 $35,000 Ratio of operating expenses to average net assets 1.18%+ 0.94% 1.03% 1.25% Ratio of net investment income/(loss) to average net assets 2.01%+ 2.64% 2.67% 2.59% Portfolio turnover rate 20% 114% 67% 116% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.20%+ 0.94% 1.09% 1.94%
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Asset Allocation Fund A Shares, which were reorganized into the Asset Allocation Investor A Shares 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. ** As of July 22, 1996, the Fund designated the existing series of shares as "A" Shares. *** Seafirst Shares converted into Investor A Shares on June 23, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 115
Nations Asset Allocation Fund For a Share outstanding throughout each period Year ended Investor B Shares* 03/31/01# Operating performance: Net asset value, beginning of period $ 24.24 Net investment income 0.33 Net realized and unrealized gain/(loss) on investments (2.81) Net increase/(decrease) in net asset value from operations (2.48) Distributions: Dividends from net investment income (0.33) Distributions from net realized capital gains (1.21) Total dividends and distributions (1.54) Net asset value, end of period $ 20.22 Total return++ (10.73)% ============================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $104,745 Ratio of operating expenses to average net assets 1.98%(a)(b) Ratio of net investment income to average net assets 1.45% Portfolio turnover rate 88% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.00%(a) Period ended Period ended Period ended Investor B Shares* 03/31/00# 05/14/99 02/28/99** Operating performance: Net asset value, beginning of period $ 23.32 $ 22.45 $ 23.17 Net investment income 0.47 0.06 0.22 Net realized and unrealized gain/(loss) on investments 1.39 0.89 0.75 Net increase/(decrease) in net asset value from operations 1.86 0.95 0.97 Distributions: Dividends from net investment income (0.22) ((0.08) (0.20) Distributions from net realized capital gains (0.72) -- (1.49) Total dividends and distributions (0.94) (0.08) (1.69) Net asset value, end of period $ 24.24 $ 23.32 $ 22.45 Total return++ 8.31% 4.26% 4.59% ===================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $121,644 $10,000 $6,000 Ratio of operating expenses to average net assets 1.95%+(a)(b) 1.95%+ 1.74%+ Ratio of net investment income to average net assets 0.85%+ 1.26%+ 1.92%+ Portfolio turnover rate 84% 20% 114% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.02%+(a) 1.97%+ 1.74%+
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Asset Allocation Fund B Shares, which were reorganized into the Asset Allocation Investor B Shares 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 Investor B Shares commenced operations on July 15, 1998. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 116
Nations Asset Allocation Fund For a Share outstanding throughout each period Year ended Period ended Investor C Shares* 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of period $ 24.27 $ 23.33 Net investment income 0.33 0.42 Net realized and unrealized gain/(loss) on investments (2.82) 1.43 Net increase/(decrease) in net asset value from operations (2.49) 1.85 Distributions: Dividends from net investment income (0.33) (0.19) Distributions from net realized capital gains (1.21) (0.72) Total dividends and distributions (1.54) (0.91) Net asset value, end of period $ 20.24 $ 24.27 Total return++ (10.74)% 8.24% ============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $ 2,532 $2,305 Ratio of operating expenses to average net assets 1.98%(a)(b) 1.95%+(a)(b) Ratio of net investment income to average net assets 1.45% 0.85%+ Portfolio turnover rate 88% 84% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.00%(a) 2.02%+(a) Period ended Year ended Year ended Period ended Investor C Shares* 05/14/99 02/28/99 02/28/98 02/28/97** Operating performance: Net asset value, beginning of period $ 22.45 $ 21.36 $ 19.40 $ 17.23 Net investment income 0.05 0.44 0.41 0.19 Net realized and unrealized gain/(loss) on investments 0.92 2.49 3.66 2.80 Net increase/(decrease) in net asset value from operations 0.97 2.93 4.07 2.99 Distributions: Dividends from net investment income (0.09) (0.35) (0.36) (0.18) Distributions from net realized capital gains -- (1.49) (1.75) (0.64) Total dividends and distributions (0.09) (1.84) (2.11) (0.82) Net asset value, end of period $ 23.33 $ 22.45 $ 21.36 $ 19.40 Total return++ 4.31% 14.23% 22.10% 17.69% =========================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $2,000 $2,000 $2,000 $1,000 Ratio of operating expenses to average net assets 1.67%+ 1.44% 1.52% 1.94%+ Ratio of net investment income to average net assets 1.52%+ 2.14% 2.17% 2.31%+ Portfolio turnover rate 20% 114% 67% 116% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.96%+ 1.69% 1.58% 3.26%+
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Asset Allocation Fund K Shares, which were reorganized into the Asset Allocation Investor C Shares 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 Investor C Shares commenced operations on November 11, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 117
Nations Equity Income Fund For a Share outstanding throughout each year Year Year ended ended Investor A Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 11.52 $ 11.31 Net investment income 0.09 0.12 Net realized and unrealized gain/(loss) on investments (2.28) 0.36 Net increase/(decrease) in net asset value from operations (2.19) 0.48 Distributions: Dividends from net investment income (0.08) (0.12) Distributions from net realized capital gains (0.53) (0.15) Total dividends and distributions (0.61) (0.27) Net asset value, end of year $ 8.72 $ 11.52 Total return++ (19.75)% 4.26% ========================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $21,475 $33,569 Ratio of operating expenses to average net assets 1.12%(a)(b) 1.10%(a)(b) Ratio of net investment income to average net assets 0.81% 1.00% Portfolio turnover rate 139% 54% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.12%(a) 1.10%(a) Year Year Year ended ended ended Investor A Shares 03/31/99# 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 13.89 $ 12.26 $ 13.11 Net investment income 0.20 0.26 0.36 Net realized and unrealized gain/(loss) on investments (1.45) 3.77 1.58 Net increase/(decrease) in net asset value from operations (1.25) 4.03 1.94 Distributions: Dividends from net investment income (0.20) (0.24) (0.38) Distributions from net realized capital gains (1.13) (2.16) (2.41) Total dividends and distributions (1.33) (2.40) (2.79) Net asset value, end of year $ 11.31 $ 13.89 $ 12.26 Total return++ ( 9.87)% 36.92% 15.30% ========================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $51,278 $68,006 $47,891 Ratio of operating expenses to average net assets 1.05%(a)(b) 1.11%(a) 1.16%(a) Ratio of net investment income to average net assets 1.67% 1.97% 2.84% Portfolio turnover rate 69% 74% 102% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.05%(a) 1.11%(a) 1.16%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%.
Nations Equity Income Fund For a Share outstanding throughout each year Year ended Year ended Investor B Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 11.51 $ 11.31 Net investment income 0.00 ## 0.03 Net realized and unrealized gain/(loss) on investments (2.26) 0.36 Net increase/(decrease) in net asset value from operations (2.26) 0.39 Distributions: Dividends from net investment income (0.02) (0.04) Distributions from net realized capital gains (0.53) (0.15) Total dividends and distributions (0.55) (0.19) Net asset value, end of year $ 8.70 $ 11.51 Total return++ (20.35)% 3.43% ===================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $42,724 $73,966 Ratio of operating expenses to average net assets 1.87%(a)(b) 1.85%(a)(b) Ratio of net investment income to average net assets 0.06% 0.25% Portfolio turnover rate 139% 54% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.87%(a) 1.85%(a) Year ended Year ended Year ended Investor B Shares 03/31/99# 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 13.87 $ 12.25 $ 13.10 Net investment income 0.11 0.17 0.31 Net realized and unrealized gain/(loss) on investments (1.45) 3.77 1.57 Net increase/(decrease) in net asset value from operations (1.34) 3.94 1.88 Distributions: Dividends from net investment income (0.09) (0.16) (0.32) Distributions from net realized capital gains (1.13) (2.16) (2.41) Total dividends and distributions (1.22) (2.32) (2.73) Net asset value, end of year $11.31 $ 13.87 $ 12.25 Total return++ (10.49)% 36.02% 14.76% =========================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $107,747 $144,929 $108,055 Ratio of operating expenses to average net assets 1.80%(a)(b) 1.78%(a) 1.66%(a) Ratio of net investment income to average net assets 0.92% 1.30% 2.34% Portfolio turnover rate 69% 74% 102% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.80%(a) 1.78%(a) 1.66%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset 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%. 118
Nations Equity Income Fund For a Share outstanding throughout each year Year ended Year ended Investor C Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 11.66 $ 11.45 Net investment income 0.00 ## 0.03 Net realized and unrealized gain/(loss) on investments (2.29) 0.37 Net increase/(decrease) in net asset value from operations (2.29) 0.40 Distributions: Dividends from net investment income (0.02) (0.04) Distributions from net realized capital gains (0.53) (0.15) Total dividends and distributions (0.55) (0.19) Net asset value, end of year $ 8.82 $ 11.66 Total return++ (20.34)% 3.46% ===================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 2,719 $4,365 Ratio of operating expenses to average net assets 1.87%(a)(b) 1.85%(a)(b) Ratio of net investment income to average net assets 0.06% 0.25% Portfolio turnover rate 139% 54% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.87%(a) 1.85%(a) Year ended Year ended Year ended Investor C Shares 03/31/99# 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 14.01 $ 12.35 $ 13.19 Net investment income 0.12 0.18 0.33 Net realized and unrealized gain/(loss) on investments (1.44) 3.83 1.59 Net increase/(decrease) in net asset value from operations (1.32) 4.01 1.92 Distributions: Dividends from net investment income (0.11) (0.19) (0.35) Distributions from net realized capital gains (1.13) (2.16) (2.41) Total dividends and distributions (1.24) (2.35) (2.76) Net asset value, end of year $ 11.45 $ 14.01 $ 12.35 Total return++ (10.28)% 36.28% 15.01% ========================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 5,801 $10,348 $5,007 Ratio of operating expenses to average net assets 1.64%(a)(b) 1.69%(a) 1.41%(a) Ratio of net investment income to average net assets 1.08% 1.39% 2.59% Portfolio turnover rate 69% 74% 102% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.80%(a) 1.69%(a) 1.41%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share (a) The effect of the custodial expense offset 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%. Nations Value Fund For a Share outstanding throughout each year Year ended Year ended Investor A Shares 03/31/01 03/31/00# Operating performance: Net asset value, beginning of year $ 16.24 $ 18.16 Net investment income 0.14 0.07 Net realized and unrealized gain/(loss) on investments (0.43) (0.07) Net increase/(decrease) in net asset value from operations (0.29) -- Distributions: Dividends from net investment income (0.15) (0.06) Distributions from net realized capital gains (3.42) (1.86) Total dividends and distributions (3.57) (1.92) Net asset value, end of year $ 12.38 $ 16.24 Total return++ ( 2.29)% ( 0.47)% ======================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $65,975 $94,256 Ratio of operating expenses to average net assets 1.19%(a)(b) 1.18%(a)(b) Ratio of net investment income to average net assets 1.03% 0.40% Portfolio turnover rate 181% 95% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.19%(a) 1.18%(a)
Year ended Year ended Year ended Investor A Shares 03/31/99# 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 19.92 $ 17.87 $ 16.60 Net investment income 0.09 0.15 0.21 Net realized and unrealized gain/(loss) on investments 0.63 5.98 2.70 Net increase/(decrease) in net asset value from operations 0.72 6.13 2.91 Distributions: Dividends from net investment income (0.09) (0.14) (0.22) Distributions from net realized capital gains (2.39) (3.94) (1.42) Total dividends and distributions (2.48) (4.08) (1.64) Net asset value, end of year $ 18.16 $ 19.92 $ 17.87 Total return++ 3.96% 38.22% 17.80% ==================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $136,691 $149,167 $70,305 Ratio of operating expenses to average net assets 1.19%(a)(b) 1.20%(a) 1.22%(a) Ratio of net investment income to average net assets 0.51% 0.79% 1.26% Portfolio turnover rate 38% 79% 47% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.19%(a) 1.20%(a) 1.22%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 119 Nations Value Fund For a Share outstanding throughout each year Year ended Year ended Investor B Shares 03/31/01 03/31/00# Operating performance: Net asset value, beginning of year $ 16.00 $ 18.00 Net investment income 0.04 (0.06) Net realized and unrealized gain/(loss) on investments (0.43) (0.08) Net increase/(decrease) in net asset value from operations (0.39) (0.14) Distributions: Dividends from net investment income (0.06) (0.00)## Distributions from net realized capital gains (3.42) (1.86) Total dividends and distributions (3.48) (1.86) Net asset value, end of year $ 12.13 $ 16.00 Total return++ (3.05)% (1.24)% =============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $93,064 $124,000 Ratio of operating expenses to average net assets 1.94%(a)(b) 1.93%(a)(b) Ratio of net investment income to average net assets 0.28% (0.35)% Portfolio turnover rate 181% 95% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.94%(a) 1.93%(a)
Year ended Year ended Year ended Investor B Shares 03/31/99# 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 19.81 $ 17.81 $ 16.55 Net investment income ( 0.05) 0.02 0.14 Net realized and unrealized gain/(loss) on investments 0.63 5.96 2.68 Net increase/(decrease) in net asset value from operations 0.58 5.98 2.82 Distributions: Dividends from net investment income -- (0.04) (0.14) Distributions from net realized capital gains (2.39) (3.94) (1.42) Total dividends and distributions (2.39) (3.98) (1.56) Net asset value, end of year $ 18.00 $ 19.81 $ 17.81 Total return++ 3.11% 37.29% 17.21% =========================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $154,025 $149,635 $99,999 Ratio of operating expenses to average net assets 1.94%(a)(b) 1.87%(a) 1.72%(a) Ratio of net investment income to average net assets (0.24)% 0.12% 0.76% Portfolio turnover rate 38% 79% 47% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.94%(a) 1.87%(a) 1.72%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset 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%. Nations Value Fund For a Share outstanding throughout each year Year ended Year ended Investor C Shares 03/31/01 03/31/00# Operating performance: Net asset value, beginning of year $ 15.99 $ 17.98 Net investment income 0.04 (0.06) Net realized and unrealized gain/(loss) on investments (0.42) (0.07) Net increase/(decrease) in net asset value from operations (0.38) (0.13) Distributions: Dividends from net investment income (0.06) (0.00)## Distributions from net realized capital gains (3.42) (1.86) Total dividends and distributions (3.48) (1.86) Net asset value, end of year $ 12.13 $ 15.99 Total return++ (2.98)% (1.18)% ============================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $8,479 $10,042 Ratio of operating expenses to average net assets 1.94%(a)(b) 1.93%(a)(b) Ratio of net investment income to average net assets 0.28% ( 0.32)% Portfolio turnover rate 181% 95% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.94%(a) 1.93%(a)
Year ended Year ended Year ended Investor C Shares 03/31/99# 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 19.75 $ 17.75 $ 16.50 Net investment income (0.02) 0.04 0.17 Net realized and unrealized gain/(loss) on investments 0.65 5.95 2.68 Net increase/(decrease) in net asset value from operations 0.63 5.99 2.85 Distributions: Dividends from net investment income (0.01) (0.05) (0.18) Distributions from net realized capital gains (2.39) (3.94) (1.42) Total dividends and distributions (2.40) (3.99) (1.60) Net asset value, end of year $ 17.98 $ 19.75 $ 17.75 Total return++ 3.39% 37.55% 17.51% =========================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $12,106 $13,969 $6,519 Ratio of operating expenses to average net assets 1.70%(a)(b) 1.78%(a) 1.47%(a) Ratio of net investment income to average net assets 0.00% 0.21% 1.01% Portfolio turnover rate 38% 79% 47% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.94%(a) 1.78%(a) 1.47%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset 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%. 120 Nations Blue Chip Fund For a Share outstanding throughout each period Year ended Period ended Investor A Shares*,*** 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of period $ 37.24 $ 35.92 Net investment income/(loss) (0.01) 0.02 Net realized and unrealized gain/(loss) on investments (8.14) 4.65 Net increase/(decrease) in net asset value from operations (8.15) 4.67 Distributions: Dividends from net investment income 0.00 ## -- Distributions from net realized capital gains (2.18) (3.35) Distributions in excess of net realized capital gains (0.44) -- Total dividends and distributions (2.62) (3.35) Net asset value, end of period $ 26.47 $ 37.24 Total return++ (23.30)% 14.10% ==================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $603,622 $394,071 Ratio of operating expenses to average net assets 1.21% 1.20%+ Ratio of net investment income/(loss) to average net assets (0.02)% (0.08)%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.21% 1.23%+
Period ended Year ended Year ended Year ended Investor A Shares*,*** 05/14/99 02/28/99 02/28/98 02/28/97** Operating performance: Net asset value, beginning of period $ 33.43 $ 29.90 $ 25.22 $ 20.53 Net investment income/(loss) 0.00 ## 0.09 0.16 0.23 Net realized and unrealized gain/(loss) on investments 2.49 5.26 7.91 5.21 Net increase/(decrease) in net asset value from operations 2.49 5.35 8.07 5.44 Distributions: Dividends from net investment income -- (0.10) (0.15) (0.22) Distributions from net realized capital gains -- (1.72) (3.24) (0.53) Distributions in excess of net realized capital gains -- -- -- -- Total dividends and distributions -- (1.82) (3.39) (0.75) Net asset value, end of period $ 35.92 $ 33.43 $ 29.90 $ 25.22 Total return++ 7.45% 18.58% 33.96% 27.01% ============================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $423,000 $401,000 $288,000 $153,000 Ratio of operating expenses to average net assets 1.29%+ 1.16% 1.18% 1.28% Ratio of net investment income/(loss) to average net assets (0.03)%+ 0.31% 0.63% 0.99% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.33%+ 1.17% 1.22% 1.71%
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Blue Chip Fund A Shares, which were reorganized into the Blue Chip Investor A Shares 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. ** As of July 22, 1996, the Fund designated the existing series of shares as "A" Shares. *** Seafirst Shares converted into Investor A Shares on June 23, 2000 + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01. 121 Nations Blue Chip Fund For a Share outstanding throughout each period Year ended Period ended Period ended Period ended Investor B Shares* 03/31/01# 03/31/00# 05/14/99 02/28/99** Operating performance: Net asset value, beginning of period $ 36.80 $ 35.77 $ 33.34 $ 33.73 Net investment loss (0.25) (0.26) (0.02) (0.05) Net realized and unrealized gain/(loss) on investments (7.98) 4.64 2.45 1.39 Net increase/(decrease) in net asset value from operations (8.23) 4.38 2.43 1.34 Distributions: Dividends from net investment income -- -- -- (0.01) Distributions from net realized capital gains (2.18) (3.35) -- (1.72) Distributions in excess of net realized capital gains (0.44) -- -- -- Total dividends and distributions (2.62) (3.35) -- (1.73) Net asset value, end of period $ 25.95 $ 36.80 $ 35.77 $ 33.34 Total return++ (23.85)% 13.37% 7.29% 4.53% ======================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $75,623 $75,538 $21,000 $13,000 Ratio of operating expenses to average net assets 1.96% 1.95%+ 2.05%+ 1.97%+ Ratio of net investment loss to average net assets (0.77)% (0.83)%+ (0.77)%+ (0.58)%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.96% 1.98%+ 2.09%+ 1.99%+
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Blue Chip Fund B Shares, which were reorganized into the Blue Chip Investor B Shares 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. ** Blue Chip Investor B Shares commenced operations on July 15, 1998. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. Nations Blue Chip Fund For a Share outstanding throughout each period Year ended Period ended Investor C Shares* 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of period $ 36.71 $ 35.69 Net investment income/(loss) (0.25) (0.24) Net realized and unrealized gain/(loss) on investments (7.97) 4.61 Net increase/(decrease) in net asset value from operations (8.22) 4.37 Distributions: Dividends from net investment income -- -- Distributions from net realized capital gains (2.18) (3.35) Distributions in excess of net realized capital gains (0.44) -- Total dividends and distributions (2.62) (3.35) Net asset value, end of period $ 25.87 $ 36.71 Total return++ (23.84)% 13.35% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of period in (000's) $17,034 $17,123 Ratio of operating expenses to average net assets 1.96% 1.95%+ Ratio of net investment income/(loss) to average net assets (0.77)% (0.83)%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.96% 1.98%+
Period ended Year ended Year ended Period ended Investor C Shares* 05/14/99 02/28/99 02/28/98 02/28/97** Operating performance: Net asset value, beginning of period $ 33.24 $ 29.79 $ 25.20 $ 20.38 Net investment income/(loss) (0.04) (0.06) 0.04 0.07 Net realized and unrealized gain/(loss) on investments 2.49 5.23 7.83 5.35 Net increase/(decrease) in net asset value from operations 2.45 5.17 7.87 5.42 Distributions: Dividends from net investment income -- -- (0.04) (0.07) Distributions from net realized capital gains -- (1.72) (3.24) (0.53) Distributions in excess of net realized capital gains -- -- -- -- Total dividends and distributions -- (1.72) (3.28) (0.60) Net asset value, end of period $ 35.69 $ 33.24 $ 29.79 $ 25.20 Total return++ 7.37% 17.96% 33.08% 26.96% ============================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period in (000's) $15,000 $13,000 $7,000 $1,000 Ratio of operating expenses to average net assets 1.80%+ 1.66% 1.67% 1.92%+ Ratio of net investment income/(loss) to average net assets (0.54)%+ (0.22)% 0.12% 0.45%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.08%+ 1.92% 1.69% 2.12%+
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Blue Chip Fund K Shares, which were reorganized into the Blue Chip Investor C Shares 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. ** Blue Chip Investor C Shares commenced operations on November 11, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. 122
Nations Strategic Growth Fund For a Share outstanding throughout each period Year ended Period ended Investor A Shares 03/31/01 03/31/00*# Operating performance: Net asset value, beginning of period $ 16.98 $ 13.88 Net investment income/(loss) (0.04) (0.03) Net realized and unrealized gain/(loss) on investments (4.47) 3.19 Net increase/(decrease) in net asset value from operations (4.51) 3.16 Distributions: Distributions from net realized capital gains (0.03) (0.06) Net asset value, end of period $ 12.44 $ 16.98 Total return++ (26.62)% 22.86% ========================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $11,895 $5,503 Ratio of operating expenses to average net assets 1.19%(a)(b) 1.22%+ Ratio of net investment income/(loss) to average net assets (0.34)% (0.35)%+ Portfolio turnover rate 56% 23% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.19%(a) 1.22%+
* Strategic Growth Fund Investor A Shares commenced operations on August 2, 1999. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. Nations Strategic Growth Fund For a Share outstanding throughout each period Year ended Period ended Investor B Shares 03/31/01 03/31/00*# Operating performance: Net asset value, beginning of period $ 16.90 $ 13.88 Net investment income/(loss) (0.14) (0.10) Net realized and unrealized gain/(loss) on investments (4.44) 3.18 Net increase/(decrease) in net asset value from operations (4.58) 3.08 Distributions: Distributions from net realized capital gains (0.03) (0.06) Net asset value, end of period $ 12.29 $ 16.90 Total return++ (27.16)% 22.29% =========================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period in (000's) $ 6,758 $4,934 Ratio of operating expenses to average net assets 1.94%(a)(b) 1.97%+ Ratio of net investment income/(loss) to average net assets (1.09)% (1.10)%+ Portfolio turnover rate 56% 23% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.94%(a) 1.97%+
* Strategic Growth Fund Investor B Shares commenced operations on August 2, 1999. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 123 Nations Strategic Growth Fund For a Share outstanding throughout each period Year ended Period ended Investor C Shares 03/31/01 03/31/00*# Operating performance: Net asset value, beginning of period $ 16.92 $ 13.88 Net investment income/(loss) (0.14) (0.10) Net realized and unrealized gain/(loss) on investments (4.45) 3.20 Net increase/(decrease) in net asset value from operations (4.59) 3.10 Distributions: Distributions from net realized capital gains (0.03) (0.06) Net asset value, end of period $ 12.30 $ 16.92 Total return++ (27.14)% 22.36% ========================================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $ 2,137 $1,706 Ratio of operating expenses to average net assets 1.94%(a)(b) 1.97%+ Ratio of net investment income/(loss) to average net assets (1.09)% (1.10)%+ Portfolio turnover rate 56% 23% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.94%(a) 1.97%+
* Strategic Growth Fund Investor C Shares commenced operations on August 2, 1999. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%.
Nations Marsico Growth & Income Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor A Shares 03/31/01 03/31/00 03/31/99# 03/31/98*# Operating performance: Net asset value, beginning of period $ 21.62 $ 14.95 $ 12.02 $ 10.00 Net investment income/(loss) (0.05) (0.11) (0.03) 0.00 (b) Net realized and unrealized gain/(loss) on investments (6.54) 6.82 2.97 2.02 Net increase/(decrease) in net asset value from operations (6.59) 6.71 2.94 2.02 Distributions: Distributions from net realized capital gains (0.16) (0.04) (0.01) -- Total dividends and distributions (0.04) (0.01) -- Net asset value, end of the period $ 14.87 $ 21.62 $ 14.95 $ 12.02 Total return++ (30.63)% 45.01% 24.38% 20.20% ============================================================================================================================ Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $164,031 $175,859 $43,392 $1,141 Ratio of operating expenses to average net assets 1.35% 1.48%(a) 1.50%(a) 1.34%+(a) Ratio of net investment income/(loss) to average net assets (0.28)% (0.62)% (0.20)% 0.13%+ Portfolio turnover rate -- 55%(c) 150% 22% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.35% 1.48%(a) 1.50%(a) 2.22%+(a)
* Nations Marsico Growth & Income Fund Investor A Shares commenced operations on December 31, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents less than $0.01 per share. (c) Amount represents results prior to conversion to a master-feeder structure. 124
Nations Marsico Growth & Income Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor B Shares 03/31/01 03/31/00 03/31/99# 03/31/98*# Operating performance: Net asset value, beginning of period $ 21.31 $ 14.85 $ 12.02 $ 10.00 Net investment income/(loss) (0.18) (0.24) (0.12) (0.02) Net realized and unrealized gain/(loss) on investments (6.42) 6.74 2.96 2.04 Net increase/(decrease) in net asset value from operations (6.60) 6.50 2.84 2.02 Distributions: Distributions from net realized capital gains (0.16) (0.04) (0.01) -- Total dividends and distributions (0.04) (0.01) -- Net asset value, end of period $ 14.55 $ 21.31 $ 14.85 $ 12.02 Total return++ (31.13)% 43.90% 23.55% 20.20% ============================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $239,621 $305,607 $99,257 $7,907 Ratio of operating expenses to average net assets 2.10% 2.23%(a) 2.25%(a) 2.09%+(a) Ratio of net investment income/(loss) to average net assets (1.03)% (1.37)% (0.95)% (0.62)%+ Portfolio turnover rate -- 55%(b) 150% 22% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.10% 2.23%(a) 2.25%(a) 2.97%+(a)
* Nations Marsico Growth & Income Fund Investor B Shares commenced operations on December 31, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure.
Nations Marsico Growth & Income Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor C Shares 03/31/01 03/31/00 03/31/99# 03/31/98*# Operating performance: Net asset value, beginning of period $ 21.34 $ 14.86 $ 12.02 $ 10.00 Net investment income/(loss) (0.17) (0.25) (0.12) (0.02) Net realized and unrealized gain/(loss) on investments (6.44) 6.77 2.97 2.04 Net increase/(decrease) in net asset value from operations (6.61) 6.52 2.85 2.02 Distributions: Distributions from net realized capital gains (0.16) (0.04) (0.01) -- Total dividends and distributions ( 0.04) ( 0.01) -- Net asset value, end of period $ 14.57 $ 21.34 $ 14.86 $ 12.02 Total return++ (31.10)% 43.93% 23.63% 20.20% ========================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $32,365 $34,785 $3,233 $ 518 Ratio of operating expenses to average net assets 2.10% 2.23%(a) 2.25%(a) 2.09%+(a) Ratio of net investment income/(loss) to average net assets (1.03)% (1.37)% (0.95)% (0.62)%+ Portfolio turnover rate -- 55%(b) 150% 22% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.10% 2.23%(a) 2.25%(a) 2.97%+(a)
* Nations Marsico Growth & Income Fund Investor C Shares commenced operations on December 31, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure. 125
Nations Capital Growth Fund For a Share outstanding throughout each year Year ended Year ended Investor A Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 14.43 $ 11.97 Net investment income/(loss) (0.07) (0.08) Net realized and unrealized gain/(loss) on investments (3.84) 3.42 Net increase/(decrease) in net asset value from operations (3.91) 3.34 Distributions: Dividends from net investment income -- -- Distributions from net realized capital gains (2.36) (0.88) Total dividends and distributions (2.36) (0.88) Net asset value, end of year $ 8.16 $ 14.43 Total return++ (30.91)% 29.41% ============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $32,519 $61,756 Ratio of operating expenses to average net assets 1.20%(a)(b) 1.21%(a)(b) Ratio of net investment income/(loss) to average net assets (0.53)% (0.63)% Portfolio turnover rate 96% 39% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.20%(a) 1.21%(a) Year ended Year ended Year ended Investor A Shares 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $ 13.26 $ 11.67 $ 13.41 Net investment income/(loss) (0.03) (0.01) 0.02 Net realized and unrealized gain/(loss) on investments 1.58 5.28 1.65 Net increase/(decrease) in net asset value from operations 1.55 5.27 1.67 Distributions: Dividends from net investment income -- -- (0.02) Distributions from net realized capital gains (2.84) (3.68) (3.39) Total dividends and distributions (2.84) (3.68) (3.41) Net asset value, end of year $ 11.97 $ 13.26 $ 11.67 Total return++ 14.70% 53.83% 11.58% ============================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $52,987 $43,380 $20,465 Ratio of operating expenses to average net assets 1.21%(a) 1.20%(a)(b) 1.21%(b) Ratio of net investment income/(loss) to average net assets (0.29)% (0.12)% 0.14% Portfolio turnover rate 39% 113% 75% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.21%(a) 1.20%(a) 1.21%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. Nations Capital Growth Fund For a Share outstanding throughout each year Year ended Year ended Investor B Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 13.58 $ 11.39 Net investment income/(loss) (0.14) (0.17) Net realized and unrealized gain/(loss) on investments (3.57) 3.24 Net increase/(decrease) in net asset value from operations (3.71) 3.07 Distributions: Distributions from net realized capital gains (2.36) (0.88) Total dividends and distributions (2.36) (0.88) Net asset value, end of year $ 7.51 $ 13.58 Total return++ (31.37)% 28.42% ================================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $45,832 $75,844 Ratio of operating expenses to average net assets 1.95%(a)(b) 1.96%(a)(b) Ratio of net investment income/(loss) to average net assets (1.28)% (1.38)% Portfolio turnover rate 96% 39% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.95%(a) 1.96%(a)
Year ended Year ended Year ended Investor B Shares 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $ 12.83 $ 11.47 $ 13.31 Net investment income/(loss) (0.11) (0.10) (0.08) Net realized and unrealized gain/(loss) on investments 1.51 5.14 1.63 Net increase/(decrease) in net asset value from operations 1.40 5.04 1.55 Distributions: Distributions from net realized capital gains (2.84) (3.68) (3.39) Total dividends and distributions (2.84) (3.68) (3.39) Net asset value, end of year $ 11.39 $ 12.83 $ 11.47 Total return++ 13.86% 52.52% 10.68% ============================================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $66,338 $59,496 $41,933 Ratio of operating expenses to average net assets 1.96%(a) 1.95%(a)(b) 1.96%(b) Ratio of net investment income/(loss) to average net assets (1.04)% (0.87)% (0.61)% Portfolio turnover rate 39% 113% 75% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.96%(a) 1.95%(a) 1.96%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 126
Nations Capital Growth Fund For a Share outstanding throughout each year Year ended Year ended Investor C Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 13.70 $ 11.48 Net investment income/(loss) (0.13) (0.16) Net realized and unrealized gain/(loss) on investments (3.62) 3.26 Net increase/(decrease) in net asset value from operations (3.75) 3.10 Distributions: Distributions from net realized capital gains (2.36) (0.88) Total dividends and distributions (2.36) (0.88) Net asset value, end of year $ 7.59 $ 13.70 Total return++ (31.38)% 28.46% =========================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 3,338 $4,883 Ratio of operating expenses to average net assets 1.95%(a)(b) 1.96%(a)(b) Ratio of net investment income/(loss) to average net assets (1.28)% (1.38)% Portfolio turnover rate 96% 39% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.95%(a) 1.96%(a) Year ended Year ended Year ended Investor C Shares 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $ 12.92 $ 11.50 $ 13.26 Net investment income/(loss) (0.11) (0.08) (0.01) Net realized and unrealized gain/(loss) on investments 1.51 5.18 1.64 Net increase/(decrease) in net asset value from operations 1.40 5.10 1.63 Distributions: Distributions from net realized capital gains (2.84) (3.68) (3.39) Total dividends and distributions (2.84) (3.68) (3.39) Net asset value, end of year $ 11.48 $ 12.92 $ 11.50 Total return++ 13.76% 53.02% 11.39% ========================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $3,862 $6,176 $5,752 Ratio of operating expenses to average net assets 1.96%(a) 1.78%(a)(b) 1.46%(b) Ratio of net investment income/(loss) to average net assets (1.04)% (0.70)% (0.11)% Portfolio turnover rate 39% 113% 75% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.96%(a) 1.78%(a) 1.46%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. Nations Aggressive Growth Fund For a Share outstanding throughout each year Year ended Year ended Investor A Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 20.43 $ 23.23 Net investment income/(loss) ( 0.13) ( 0.02) Net realized and unrealized gain/(loss) on investments ( 7.79) ( 0.04) Net increase/(decrease) in net asset value from operations ( 7.92) ( 0.06) Distributions: Dividends from net investment income -- -- Distributions from net realized capital gains ( 1.83) ( 2.74) Distributions in excess of net realized capital gains ( 0.57) -- Total dividends and distributions ( 2.40) ( 2.74) Net asset value, end of year $ 10.11 $ 20.43 Total return++ (42.68)% ( 0.41)% ========================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $21,622 $47,624 Ratio of operating expenses to average net assets 1.25%(a) 1.23%(a)(b) Ratio of net investment income/(loss) to average net assets ( 0.76)% ( 0.10)% Portfolio turnover rate 135% 79% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.25%(a) 1.23%(a)
Year ended Year ended Year ended Investor A Shares 03/31/99 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 22.09 $ 18.44 $ 17.16 Net investment income/(loss) ( 0.03) 0.02 0.08 Net realized and unrealized gain/(loss) on investments 3.21 7.87 2.80 Net increase/(decrease) in net asset value from operations 3.18 7.89 2.88 Distributions: Dividends from net investment income -- ( 0.01) ( 0.09) Distributions from net realized capital gains ( 2.04) ( 4.23) ( 1.51) Distributions in excess of net realized capital gains -- -- -- Total dividends and distributions ( 2.04) ( 4.24) ( 1.60) Net asset value, end of year $ 23.23 $ 22.09 $ 18.44 Total return++ 15.49% 48.28% 16.76% ========================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $67,356 $21,725 $6,837 Ratio of operating expenses to average net assets 1.22%(a)(b) 1.23%(a)(b) 1.29%(b) Ratio of net investment income/(loss) to average net assets ( 0.13)% 0.12% 0.45% Portfolio turnover rate 72% 79% 120% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.22%(a) 1.23%(a) 1.29%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 127
Nations Aggressive Growth Fund For a Share outstanding throughout each year Year ended Year ended Investor B Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 19.51 $ 22.47 Net investment income/(loss) ( 0.25) ( 0.18) Net realized and unrealized gain/(loss) on investments ( 7.36) ( 0.04) Net increase/(decrease) in net asset value from operations ( 7.61) ( 0.22) Distributions: Distributions from net realized capital gains ( 1.83) ( 2.74) Distributions in excess of net realized capital gains ( 0.57) -- Total dividends and distributions ( 2.40) ( 2.74) Net asset value, end of year $ 9.50 $ 19.51 Total return++ (43.13)% ( 1.19)% ========================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $16,119 $39,680 Ratio of operating expenses to average net assets 2.00%(a) 1.98%(a)(b) Ratio of net investment income/(loss) to average net assets ( 1.51)% ( 0.85)% Portfolio turnover rate 135% 79% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.00%(a) 1.98%(a) Year ended Year ended Year ended Investor B Shares 03/31/99 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 21.57 $ 18.20 $ 17.00 Net investment income/(loss) ( 0.17) ( 0.12) ( 0.05) Net realized and unrealized gain/(loss) on investments 3.11 7.72 2.76 Net increase/(decrease) in net asset value from operations 2.94 7.60 2.71 Distributions: Distributions from net realized capital gains ( 2.04) ( 4.23) ( 1.51) Distributions in excess of net realized capital gains -- -- -- Total dividends and distributions ( 2.04) ( 4.23) ( 1.51) Net asset value, end of year $ 22.47 $ 21.57 $ 18.20 Total return++ 14.69% 47.14% 15.86% ===================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $50,797 $38,079 $20,257 Ratio of operating expenses to average net assets 1.97%(a)(b) 1.98%(a)(b) 2.04%(b) Ratio of net investment income/(loss) to average net assets ( 0.88)% ( 0.63)% ( 0.30)% Portfolio turnover rate 72% 79% 120% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.97%(a) 1.98%(a) 2.04%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. Nations Aggressive Growth Fund For a Share outstanding throughout each year Year ended Year ended Investor C Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $ 19.90 $ 22.86 Net investment income/(loss) ( 0.25) ( 0.18) Net realized and unrealized gain/(loss) on investments ( 7.53) ( 0.04) Net increase/(decrease) in net asset value from operations ( 7.78) ( 0.22) Distributions: Dividends from net investment income -- -- Distributions from net realized capital gains ( 1.83) ( 2.74) Distributions in excess of net realized capital gains ( 0.57) -- Total dividends and distributions ( 2.40) ( 2.74) Net asset value, end of year $ 9.72 $ 19.90 Total return++ (43.14)% ( 1.16)% ========================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 563 $1,496 Ratio of operating expenses to average net assets 2.00%(a) 1.98%(a)(b) Ratio of net investment income/(loss) to average net assets ( 1.51)% ( 0.85)% Portfolio turnover rate 135% 79% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.00%(a) 1.98%(a)
Year ended Year ended Year ended Investor C Shares 03/31/99 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $ 21.92 $ 18.41 $ 17.10 Net investment income/(loss) ( 0.17) ( 0.09) 0.04 Net realized and unrealized gain/(loss) on investments 3.15 7.83 2.79 Net increase/(decrease) in net asset value from operations 2.98 7.74 2.83 Distributions: Dividends from net investment income -- -- ( 0.01) Distributions from net realized capital gains ( 2.04) ( 4.23) ( 1.51) Distributions in excess of net realized capital gains -- -- -- Total dividends and distributions ( 2.04) ( 4.23) ( 1.52) Net asset value, end of year $ 22.86 $ 21.92 $ 18.41 Total return++ 14.64% 47.38% 16.45% ====================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,629 $1,199 $ 446 Ratio of operating expenses to average net assets 1.97%(a)(b) 1.81%(a)(b) 1.54%(b) Ratio of net investment income/(loss) to average net assets ( 0.88)% ( 0.46)% 0.20% Portfolio turnover rate 72% 79% 120% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.97%(a) 1.81%(a) 1.54%
* Aggressive Growth Fund Investor C Shares commenced operations on May 10, 1995. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 128
Nations Marsico Focused Equities Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor A Shares 03/31/01 03/31/00# 03/31/99# 03/31/98*# Operating performance: Net asset value, beginning of period $ 22.56 $ 16.73 $ 12.14 $ 10.00 Net investment income/(loss) ( 0.06) ( 0.03) ( 0.04) ( 0.01) Net realized and unrealized gain/(loss) on investments ( 7.11) 6.09 4.64 2.15 Net increase/(decrease) in net asset value from operations ( 7.17) 6.06 4.60 2.14 Distributions: Distributions from net realized capital gains ( 0.08) ( 0.23) ( 0.01) -- Total dividends and distributions ( 0.08) ( 0.23) ( 0.01) -- Net asset value, end of period $ 15.31 $ 22.56 $ 16.73 $ 12.14 Total return++ (31.80)% 36.62% 37.94% 21.40% ============================================================================================================================ Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $491,437 $690,166 $238,137 $6,056 Ratio of operating expenses to average net assets 1.34% 1.41%(a) 1.31%(a) 1.77%+(a) Ratio of net investment income/(loss) to average net assets ( 0.30)% ( 0.60)% ( 0.20)% ( 0.55)%+ Portfolio turnover rate -- 53%(b) 177% 25% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.34% 1.41%(a) 1.31%(a) 1.77%+(a)
* Nations Marsico Focused Equities Fund Investor A Shares commenced operations on December 31, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/ or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure.
Nations Marsico Focused Equities Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor B Shares 03/31/01 03/31/00# 03/31/99# 03/31/98*# Operating performance: Net asset value, beginning of period $ 22.26 $ 16.62 $ 12.13 $ 10.00 Net investment income/(loss) ( 0.20) ( 0.09) ( 0.12) ( 0.04) Net realized and unrealized gain/(loss) on investments ( 6.98) 5.96 4.62 2.17 Net increase/(decrease) in net asset value from operations ( 7.18) 5.87 4.50 2.13 Distributions: Distributions from net realized capital gains ( 0.08) ( 0.23) ( 0.01) -- Total dividends and distributions ( 0.08) ( 0.23) ( 0.01) -- Net asset value, end of period $ 15.00 $ 22.26 $ 16.62 $ 12.13 Total return ++ (32.32)% 35.71% 37.15% 21.30% ============================================================================================================================ Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $741,285 $1,003,840 $306,365 $20,446 Ratio of operating expenses to average net assets 2.09% 2.16%(a) 2.06%(a) 2.52%+(a) Ratio of net investment income/(loss) to average net assets ( 1.05)% ( 1.35)% ( 0.95)% ( 1.30)%+ Portfolio turnover rate -- 53%(b) 177% 25% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.09% 2.16%(a) 2.06%(a) 2.52%+(a)
* Nations Marsico Focused Equities Fund Investor B Shares commenced operations on December 31, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure. 129
Nations Marsico Focused Equities Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor C Shares 03/31/01 03/31/00# 03/31/99# 03/31/98*# Operating performance: Net asset value, beginning of period $ 22.33 $ 16.67 $ 12.13 $ 10.00 Net investment income/(loss) ( 0.20) ( 0.08) ( 0.14) ( 0.04) Net realized and unrealized gain/(loss) on investments ( 7.00) 5.97 4.69 2.17 Net increase/(decrease) in net asset value from operations ( 7.20) 5.89 4.55 2.13 Distributions: Distributions from net realized capital gains ( 0.08) ( 0.23) ( 0.01) -- Total dividends and distributions ( 0.08) ( 0.23) ( 0.01) -- Net asset value, end of period $ 15.05 $ 22.33 $ 16.67 $ 12.13 Total return++ (32.31)% 35.72% 37.56% 21.30% ========================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $203,642 $247,509 $13,682 $ 469 Ratio of operating expenses to average net assets 2.09% 2.16%(a) 2.06%(a) 2.52%+(a) Ratio of net investment income/(loss) to average net assets ( 1.05)% ( 1.35)% ( 0.95)% ( 1.30)%+ Portfolio turnover rate -- 53%(b) 177% 25% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.09% 2.16%(a) 2.06%(a) 2.52%+(a)
* Nations Marsico Focused Equities Fund Investor C Shares commenced operations on December 31, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charge. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure. Nations MidCap Growth Fund For a Share outstanding throughout each year Year ended Year ended Investor A Shares 03/31/01 03/31/00# Operating performance: Net asset value, beginning of year $ 21.87 $ 13.04 Net investment income/(loss) ( 0.09) ( 0.12) Net realized and unrealized gain/(loss) on investments ( 3.91) 9.59 Net increase/(decrease) in net asset value from operations ( 4.00) 9.47 Distributions: Distributions from net realized capital gains ( 3.73) ( 0.64) Total dividends and distributions ( 3.73) ( 0.64) Net asset value, end of year $ 14.14 $ 21.87 Total return++ (20.98)% 74.82% ==================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $16,536 $22,741 Ratio of operating expenses to average net assets 1.23%(a) 1.25%(a)(b) Ratio of net investment income/(loss) to average net assets ( 0.52)% ( 0.70)% Portfolio turnover rate 39% 46% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.23%(a) 1.25%(a)
Year ended Year ended Year ended Investor A Shares 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $ 16.30 $ 12.69 $ 13.91 Net investment income/(loss) ( 0.07) ( 0.10) ( 0.07) Net realized and unrealized gain/(loss) on investments ( 0.92) 5.50 0.19 Net increase/(decrease) in net asset value from operations ( 0.99) 5.40 0.12 Distributions: Distributions from net realized capital gains ( 2.27) ( 1.79) ( 1.34) Total dividends and distributions ( 2.27) ( 1.79) ( 1.34) Net asset value, end of year $ 13.04 $ 16.30 $ 12.69 Total return++ ( 7.41)% 44.86% 0.18% ============================================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $18,042 $21,591 $12,126 Ratio of operating expenses to average net assets 1.23%(a)(b) 1.23%(a) 1.23%(a) Ratio of net investment income/(loss) to average net assets ( 0.54)% ( 0.67)% ( 0.51)% Portfolio turnover rate 43% 76% 93% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.23%(a) 1.23%(a) 1.23%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 130
Nations MidCap Growth Fund For a Share outstanding throughout each year Year ended Year ended Investor B Shares 03/31/01 03/31/00# Operating performance: Net asset value, beginning of year $ 20.38 $ 12.28 Net investment income/(loss) ( 0.19) ( 0.22) Net realized and unrealized gain/(loss) on investments ( 3.59) 8.96 Net increase/(decrease) in net asset value from operations ( 3.78) 8.74 Distributions: Distributions from net realized capital gains ( 3.73) ( 0.64) Total dividends and distributions ( 3.73) ( 0.64) Net asset value, end of year $ 12.87 $ 20.38 Total return++ (21.51)% 73.47% ====================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $44,261 $49,606 Ratio of operating expenses to average net assets 1.98%(a) 2.00%(a)(b) Ratio of operating expenses to average net assets including interest expense -- -- Ratio of net investment income/(loss) to average net assets ( 1.27)% ( 1.45)% Portfolio turnover rate 39% 46% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.98%(a) 2.00%(a) Year ended Year ended Year ended Investor B Shares 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $ 15.58 $ 12.29 $ 13.61 Net investment income/(loss) ( 0.15) ( 0.20) ( 0.18) Net realized and unrealized gain/(loss) on investments ( 0.88) 5.28 0.20 Net increase/(decrease) in net asset value from operations ( 1.03) 5.08 0.02 Distributions: Distributions from net realized capital gains ( 2.27) ( 1.79) ( 1.34) Total dividends and distributions ( 2.27) ( 1.79) ( 1.34) Net asset value, end of year $ 12.28 $ 15.58 $ 12.29 Total return++ ( 8.10)% 43.64% ( 0.57)% ======================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $33,245 $45,451 $33,342 Ratio of operating expenses to average net assets 1.98%(a)(b) 1.98%(a) 1.98%(a) Ratio of operating expenses to average net assets including interest expense -- 1.99% -- Ratio of net investment income/(loss) to average net assets ( 1.29)% ( 1.42)% ( 1.26)% Portfolio turnover rate 43% 76% 93% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.98%(a) 1.98%(a) 1.98%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%.
Nations MidCap Growth Fund For a Share outstanding throughout each year Year ended Year ended Investor C Shares 03/31/01 03/31/00# Operating performance: Net asset value, beginning of year $ 20.47 $ 12.33 Net investment income/(loss) ( 0.17) ( 0.22) Net realized and unrealized gain/(loss) on investments ( 3.62) 9.00 Net increase/(decrease) in net asset value from operations ( 3.79) 8.78 Distributions: Distributions from net realized capital gains ( 3.73) ( 0.64) Total dividends and distributions ( 3.73) ( 0.64) Net asset value, end of year $ 12.95 $ 20.47 Total return++ (21.46)% 73.50% ========================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 3,248 $2,628 Ratio of operating expenses to average net assets 1.98%(a) 2.00%(a)(b) Ratio of operating expenses to average net assets including interest expense -- -- Ratio of net investment income/(loss) to average net assets ( 1.27)% ( 1.45)% Portfolio turnover rate 39% 46% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.98%(a) 2.00%(a) Year ended Year ended Year ended Investor C Shares 03/31/99# 03/31/98# 03/31/97# Operating performance: Net asset value, beginning of year $ 15.63 $ 12.31 $ 13.56 Net investment income/(loss) ( 0.15) ( 0.18) ( 0.10) Net realized and unrealized gain/(loss) on investments ( 0.88) 5.29 0.19 Net increase/(decrease) in net asset value from operations ( 1.03) 5.11 0.09 Distributions: Distributions from net realized capital gains ( 2.27) ( 1.79) ( 1.34) Total dividends and distributions ( 2.27) ( 1.79) ( 1.34) Net asset value, end of year $ 12.33 $ 15.63 $ 12.31 Total return++ ( 8.08)% 43.80% ( 0.04)% ======================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,383 $2,266 $1,437 Ratio of operating expenses to average net assets 1.98%(a)(b) 1.81%(a) 1.48%(a) Ratio of operating expenses to average net assets including interest expense -- 1.82% -- Ratio of net investment income/(loss) to average net assets ( 1.29)% ( 1.25)% ( 0.76)% Portfolio turnover rate 43% 76% 93% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.98%(a) 1.81%(a) 1.48%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 131
Nations Marsico 21st Century Fund For a Share outstanding throughout the period Period ended Investor A Shares 03/31/01* Operating performance: Net asset value, beginning of period $ 10.00 Net investment income/(loss) ( 0.06) Net realized and unrealized gain/(loss) on investments ( 2.97) Net increase/(decrease) in net asset value from operations ( 3.03) Net asset value, end of period $ 6.97 Total return++ (30.30)% ============================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $19,644 Ratio of operating expenses to average net assets 1.60%+ Ratio of net investment income/(loss) to average net assets ( 0.66)%+ Portfolio turnover rate 426% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.60%+
* Marsico 21st Century Fund Investor A Shares commenced operations on April 10, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charge.
Nations Marsico 21st Century Fund For a Share outstanding throughout the period Period ended Investor B Shares 03/31/01* Operating performance: Net asset value, beginning of period $ 10.00 Net investment income/(loss) ( 0.11) Net realized and unrealized gain/(loss) on investments ( 2.97) Net increase/(decrease) in net asset value from operations ( 3.08) Net asset value, end of period $ 6.92 Total return++ (30.80)% ============================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $50,404 Ratio of operating expenses to average net assets 2.35%+ Ratio of net investment income/(loss) to average net assets ( 1.41)%+ Portfolio turnover rate 426% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.35%+
* Marsico 21st Century Fund Investor B Shares commenced operations on April 10, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charge. 132
Nations Marsico 21st Century Fund For a Share outstanding throughout the period Period ended Investor C Shares 03/31/01* Operating performance: Net asset value, beginning of period $ 10.00 Net investment income/(loss) ( 0.11) Net realized and unrealized gain/(loss) on investments ( 2.97) Net increase/(decrease) in net asset value from operations ( 3.08) Net asset value, end of period $ 6.92 Total return++ (30.80)% ============================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $ 6,557 Ratio of operating expenses to average net assets 2.35%+ Ratio of net investment income/(loss) to average net assets ( 1.41)%+ Portfolio turnover rate 426% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.35%+
* Marsico 21st Century Fund Investor C Shares commenced operations on April 10, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charge.
Nations Small Company Fund For a Share outstanding throughout each period Year ended Year ended Investor A Shares* 03/31/01 03/31/00# Operating performance: Net asset value, beginning of period $ 22.44 $ 11.43 Net investment income/(loss) ( 0.14) ( 0.15) Net realized and unrealized gain/(loss) on investments ( 6.58) 11.19 Net increase/(decrease) in net asset value from operations ( 6.72) 11.04 Distributions: Dividends from net investment income -- -- Distributions from net realized capital gains ( 2.20) ( 0.03) Total dividends and distributions ( 2.20) ( 0.03) Net asset value, end of period $ 13.52 $ 22.44 Total return++ (31.96)% 96.91% ============================================================================================ Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $146,457 $245,425 Ratio of operating expenses to average net assets 1.40%(a)(b) 1.38%(a)(b) Ratio of net investment income/(loss) to average net assets ( 0.77)% ( 0.90)% Portfolio turnover rate 48% 63% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.45%(a) 1.47%(a) Year ended Period ended Period ended Period ended Investor A Shares* 03/31/99# 03/31/98 05/16/97 8/31/96** Operating performance: Net asset value, beginning of period $ 15.74 $ 12.05 $ 10.64 $ 10.00 Net investment income/(loss) ( 0.07) ( 0.02) 0.03 0.05 Net realized and unrealized gain/(loss) on investments ( 3.11) 4.42 1.46 0.64 Net increase/(decrease) in net asset value from operations ( 3.18) 4.40 1.49 0.69 Distributions: Dividends from net investment income -- -- ( 0.03) ( 0.05) Distributions from net realized capital gains ( 1.13) ( 0.71) ( 0.05) -- Total dividends and distributions ( 1.13) ( 0.71) ( 0.08) ( 0.05) Net asset value, end of period $ 11.43 $ 15.74 $ 12.05 $ 10.64 Total return++ (21.32)% 37.02% 13.98% 6.88% ========================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $16,143 $6,772 $3,697 $2,611 Ratio of operating expenses to average net assets 1.20%(a) 1.20%+(a) 1.23%+ 1.25%+ Ratio of net investment income/(loss) to average net assets ( 0.67)% ( 0.20)%+ 0.30%+ 0.66%+ Portfolio turnover rate 87% 59% 48% 31% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.47%(a) 1.51%+(a) 1.66%+ 1.65%+
* The financial information for the fiscal periods prior to May 23, 1997 reflects the financial information for the Pilot Small Capitalization Domestic Stock Fund's Class A Shares, which were reorganized into Small Company Fund Investor A Shares as of the close of business on May 23, 1997. Prior to May 23, 1997, the investment adviser to Small Company Fund was Boatmen's Trust Company. Effective May 23, 1997, the investment sub-adviser to Small Company Fund is Banc of America Capital Management, LLC. ** Represents the period from December 12, 1995 (commencement of operations) to August 31, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 133
Nations Small Company Fund For a Share outstanding throughout each period Year ended Year ended Investor B Shares* 03/31/01 03/31/00# Operating performance: Net asset value, beginning of period $ 21.94 $ 11.23 Net investment income/(loss) ( 0.23) ( 0.25) Net realized and unrealized gain/(loss) on investments ( 6.43) 10.99 Net increase/(decrease) in net asset value from operations ( 6.66) 10.74 Distributions: Dividends from net investment income -- -- Distributions from net realized capital gains ( 2.20) ( 0.03) Total dividends and distributions ( 2.20) ( 0.03) Net asset value, end of period $ 13.08 $ 21.94 Total return++ (32.45)% 95.79% ============================================================================================ Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $11,744 $13,839 Ratio of operating expenses to average net assets 2.15%(a)(b) 2.13%(a)(b) Ratio of net investment income/(loss) to average net assets ( 1.52)% ( 1.65)% Portfolio turnover rate 48% 63% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.20%(a) 2.22%(a) Year ended Period ended Period ended Period ended Investor B Shares* 03/31/99# 03/31/98 05/16/97 08/31/96** Operating performance: Net asset value, beginning of period $ 15.59 $ 12.03 $ 10.65 $ 10.00 Net investment income/(loss) ( 0.11) ( 0.08) ( 0.03) 0.01 Net realized and unrealized gain/(loss) on investments ( 3.12) 4.35 1.46 0.65 Net increase/(decrease) in net asset value from operations ( 3.23) 4.27 1.43 0.66 Distributions: Dividends from net investment income -- -- -- ( 0.01) Distributions from net realized capital gains ( 1.13) ( 0.71) ( 0.05) -- Total dividends and distributions ( 1.13) ( 0.71) ( 0.05) ( 0.01) Net asset value, end of period $ 11.23 $ 15.59 $ 12.03 $ 10.65 Total return++ (21.86)% 36.06% 13.43% 6.65% ======================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $ 5,127 $3,384 $2,635 $1,878 Ratio of operating expenses to average net assets 1.95%(a) 1.87%+(a) 1.97%+ 2.01%+ Ratio of net investment income/(loss) to average net assets ( 1.42)% ( 0.87)%+ ( 0.45)%+ ( 0.07)%+ Portfolio turnover rate 87% 59% 48% 31% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.22%(a) 2.18%+(a) 2.41%+ 2.44%+
* The financial information for the fiscal periods prior to May 23, 1997 reflects the financial information for the Pilot Small Capitalization Domestic Stock Fund's Class B Shares, which were reorganized into Small Company Fund Investor B Shares as of the close of business on May 23, 1997. Prior to May 23, 1997, the investment adviser to Small Company Fund was Boatman's Trust Company. Effective May 23, 1997, the investment sub-adviser to Small Company Fund is Banc of America Capital Management, LLC. ** Represents the period from December 12, 1995 (commencement of operations) to August 31, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charge. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. Nations Small Company Fund For a Share outstanding throughout each period Year ended Investor C Shares 03/31/01 Operating performance: Net asset value, beginning of period $ 22.21 Net investment income/(loss) ( 0.25) Net realized and unrealized gain/(loss) on investments ( 6.50) Net increase/(decrease) in net asset value from operations ( 6.75) Distributions: Distributions from net realized capital gains ( 2.20) Total dividends and distributions ( 2.20) Net asset value, end of period $ 13.26 Total return ++ (32.46)% ================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $ 2,813 Ratio of operating expenses to average net assets 2.15%(a)(b) Ratio of net investment income/(loss) to average net assets ( 1.52)% Portfolio turnover rate 48% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.20%(a)
Year ended Year ended Period ended Investor C Shares 03/31/00# 03/31/99# 03/31/98* Operating performance: Net asset value, beginning of period $ 11.38 $ 15.74 $ 15.18 Net investment income/(loss) ( 0.23) ( 0.12) ( 0.08) Net realized and unrealized gain/(loss) on investments 11.09 ( 3.11) 1.35 Net increase/(decrease) in net asset value from operations 10.86 ( 3.23) 1.27 Distributions: Distributions from net realized capital gains ( 0.03) ( 1.13) ( 0.71) Total dividends and distributions ( 0.03) ( 1.13) ( 0.71) Net asset value, end of period $ 22.21 $ 11.38 $ 15.74 Total return ++ 95.76% (21.66)% 8.75% ============================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $3,588 $ 1,951 $3,122 Ratio of operating expenses to average net assets 2.13%(a)(b) 1.70%(a) 1.95%+(a) Ratio of net investment income/(loss) to average net assets ( 1.65)% ( 1.17)% ( 0.95)%+ Portfolio turnover rate 63% 87% 59% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.22%(a) 2.22%(a) 2.26%+(a)
* Small Company Fund Investor C Shares commenced operations on September 22, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charge. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 134 [GRAPHIC] This glossary includes explanations of the important terms that may be used in this prospectus. Some of the terms explained may apply to Nations Funds not included in this prospectus. [GRAPHIC] Terms used in this prospectus Amortized cost method - under Rule 2a-7 of the 1940 Act, the method of calculating an investment company's net asset value whereby portfolio securities are valued at the Fund's acquisition cost as adjusted for amortization of premium or accretion of discount rather than at their current market value. Asset-backed security - a debt security that gives an investor an interest in a pool of assets that is collateralized or "backed" by one or more kinds of assets, including automobile loans or credit card receivables, generally issued by banks, credit card companies or other lenders. Asset-backed securities typically make periodic payments, which may be interest or a combination of interest and a portion of the principal of the underlying assets. Average dollar-weighted maturity - the average length of time until the debt securities held by a Fund reach maturity. In general, the longer the average dollar-weighted maturity, the more a Fund's share price will fluctuate in response to changes in interest rates. Bank obligation - a money market instrument issued by a domestic or U.S. branch of a foreign bank, including certificates of deposit, time deposits and bankers' acceptances. Capital gain or loss - the difference between the purchase price of a security and its selling price. An investor realizes a capital gain when it sells a security for more than it paid for it. An investor realizes a capital loss when it sells a security for less than it paid for it. Cash equivalents - short-term, interest-bearing instruments which can easily be converted into cash, including U.S. government obligations, bank obligations, and certain asset-backed securities, foreign government securities and commercial paper issued by U.S. and foreign issuers which, at the time of investment, is rated at least Prime-2 by Moody's Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch). Collateralized mortgage obligation (CMO) - a type of mortgage-backed security. CMO payment obligations are covered by interest and/or principal payments from a pool of mortgages. In addition, the underlying assets of a CMO are typically separated into classes, called tranches, based on maturity. Each tranche pays a different rate of interest. CMOs are not generally issued by the U.S. government, its agencies or instrumentalities. Commercial paper - a short-term corporate obligation. Commercial paper is typically considered a money market instrument. Common stock - a security that represents part equity ownership in a company. Common stock typically allows an investor to vote at shareholder meetings and to share in the company's profits by receiving dividends. 135 Convertible debt - a debt security that can be exchanged for common stock (or another type of security) on a specified basis and date. Convertible security - a security that can be exchanged for common stock (or another type of security) at a specified rate. Convertible securities include convertible debt, rights and warrants. Crossing networks - an electronic system where anonymous parties can match buy and sell transactions. These transactions don't affect the market, and transaction costs are extremely low. CSFB Convertible Securities Index - 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. Debt security - a security issued by a governmental body or company (the issuer) to help fund their operations or major projects. The issuer pays interest at a specified rate on a specified date or dates, and repays the principal when the security matures. Short-term debt securities include money market instruments such as treasury bills. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Depositary receipts - evidence of the deposit of a security with a custodian bank. American Depositary Receipts (ADRs), for example, are certificates traded in U.S. markets representing an interest of a foreign company. They were created to make it possible for foreign issuers to meet U.S. security registration requirements. Other examples include ADSs, GDRs and EDRs. Derivatives - A derivative is a financial contract whose value is based upon, or "derived" from, an underlying financial asset (such as a stock or a bond), a commodity (such as gold), a market index (such as the S&P 500) or a reference rate (such as the prime lending interest rate). Examples of derivative instruments include futures, options, index-, equity-, commodity- and currency-linked securities, warrants and swap contracts. For a detailed description of the derivatives described here, see the SAI. Diversified - A diversified fund, as defined by the 1940 Act, must have at least 75% of its total assets in cash and cash equivalents, government securities, securities of other investment companies, or other securities. For purposes of this calculation, the fund may not count securities of a single issuer that comprise more than 5% of the fund's assets. Dividend yield - rate of return of dividends paid on a common or preferred stock. It equals the amount of the annual dividend on a stock expressed as a percentage of the stock's current market value. Duration - a security's or portfolio's sensitivity to changes in interest rates. For example, if interest rates rise by one percentage point, the share price of a fund with a duration of five years would decline by about 5%. If interest rates fall by one percentage point, the fund's share price would rise by about 5%. 136 Equity security - an investment that gives an investor an equity ownership right in a company. Equity securities (or "equities") include common and preferred stock, rights and warrants. First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds and has the highest short-term rating from a nationally recognized statistical rating organization (NRSRO), or if unrated, is determined by the Fund's portfolio management team to be of comparable quality, or is a money market fund or a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Foreign security - a debt or equity security determined by a Fund's portfolio management team to be foreign based on an issuer's domicile, its principle place of business, the source of its revenues or other factors. Forward foreign currency contracts - a forward foreign currency contract includes an obligation to purchase or sell a foreign currency at a specified future date. Forward purchase agreement - a contract obligating one party to buy and another party to sell an equity security, commodity, currency or other financial instrument at a specific future date. Fundamental analysis - a method of securities analysis that tries to evaluate the intrinsic, or "true," value of a particular stock. It includes a study of the overall economy, industry conditions and the financial condition and management of a company. Futures contract - a contract to buy or sell underlying instruments at a specified price on a specified future date. The price is typically set through a futures exchange. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to NRSROs such as S&P and Moody's. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by a Fund's Board. Please see the SAI for more information about credit ratings. High yield debt security - debt securities that, at the time of purchase, are rated "BB" or below by S&P or "Ba" or below by Moody's, or that are unrated and determined by the portfolio management team to be of comparable quality. Interest rate swap - an agreement between two parties to exchange periodic interest payments based on a predetermined principal amount. Investment grade - a debt security that has been given a medium to high credit rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating by other NRSROs) based on the issuer's ability to pay interest and repay principal on time. The portfolio management team may consider an unrated debt security to be investment grade if the team believes it is of comparable quality. Please see the SAI for more information about credit ratings. 137 Lehman Aggregate Bond Index - an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government/Corporate Bond Index - an unmanaged index of U.S. government, U.S. Treasury and agency securities, and corporate and Yankee bonds. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Liquidity - a measurement of how easily a security can be bought or sold at a price that is close to its market value. Money market instrument - a short-term debt security that is considered to mature in 13 months or less. Money market instruments include U.S. Treasury obligations, U.S. government obligations, certificates of deposit, bankers' acceptances, commercial paper, repurchase agreements and certain municipal securities. Mortgage-backed security or Mortgage-related security - a debt security that gives you an interest in, and is backed by, a pool of residential mortgages issued by the U.S. government or by financial institutions. The underlying mortgages may be guaranteed by the U.S. government or one of its agencies, authorities or instrumentalities. Mortgage-backed securities typically make monthly payments, which are a combination of interest and a portion of the principal of the underlying mortgages. MSCI EAFE Index - Morgan Stanley Capital International Europe, Australasia and Far East Index is an unmanaged, capitalization-weighted index. The index reflects the relative size of each market consisting of securities listed on exchanges in European, Australasian and Far Eastern markets and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investment. It is not available for investment. MSCI World Index - Morgan Stanley Capital International World Index is an unmanaged index consisting of securities listed on exchanges in the major European and Asian countries, Australia and the U.S. and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investing. It is not available for investment. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public or private projects and services. "General obligations" are typically backed by the issuer's full taxing and revenue-raising powers. "Revenue securities" depend on the income earned by a specific project or authority, like road or bridge tolls, user fees for water or revenues from a utility. Interest income from municipal securities that pay for "public" projects and services is exempt from federal income taxes and is generally exempt from state taxes if an investor lives in the state that issued the security. If an investor lives in the municipality that issued the security, interest income may also be exempt from local taxes. 138 Non-diversified - a fund that holds securities of fewer issuers than other kinds of funds. Non-diversified funds tend to have greater price swings than more diversified funds because events affecting one or more of its securities may have a disproportionately large effect on the fund. NRSRO - A nationally recognized statistical rating organization, such as S&P or Moody's. Options - An option is the right to buy or sell a security based on an agreed upon price at a specified time. For example, an option may give the holder of a stock the right to sell the stock to another party, allowing the seller to profit if the price has fallen below the agreed price. Options may also be based on the movement of an index such as the S&P 500. Over-the-counter market - a market where dealers trade securities through a telephone or computer network rather than through a public stock exchange. Preferred stock - a type of equity security that gives you a limited ownership right in a company, with certain preferences or priority over common stock. Preferred stock generally pays a fixed annual dividend. If the company goes bankrupt, preferred shareholders generally receive their share of the company's remaining assets before common shareholders and after bondholders and other creditors. Ownership of preferred stock typically does not come with certain voting rights that come with common stock. Pre-refunded bond - a bond that is repaid before its maturity date. The repayment is generally financed by a new issue. Issuers generally pre-refund bonds during periods of lower interest rates to reduce their interest costs. Price-to-earnings ratio (P/E ratio) - the current price of a share divided by its actual or estimated earnings per share. The P/E ratio is one measure of the value of a company. Private placement - a private placement is the sale of stocks, bonds or other investments directly to a qualified investor without having to register the offering with the SEC or other comparable foreign regulatory authorities. Qualified investors are typically large institutional investors or high net worth individuals. Securities acquired through private placements generally may not be resold. Quantitative analysis - an analysis of financial information about a company or security to identify securities that have the potential for growth or are otherwise suitable for a fund to buy. Real Estate Investment Trust (REIT) - a portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls, and real-estate-related loans or interests. Repurchase agreement - a short-term (often overnight) investment arrangement. The investor agrees to buy certain securities from the borrower and the borrower promises to buy them back at a specified date and price. The difference between the purchase price paid by the investor and the repurchase price paid by the borrower represents the investor's return. Repurchase agreements are popular because they provide low-risk returns and can allow a fund to remain fully invested. 139 Reverse repurchase agreement - a repurchase agreement in which an investor sells a security to another party, like a bank or dealer, in return for cash, and agrees to buy the security back at a specified date and price. Reverse repurchase agreements are, in effect, loans to a fund. Right - a temporary privilege allowing investors who already own a common stock to buy additional shares directly from the company at a specified price or formula. Russell 1000 Index - 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. The Russell 3000 Index is a listing of 3000 corporations by the Frank Russell Company that is intended to be representative of the U.S. economy. The Russell 1000 is considered a "large cap" index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 2000 Index - 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. 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. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 3000 Growth Index - an unmanaged index comprised of securities in the Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies based on total market capitalization, with a greater than average growth orientation. Companies in the Russell 3000 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. S&P 500(1) - Standard & Poor's 500 Composite Stock Price Index, an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 140 S&P/BARRA Value Index1 - an unmanaged index of a subset of stocks from the S&P 500 that have low price-to-book ratios relative to the S&P 500 as a whole. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P/IFC Investables Index - an unmanaged index that tracks more than 1,400 stocks in 25 emerging markets in Asia, Latin America, Eastern Europe, Africa and the Middle East. The index is weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P MidCap 400(1) - an unmanaged index of 400 domestic stocks chosen for market size, liquidity and industry representation. The index is weighted by market value, and is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SmallCap 600(1) - Standard & Poor's SmallCap 600 Index, an unmanaged index of 600 common stocks, weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SuperComposite 1500(1) - an unmanaged index created by Standard & Poors combining the companies represented in three other indices -- the S&P 500, MidCap 400, and SmallCap 600. The index represents 87% of the total capitalization of U.S. equity markets. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds, but is not a first-tier security. Senior security - a debt security that allows holders to receive their share of a company's remaining assets in a bankruptcy before other bondholders, creditors, and common and preferred shareholders. Settlement date - the date on which an order is settled either by payment or delivery of securities. Total return swap - an agreement between two parties to exchange periodic interest payments for the total return of an equity or fixed income instrument. Trade date - the effective date of a purchase, sale or exchange transaction, or other instructions sent to us. The trade date is determined by the day and time we receive the order or instructions in a form that's acceptable to us. U.S. government obligations - a wide range of debt securities issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities. U.S. Treasury obligation - a debt security issued by the U.S. Treasury. Warrant - a certificate that gives you the right to buy common shares at a specified price within a specified period of time. 141 Zero-coupon bond - a bond that makes no periodic interest payments. Zero coupon bonds are sold at a deep discount to their face value and mature at face value. The difference between the face value at maturity and the purchase price represents the return. (1) S&P and BARRA have not reviewed any stock included in the S&P SuperComposite 1500, S&P 500, S&P SmallCap 600, S&P MidCap 400 Index or BARRA Value Index for its investment merit. S&P and BARRA determine and calculate their indices independently of the Funds and are not a sponsor or affiliate of the Funds. S&P and BARRA give no information and make no statements about the suitability of investing in the Funds or the ability of their indices to track stock market performance. S&P and BARRA make no guarantees about the indices, any data included in them and the suitability of the indices or their data for any purpose. "Standard and Poor's," "S&P 500" and "S&P 600" are trademarks of The McGraw-Hill Companies, Inc. 142 [GRAPHIC] Where to find more information You'll find more information about Nations Funds Stock Funds in the following documents: Annual and semi-annual reports The annual and semi-annual reports contain information about Fund investments and performance, the financial statements and the independent accountants' reports. The annual report also includes a discussion about the market conditions and investment strategies that had a significant effect on each Fund's performance during the period covered. [GRAPHIC] Statement of Additional Information The SAI contains additional information about the Funds and their policies. The SAI is legally part of this prospectus (it's incorporated by reference). A copy has been filed with the SEC. You can obtain a free copy of these documents, request other information about the Funds and make shareholder inquiries by contacting Nations Funds: By telephone: 1.800.321.7854 By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nations-funds.com Information about the Funds can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. The reports and other information about the Funds are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. SEC file numbers: Nations Fund Trust, 811-04305 Nations Reserves, 811-6030 Nations Fund, Inc., 811-04614 Nations Funds Trust, 811-09645 COMEQPROIX-8/01 [NATIONS FUNDS LOGO] [GRAPHIC] Government & Corporate Bond Funds Prospectus -- Investor A, B and C Shares August 1, 2001 Nations Short-Term Income Fund Nations Short-Intermediate Government Fund Nations Government Securities Fund Nations Intermediate Bond Fund Nations Bond Fund Nations Strategic Income Fund Nations High Yield Bond Fund The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. - ------------------- Not FDIC Insured - ------------------- May Lose Value - ------------------- No Bank Guarantee - ------------------- [NATIONS FUNDS LOGO] An overview of the Funds - -------------------------------------------------------------------------------- [GRAPHIC] Terms used in this prospectus In this prospectus, we, us and our refer to the Nations Funds family (Nations Funds or Nations Funds Family). Some other important terms we've used may be new to you. These are printed in italics where they first appear in a section and are described in Terms used in this prospectus. [GRAPHIC] You'll find Terms used in this prospectus on page 84. Your investment in these Funds is not a bank deposit and is not insured or guaranteed by Bank of America, N. A. (Bank of America), the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Your investment may lose money. Affiliates of Bank of America are paid for the services they provide to the Funds. This booklet, which is called a prospectus, tells you about Nations Funds Government & Corporate Bond Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. About the Funds The Government & Corporate Bond Funds focus on the potential to earn income by investing primarily in fixed income securities. Fixed income securities have the potential to increase in value because when interest rates fall, the value of these securities tends to rise. When interest rates rise, however, the value of these securities tends to fall. Other things can also affect the value of fixed income securities. There's always a risk that you'll lose money or you may not earn as much as you expect. Choosing the right Funds for you Not every Fund is right for every investor. When you're choosing a Fund to invest in, you should consider things like your investment goals, how much risk you can accept and how long you're planning to hold your investment. The Government & Corporate Bond Funds may be suitable for you if: o you're looking for income o you have longer-term investment goals They may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with fixed income securities You'll find a discussion of each Fund's principal investments, strategies and risks in the Fund descriptions that start on page 4. For more information If you have any questions about the Funds, please call us at 1.800.321.7854 or contact your investment professional. You'll find more information about the Funds in the Statement of Additional Information (SAI). The SAI includes more detailed information about each Fund's investments, policies, performance and management, among other things. Please turn to the back cover to find out how you can get a copy. 2 What's inside - -------------------------------------------------------------------------------- [GRAPHIC] Banc of America Advisors, LLC Banc of America Advisors, LLC (BA Advisors) is the investment adviser to each of the Funds. BA Advisors is responsible for the overall management and supervision of the investment management of each Fund. BA Advisors and Nations Funds have engaged sub-advisers, which are responsible for the day-to-day investment decisions for each of the Funds. [GRAPHIC] You'll find more about BA Advisors and the sub-advisers starting on page 45. [GRAPHIC] About the Funds Nations Short-Term Income Fund 4 Sub-adviser: Banc of America Capital Management, LLC - ------------------------------------------------------ Nations Short-Intermediate Government Fund 10 Sub-adviser: Banc of America Capital Management, LLC - ------------------------------------------------------ Nations Government Securities Fund 15 Sub-adviser: Banc of America Capital Management, LLC - ------------------------------------------------------ Nations Intermediate Bond Fund 21 Sub-adviser: Banc of America Capital Management, LLC - ------------------------------------------------------ Nations Bond Fund 27 Sub-adviser: Banc of America Capital Management, LLC - ------------------------------------------------------ Nations Strategic Income Fund 33 Sub-adviser: Banc of America Capital Management, LLC - ------------------------------------------------------ Nations High Yield Bond Fund 39 Sub-adviser: MacKay Shields LLC - ------------------------------------------------------ Other important information 43 - ------------------------------------------------------ How the Funds are managed 45 [GRAPHIC] About your investment Information for investors Choosing a share class 49 About Investor A Shares 51 Front-end sales charge 51 Contingent deferred sales charge 53 About Investor B Shares 53 Contingent deferred sales charge 53 About Investor C Shares 56 Contingent deferred sales charge 56 When you might not have to pay a sales charge 56 Buying, selling and exchanging shares 60 How orders are processed 62 How selling and servicing agents are paid 68 Distributions and taxes 70 - ------------------------------------------------------ Financial highlights 72 - ------------------------------------------------------ Terms used in this prospectus 84 - ------------------------------------------------------ Where to find more information back cover
3 Nations Short-Term Income Fund [GRAPHIC] About the sub-adviser Banc of America Capital Management, LLC (BACAP) is this Fund's sub-adviser. BACAP's Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 46. [GRAPHIC] Corporate fixed income securities This Fund focuses on fixed income securities issued by corporations. Corporate fixed income securities have the potential to pay higher income than U.S. Treasury securities with similar maturities. [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. [GRAPHIC] Investment objective The Fund seeks high current income consistent with minimal fluctuations of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its total assets in investment grade fixed income securities. The team may choose unrated securities if it believes they are of comparable quality to investment grade securities at the time of investment. The Fund may invest in: o corporate debt securities, including bonds, notes and debentures o mortgage-related securities issued by governments, their agencies or instrumentalities, or corporations o asset-backed securities o U.S. government obligations The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may invest in private placements to seek to enhance its yield. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be three years or less, and its duration will be three years or less. When selecting individual investments, the team: o looks at a fixed income security's potential to generate both income and price appreciation o allocates assets among U.S. government obligations, including securities issued by government agencies, mortgage-backed securities and U.S. Treasury securities; asset-backed securities and corporate securities, based on how they are expected to perform under current market conditions, and on how they have performed in the past. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows 4 o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk o tries to manage risk by diversifying the Fund's investments in securities of many different issuers The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Short-Term Income Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. 5 o Mortgage-related risk - The value of the Fund's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Fund may have to reinvest this money in mortgage-backed or other securities that have lower yields. o Asset-backed securities risk - Payment of interest and repayment of principal may be impacted by the cash flows generated by the assets backing these securities. The value of the Fund's asset-backed securities may also be affected by changes in interest rates, the availability of information concerning the interests in and structure of the pools of purchase contracts, financing leases or sales agreements that are represented by these securities, the creditworthiness of the servicing agent for the pool, the originator of the loans or receivables, or the entities that provide any supporting letters of credit, surety bonds, or other credit enhancements. 6 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [PERFORMANCE GRAPH HERE] 1993 1994 1995 1996 1997 1998 1999 2000 7.33% -0.48% 11.08% 4.68% 5.82% 6.08% 3.00% 6.90% *Year-to-date return as of June 30, 2001: 4.30% Best and worst quarterly returns during this period Best: 2nd quarter 1995: 3.47% Worst: 1st quarter 1994: -1.00%
[GRAPHIC] The Fund's returns in this table reflect sales charges,if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Merrill Lynch 1-3 Year Treasury Index, an index of U.S. Treasury bonds with maturities of one to three years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 5.79% 5.08% 5.10% Investor B Shares 1.12% 4.67% 5.05% Investor C Shares 5.11% 4.90% 4.90% Merrill Lynch 1-3 Year Treasury Index 7.99% 5.92% 5.64%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are October 2, 1992, June 7, 1993 and October 2, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 7 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. Investor B Shares of this Fund are only available to existing shareholders for investment. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 1.00% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) none 1.00%(2) Annual Fund operating expenses(3) (Expenses that are deducted from the Fund's assets) Management fees 0.30% 0.30% 0.30% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.31% 0.31% 0.31% ------ ------ ------ Total annual Fund operating expenses 0.86% 1.61% 1.61% Fee waivers and/or reimbursements (0.10)% (0.10)% (0.10)% ------ ------ ------ Total net expenses(4) 0.76% 1.51% 1.51% ====== ====== ======
(1) A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2) This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (3) The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (4) The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 8 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $177 $362 $562 $1,141 Investor B Shares $154 $498 $867 $1,702 Investor C Shares $254 $498 $867 $1,903
If you bought Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor C Shares $154 $498 $867 $1,903
9 Nations Short-Intermediate Government Fund [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 46. [GRAPHIC] U.S. government securities This Fund invests most of its assets in securities that are U.S. government issued or guaranteed. This means the Fund is generally not subject to credit risk, but it could earn less income than funds that invest in other kinds of fixed income securities. [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. [GRAPHIC] Investment objective The Fund seeks high current income consistent with modest fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund invests most of its assets in U.S. government obligations and repurchase agreements relating to these obligations. It may invest in mortgage-related securities issued or backed by the U.S. government, its agencies or instrumentalities, or corporations. The Fund may also engage in reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be five years or less, and its duration will be four years or less. When selecting individual investments, the team: o looks at a fixed income security's potential to generate both income and price appreciation o allocates assets primarily among U.S. government obligations, including securities issued by government agencies, mortgage-backed securities and U.S. Treasury securities, based on how they are expected to perform under current market conditions, and on how they have performed in the past. The team may change the allocations when market conditions change o selects securities using structure analysis, which evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 10 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Short-Intermediate Government Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests may not be investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Mortgage-related risk - The value of the Fund's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Fund may have to reinvest this money in mortgage-backed or other securities that have lower yields. 11 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [PERFORMANCE GRAPH HERE] 1992 1993 1994 1995 1996 1997 1998 1999 2000 5.69% 7.84% -2.59% 12.22% 2.98% 7.03% 6.39% 0.23% 9.32% *Year-to-date return as of June 30, 2001: 3.13% Best and worst quarterly returns during this period Best: 2nd quarter 1992: 4.44% Worst: 1st quarter 1994: -1.78%
[GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Intermediate Government Bond Index, an index of U.S. government agency and U.S. Treasury securities. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 5.84% 4.45% 5.76% Investor B Shares 5.47% 4.53% 4.49% Investor C Shares 7.77% 4.63% 4.89% Lehman Intermediate Government Bond Index 10.47% 6.19% 7.09%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are August 5, 1991, June 7, 1993 and June 17, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 12 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 3.25% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 3.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.30% 0.30% 0.30% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.29% 0.29% 0.29% ----- -------- ------ Total annual Fund operating expenses 0.84% 1.59% 1.59% ===== ======== ======
(1) A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2) This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3) This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4) The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 13 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $408 $585 $776 $1,330 Investor B Shares $462 $702 $866 $1,688 Investor C Shares $262 $502 $866 $1,889
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $162 $502 $866 $1,688 Investor C Shares $162 $502 $866 $1,889
14 Nations Government Securities Fund [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 46. [GRAPHIC] Mortgage-backed securities This Fund invests in mortgage-backed securities. Mortgage-backed securities tend to pay higher income than U.S. Treasury bonds and other government-backed bonds with similar maturities, but also have specific risks associated with them. They pay a monthly amount that includes a portion of the principal on the underlying mortgages, as well as interest. [GRAPHIC] Investment objective The Fund seeks high current income consistent with moderate fluctuation of principal. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in U.S. government obligations and repurchase agreements secured by these securities. It may also invest in the following securities rated investment grade at the time of investment: o mortgage-related securities issued by governments, their agencies or instrumentalities, or corporations o asset-backed securities or municipal securities o corporate debt securities, including bonds, notes and debentures The Fund may also engage in reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be between five and 30 years. When selecting individual investments, the team: o looks at a fixed income security's potential to generate both income and price appreciation o allocates assets primarily among U.S. government obligations, including securities issued by government agencies, mortgage-backed securities and U.S. Treasury securities, based on how they are expected to perform under current market conditions, and on how they have performed in the past. The team may change the allocations when market conditions change o selects securities using structure analysis, which evaluates the characteristics of a security, including its call features, coupons and expected timing of cash flows The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 15 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Government Securities Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests may not be investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Mortgage-related risk - The value of the Fund's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Fund may have to reinvest this money in mortgage-backed or other securities that have lower yields. 16 o Asset-backed securities risk - Payment of interest and repayment of principal may be impacted by the cash flows generated by the assets backing these securities. The value of the Fund's asset-backed securities may also be affected by changes in interest rates, the availability of information concerning the interests in and structure of the pools of purchase contracts, financing leases or sales agreements that are represented by these securities, the creditworthiness of the servicing agent for the pool, the originator of the loans or receivables, or the entities that provide any supporting letters of credit, surety bonds, or other credit enhancements. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. 17 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. The information about the performance for the period prior to June 8, 2001, reflects performance information for a predecessor fund which was reorganized into the Fund on June 8, 2001. The predecessor fund had an identical investment objective and principal investment strategies. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [PERFORMANCE GRAPH HERE] 1992 1993 1994 1995 1996 1997 1998 1999 2000 5.08% 7.61% -5.32% 14.99% 2.28% 8.29% 8.16% -3.29% 11.91% *Year-to-date return as of June 30, 2001: 2.20% Best and worst quarterly returns during this period Best: 1st quarter 1995: 4.91% Worst: 1st quarter 1994: -3.04%
[GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Government Bond Index, an unmanaged index of government bonds with an average maturity of approximately nine years. All dividends are reinvested. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 6.62% 4.31% 5.59% Investor B Shares 7.07% 4.59% 4.56% Investor C Shares 10.04% 4.71% 4.70% Lehman Government Bond Index 13.24% 6.49% 7.84%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are April 17, 1991, June 7, 1993 and July 6, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 18 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 4.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.50% 0.50% 0.50% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.37% 0.37% 0.37% ------ ------ ------ Total annual Fund operating expenses 1.12% 1.87% 1.87% Fee waivers and/or reimbursements (0.15)% (0.15)% (0.15)% ------ ------ ------ Total net expenses(5) 0.97% 1.72% 1.72% ====== ====== ======
(1) A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2) This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3) This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4) The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5) The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 19 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $569 $800 $1,050 $1,763 Investor B Shares $675 $873 $1,197 $1,982 Investor C Shares $275 $573 $997 $2,178
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $175 $573 $997 $1,982 Investor C Shares $175 $573 $997 $2,178
20 Nations Intermediate Bond Fund [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and BACAP is its sub-adviser. BACAP's Fixed Income Management Team makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about BACAP on page 46. [GRAPHIC] Intermediate-term securities The team focuses on fixed income securities with intermediate terms. While these securities generally won't earn as much income as securities with longer terms, they tend to be less sensitive to changes in interest rates. [GRAPHIC] Duration Duration is a measure used to estimate how much a Fund's portfolio will fluctuate in response to a change in interest rates. [GRAPHIC] Investment objective The Fund seeks to obtain interest income and capital appreciation. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations Intermediate Bond Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in intermediate and longer-term fixed income securities that are rated investment grade. The Master Portfolio can invest up to 35% of its assets in mortgage-backed securities, including collateralized mortgage obligations (CMOs), that are backed by the U.S. government, its agencies or instrumentalities, or corporations. The Master Portfolio can invest up to 10% of its assets in high yield debt securities. The Master Portfolio may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Master Portfolio may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Master Portfolio may invest in private placement to seek to enhance its yield. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Master Portfolio's average dollar-weighted maturity will be between three and six years. Its duration generally will be the same as the Lehman Intermediate Government/Corporate Bond Index. When selecting individual investments, the team: o looks at a fixed income security's potential to generate both income and price appreciation o allocates assets among U.S. corporate securities and mortgage-backed securities, based on how they are expected to perform under current market conditions, and on how they have performed in the past. The team may change the allocations when market conditions change o selects securities using structure analysis, which evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Master Portfolio's benchmark. This can help manage interest rate risk o tries to manage risk by diversifying the Master Portfolio's investments in securities of many different issuers The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. 21 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Intermediate Bond Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses for the Master Portfolio will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Master Portfolio could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Master Portfolio invests are not rated investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Mortgage-related risk - The value of the Master Portfolio's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Master Portfolio may have to reinvest this money in mortgage-backed or other securities that have lower yields. 22 o Investment in other Nations Funds - The Master Portfolio may pursue its high yield and foreign securities strategies by investing in High Yield Portfolio and International Bond Portfolio, respectively, rather than directly in high yield and foreign securities. High Yield Portfolio and International Bond Portfolio are registered investment companies in the Nations Funds Family whose interests are offered by private placements only. BA Advisors and its affiliates are entitled to receive fees from High Yield Portfolio and International Bond Portfolio for providing services in addition to the fees which they are entitled to receive from the Master Portfolio or Fund for services provided directly. BA Advisors and its affiliates may waive fees which they are entitled to receive from either Portfolio. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 23 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [PERFORMANCE GRAPH HERE] 1995 1996 1997 1998 1999 2000 14.54% 3.14% 6.54% 7.32% 0.02% 7.96% *Year-to-date return as of June 30, 2001: 3.53% Best and worst quarterly returns during this period Best: 2nd quarter 1995: 4.50% Worst: 1st quarter 1996: -1.06%
[GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Intermediate Government/Corporate Bond Index, an unmanaged index of all publicly issued investment grade corporate, U.S. Treasury, and U.S. government and agency securities with maturities of 1 to 10 years. The index is not available for investment.
Since 1 year 5 years inception* Investor A Shares 4.44% 4.34% 4.83% Investor B Shares 2.15% -- 4.04% Investor C Shares 13.10% -- 6.52% Lehman Intermediate Government/ Corporate Bond Index 10.12% 6.11% 6.09%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are January 24, 1994, October 20, 1999 and November 20, 1996, respectively. The return for the index shown is from inception of Investor A Shares. 24 [GRAPHIC] There are two kinds of fees - shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 3.25% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 3.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.40% 0.40% 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.41% 0.41% 0.41% ----- ------ ------ Total annual Fund operating expenses(6) 1.06% 1.81% 1.81% ===== ====== ======
(1) A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2) This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3) This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4) The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5) These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. (6) The Fund's Investment adviser and/or some of its other service providers have agreed to limit total annual operating expenses to the levels shown above until July 31, 2002. There is no guarantee that these limitations will continue after this date. 25 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $430 $652 $891 $1,579 Investor B Shares $484 $769 $980 $1,930 Investor C Shares $284 $569 $980 $2,127
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $184 $569 $980 $1,930 Investor C Shares $184 $569 $980 $2,127
26 Nations Bond Fund [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 46. [GRAPHIC] More investment opportunities This Fund can invest in a wide range of fixed income securities. This allows the team to focus on securities that offer the potential for higher returns. [GRAPHIC] Investment objective The Fund seeks total return by investing in investment grade fixed income securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in investment grade fixed income securities. The team may choose unrated securities if it believes they are of comparable quality to investment grade securities at the time of investment. The Fund may invest in: o corporate debt securities, including bonds, notes and debentures o U.S. government obligations o foreign debt securities denominated in U.S. dollars o mortgage-related securities issued by governments, their agencies or instrumentalities, or corporations o asset-backed securities o municipal securities The Fund may invest up to 10% of its total assets in high yield debt securities. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements. These investments will generally be short-term in nature and are primarily used to seek to enhance returns and manage liquidity. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may invest in private placements to seek to enhance its yield. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be 10 years or less and will never be more than 15 years. When selecting individual investments, the team: o looks at a fixed income security's potential to generate both income and price appreciation o allocates assets primarily among U.S. government obligations, including securities issued by government agencies, mortgage-backed securities and U.S. Treasury securities; and corporate securities, based on how they are expected to perform under current market conditions, and on how they have performed in the past. The team may change the allocations when market conditions change 27 o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to manage risk by diversifying the Fund's investments in securities of many different issuers The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Bond Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. 28 o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Mortgage-related risk - The value of the Fund's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Fund may have to reinvest this money in mortgage-backed or other securities that have lower yields. o Investment in other Nations Funds - The Fund may pursue its high yield and foreign securities strategies by investing in High Yield Portfolio and International Bond Portfolio, respectively, rather than directly in high yield and foreign securities. High Yield Portfolio and International Bond Portfolio are registered investment companies in the Nations Funds Family whose interests are offered by private placements only. BA Advisors and its affiliates are entitled to receive fees from High Yield Portfolio and International Bond Portfolio for providing services in addition to the fees which they are entitled to receive from Nations Bond Fund for services provided directly. BA Advisors and its affiliates may waive fees which they are entitled to receive from either Portfolio. 29 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [PERFORMANCE GRAPH HERE] 1993 1994 1995 1996 1997 1998 1999 2000 10.61% -3.51% 17.05% 1.92% 8.26% 6.94% -1.45% 9.83% *Year-to-date return as of June 30, 2001: 3.19% Best and worst quarterly returns during this period Best: 2nd quarter 1995: 5.90% Worst: 1st quarter 1994: -2.85%
[GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Aggregate Bond Index, an index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. The indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. The indices are not available for investment.
Since 1 year 5 years inception* Investor A Shares 6.30% 4.32% 5.63% Investor B Shares 6.01% 4.40% 4.98% Investor C Shares 7.98% 4.43% 5.56% Lehman Aggregate Bond Index 11.63% 6.46% 7.19%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are November 19, 1992, June 7, 1993 and November 16, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 30 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 3.25% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 3.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.40% 0.40% 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.27% 0.27% 0.27% ----- ------ ------ Total annual Fund operating expenses 0.92% 1.67% 1.67% ===== ====== ======
(1) A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class -- About Investor A Shares -- Contingent deferred sales charge for details. (2) This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class -- About Investor B Shares -- Contingent deferred sales charge for details. (3) This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class -- About Investor C Shares -- Contingent deferred sales charge for details. (4) The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. 31 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $416 $609 $818 $1,421 Investor B Shares $470 $726 $907 $1,777 Investor C Shares $270 $526 $907 $1,976
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $170 $526 $907 $1,777 Investor C Shares $170 $526 $907 $1,976
32 Nations Strategic Income Fund [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Fixed Income Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 46. [GRAPHIC] Multi-sector approach The Fund follows a multi-sector approach in order to pursue high income while seeking to control volatility. To try to accomplish this, the Fund is diversified broadly in three sectors of the market -- U.S. government, foreign and lower-rated corporate bonds. This diversification is thought to be critical in managing the exchange-rate uncertainties of foreign bonds and the special credit risks of lower-rated bonds. [GRAPHIC] Investment objective The Fund seeks total return with an emphasis on current income by investing in a diversified portfolio of fixed income securities. [GRAPHIC] Principal investment strategies The Fund normally invests at least 65% of its assets in investment grade debt securities. The Fund may invest in: o corporate debt securities o U.S. government obligations o foreign debt securities denominated in U.S. dollars or foreign currencies o mortgage-related securities issued by governments and non-government issuers o asset-backed securities The Fund may invest up to 35% of its assets in lower-quality fixed income securities ("junk bonds" or "high yield bonds") rated "Ba" or "B" by Moody's Investor Services, Inc. (Moody's) or "BB" or "B" by Standard & Poor's Corporation (S&P). The team may choose unrated securities if it believes they are of comparable quality at the time of investment. The Fund may invest in other registered investment companies. The Fund will limit its investments in foreign securities to one-third of its total assets. The Fund may engage in forward foreign currency contracts, reverse repurchase agreements and forward purchase agreements to seek to protect against movements in the value of foreign currencies in which its foreign securities may be denominated. The Fund may also engage in repurchase, reverse repurchase and forward purchase agreements primarily used to seek to enhance returns and manage liquidity. These investments will generally be short-term in nature. In addition, the Fund may use futures, interest rate swaps, total return swaps, options and other derivative instruments, to seek to enhance return, to hedge some of the risks of its investments in fixed income securities or as a substitute for a position in the underlying asset. The Fund may also invest in private placements to seek to enhance its yield. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Normally, the Fund's average dollar-weighted maturity will be more than five years. When selecting individual investments, the team: o looks at a fixed income security's potential to generate both income and price appreciation 33 o allocates assets primarily among U.S. government obligations and U.S. corporate securities, including high yield corporate bonds. The allocation is structured to provide the potential for the best return, based on how they are expected to perform under current market conditions, and on how they have performed in the past. The team may change the allocations when market conditions change o selects securities using credit and structure analysis. Credit analysis evaluates the creditworthiness of individual issuers. The team may invest in securities with lower credit ratings if it believes that the potential for a higher yield is substantial compared with the risk involved, and that the credit quality is stable or improving. Structure analysis evaluates the characteristics of a security, including its call features, coupons, and expected timing of cash flows o tries to maintain a duration that is similar to the duration of the Fund's benchmark. This can help manage interest rate risk o tries to manage risk by diversifying the Fund's investments in securities of many different issuers The team may sell a security when it believes the security is overvalued, there is a deterioration in the security's credit rating or in the issuer's financial situation, when other investments are more attractive, and for other reasons. [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Strategic Income Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Fund could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. Some of the securities in which the Fund invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Foreign investment risk - Because the Fund may invest up to one-third of its assets in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. The Fund's use of forward foreign currency contracts to seek to protect against movements in the value of foreign currencies may not eliminate the risk that the Fund will be adversely affected by changes in foreign currencies. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. 34 o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Asset-backed securities risk - Payment of interest and repayment of principal may be impacted by the cash flows generated by the assets backing these securities. The value of the Fund's asset-backed securities may also be affected by changes in interest rates, the availability of information concerning the interests in and structure of the pools of purchase contracts, financing leases or sales agreements that are represented by these securities, the creditworthiness of the servicing agent for the pool, the originator of the loans or receivables,or the entities that provide any supporting letters of credit, surety bonds, or other credit enhancements. o Mortgage-related risk - The value of the Fund's mortgage-backed securities can fall if the owners of the underlying mortgages pay off their mortgages sooner than expected, which could happen when interest rates fall, or later than expected, which could happen when interest rates rise. If the underlying mortgages are paid off sooner than expected, the Fund may have to reinvest this money in mortgage-backed or other securities that have lower yields. o Investment in other Nations Funds - The Fund may pursue its high yield and foreign securities strategies by investing in High Yield Portfolio and International Bond Portfolio, respectively, rather than directly in high yield and foreign securities. High Yield Portfolio and International Bond Portfolio are registered investment companies in the Nations Funds Family whose interests are offered by private placements only. BA Advisors and its affiliates are entitled to receive fees from High Yield Portfolio and International Bond Portfolio for providing services in addition to the fees which they are entitled to receive from Nations Strategic Income Fund for services provided directly. BA Advisors and its affiliates may waive fees which they are entitled to receive from either Portfolio. 35 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Call us at 1.800.321.7854 or contact your investment professional for the Fund's current yield. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [PERFORMANCE GRAPH HERE] 1993 1994 1995 1996 1997 1998 1999 2000 15.62% -2.74% 20.61% 2.21% 8.32% 7.27% -2.93% 7.77% *Year-to-date return as of June 30, 2001: 3.21% Best and worst quarterly returns during this period Best: 2nd quarter 1995: 7.42% Worst: 1st quarter 1996: -3.24%
[GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the Lehman Aggregate Bond Index, an index made up of the Lehman Government/Corporate Bond Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. The indices include U.S. Government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. The indices are not available for investment.
Since 1 year 5 years inception* Investor A Shares 2.65% 3.42% 6.20% Investor B Shares 1.86% 3.50% 5.34% Investor C Shares 5.97% 3.87% 6.36% Lehman Aggregate Bond Index 11.63% 6.46% 7.19%
*The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are November 25, 1992, June 7, 1993 and November 9, 1992, respectively. The return for the index shown is from inception of Investor A Shares. 36 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 4.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets) Management fees 0.50% 0.50% 0.50% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.33% 0.33% 0.33% ------ ------ ------ Total annual Fund operating expenses 1.08% 1.83% 1.83% Fee waivers and/or reimbursements (0.10)% (0.10)% (0.10)% ------ ------ ------ Total net expenses(5) 0.98% 1.73% 1.73% ====== ====== ======
(1) A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2) This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3) This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4) The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5) The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 37 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $570 $793 $1,034 $1,723 Investor B Shares $676 $866 $1,181 $1,943 Investor C Shares $276 $566 $ 981 $2,140
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $176 $566 $981 $1,943 Investor C Shares $176 $566 $981 $2,140
38 [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and MacKay Shields LLC (MacKay Shields) is its sub-adviser. MacKay Shields' High Yield Portfolio Management Team makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about MacKay Shields and its High Yield Portfolio Management Team on page 47. [GRAPHIC] High yield debt securities This Fund invests primarily in high yield debt securities, which are often referred to as "junk bonds." High yield debt securities offer the potential for higher income than other kinds of debt securities with similar maturities, but they also have higher credit risk. Nations High Yield Bond Fund [GRAPHIC] Investment objective The Fund seeks maximum income by investing in a diversified portfolio of high yield debt securities. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations High Yield Bond Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in domestic and foreign corporate high yield debt securities. These securities are not rated investment grade, but generally will be rated "Ba" or "B" by Moody's Investor Services, Inc. or "BB" or "B" by Standard & Poor's Corporation. The team may choose unrated securities if it believes they are of comparable quality at the time of investment. The portfolio is not managed to a specific duration. Its duration will generally track the CSFB Global High Yield Index. The Master Portfolio invests primarily in: o Domestic corporate high yield debt securities, including private placements o U.S. dollar-denominated foreign corporate high yield debt securities, including private placements o Zero-coupon bonds o U.S. government obligations o Equity securities (up to 25% of its assets), which may include convertible securities The Master Portfolio also may invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. When selecting investments for the portfolio, the team: o focuses on individual security selection ("bottom-up" analysis) o uses fundamental credit analysis o emphasizes current income while attempting to minimize risk to principal o seeks to identify a catalyst for capital appreciation such as an operational or financial restructuring o tries to manage risk by diversifying the Master Portfolio's investments across securities of many different issuers The team may sell a security when its market price rises above the target price the team has set, when it believes there has been a deterioration in an issuer's fundamentals, such as earnings, sales or management, or an issuer's credit quality, or to maintain portfolio diversification, and for other reasons. 39 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations High Yield Bond Fund has the following risks: o Investment strategy risk - There is a risk that the value of the investments that the team chooses will not rise as high as the team expects, or will fall. o Credit risk - The types of securities in which the Master Portfolio typically invests are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Changing distribution levels - The level of monthly income distributions paid by the Fund depends on the amount of income paid by the securities the Fund holds. It is not guaranteed and will change. Changes in the value of the securities, however, generally should not affect the amount of income they pay. o Interest rate risk - The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Liquidity risk - There is a risk that a security held by the Master Portfolio cannot be sold at the time desired, or cannot be sold without adversely affecting the price. o Foreign investment risk - Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, may also apply to some foreign investments. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund can withdraw its entire investment from the Master Portfolio if it believes it's in the best interest of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 40 [GRAPHIC] For information about the performance of other high yield accounts managed by MacKay Shields, see How the Funds are managed. [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in this prospectus. [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 4.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.55% 0.55% 0.55% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.89% 0.89% 0.89% ------ ------ ------ Total annual Fund operating expenses 1.69% 2.44% 2.44% Fee waivers and/or reimbursements (0.51)% (0.51)% (0.51)% ------ ------ ------ Total net expenses(6) 1.18% 1.93% 1.93% ====== ====== ======
(1) A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2) This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3) This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4) The figures contained in the table above are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5) These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. (6) The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figures shown here are after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. 41 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $590 $ 936 $1,305 $2,341 Investor B Shares $696 $1,012 $1,455 $2,552 Investor C Shares $296 $712 $1,255 $2,738
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $196 $712 $1,255 $2,552 Investor C Shares $196 $712 $1,255 $2,738
42 [GRAPHIC] Other important information You'll find specific information about each Fund's principal investments, strategies and risks in the descriptions starting on page 4. The following are some other risks and information you should consider before you invest: o Changing investment objectives and policies - The investment objective and certain investment policies of any Fund can be changed without shareholder approval. Other investment policies may be changed only with shareholder approval. o Holding other kinds of investments - The Funds may hold investments that aren't part of their principal investment strategies. Please refer to the SAI for more information. The management team can also choose not to invest in specific securities described in this prospectus and in the SAI. o Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest up to 25% of their assets in Nations Money Market Funds. BA Advisors and its affiliates are entitled to receive fees from the Nations Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Funds for services provided directly. BA Advisors may waive fees which it is entitled to receive from either the Nations Money Market Funds or the Funds. o Foreign investment risk - Funds that invest in foreign securities may be affected by changes in currency exchange rates and the costs of converting currencies; foreign government controls on foreign investment, repatriation of capital, and currency and exchange; foreign taxes; inadequate supervision and regulation of some foreign markets; difficulty selling some investments which may increase volatility; different settlement practices or delayed settlements in some markets; difficulty getting complete or accurate information about foreign companies; less strict accounting, auditing and financial reporting standards than those in the U.S.; political, economic or social instability; and difficulty enforcing legal rights outside the U.S. If a Fund invests in emerging markets there may be other risks involved, such as those of immature economies and less developed and more thinly traded securities markets. o Investing defensively - A Fund may temporarily hold investments that are not part of its investment objective or its principal investment strategies to try to protect it during a market or economic downturn or because of political or other conditions. A Fund may not achieve its investment objective while it is investing defensively. o Securities lending program - A Fund may lend portfolio securities to approved broker-dealers or other financial institutions on a fully collateralized basis in order to earn additional income. There may be delays in receiving additional collateral after the loan is made or in recovering the securities loaned. 43 o Bank of America and its affiliates - Bank of America and its affiliates currently provide services to some or all of the Funds, including investment advisory, investment sub-advisory, co-administration and brokerage services, and are paid for providing these services. Bank of America and its affiliates also may, at times, provide other services and be compensated for them, including transfer agency, interfund lending and securities lending services, or make loans to the Funds. Finally, Bank of America or its affiliates may serve as counterparties in transactions with Nations Funds where permitted by law or regulation, and may receive compensation in that capacity. o Portfolio turnover - A Fund that replaces -- or turns over -- more than 100% of its investments in a year is considered to trade frequently. Frequent trading can result in larger distributions of short-term capital gains to shareholders. These gains are taxable at higher rates than long-term capital gains. Frequent trading can also mean higher brokerage and other transaction costs, which could reduce the Fund's returns. The Funds generally buy securities for capital appreciation, investment income, or both, and don't engage in short-term trading. You'll find the portfolio turnover rate for each Fund in Financial highlights. 44 [GRAPHIC] Banc of America Advisors, LLC One Bank of America Plaza Charlotte, North Carolina 28255 [GRAPHIC] How the Funds are managed Investment adviser BA Advisors is the investment adviser to over 75 mutual fund portfolios in the Nations Funds Family, including the Funds described in this prospectus. BA Advisors is a registered investment adviser. It's a wholly-owned subsidiary of Bank of America, which is owned by Bank of America Corporation. Nations Funds pays BA Advisors an annual fee for its investment advisory services. The fee is calculated as a percentage of the average daily net assets of each Fund and is paid monthly. BA Advisors uses part of this money to pay the investment sub-adviser for the services it provides to each Fund. BA Advisors has agreed to waive fees and/or reimburse expenses for certain Funds until July 31, 2002. You'll find a discussion of any waiver and/or reimbursement in the Fund descriptions. There is no assurance that BA Advisors will continue to waive and/or reimburse any fees and/or expenses after this date. The following chart shows the maximum advisory fees BA Advisors can receive, along with the actual advisory fees it received during the Funds' last fiscal year, after waivers and/or reimbursements: Annual investment advisory fee, as a % of average daily net assets
Maximum Actual fee advisory paid last fee fiscal year Nations Short-Term Income Fund 0.30% 0.20% Nations Short-Intermediate Government Fund 0.30% 0.30% Nations Government Securities Fund 0.50% 0.40% Nations Intermediate Bond Fund(1) 0.40% 0.40% Nations Bond Fund 0.40% 0.40% Nations Strategic Income Fund 0.50% 0.39% Nations High Yield Bond Fund(1) 0.55% 0.55%
(1) These Funds don't have their own investment adviser because they invest in Nations Intermediate Bond Master Portfolio and Nations High Yield Bond Master Portfolio, respectively. BA Advisors is the investment adviser to the Master Portfolios. 45 Investment sub-advisers Nations Funds and BA Advisors engage one or more investment sub-advisers for each Fund to make day-to-day investment decisions for the Fund. BA Advisors retains ultimate responsibility (subject to Board oversight) for overseeing the sub-advisers and evaluates the Funds' needs and available sub-advisers' skills and abilities on an ongoing basis. Based on its evaluations, BA Advisors may at times recommend to a Fund's Board that the Fund: o change, add or terminate one or more sub-advisers; o continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or o materially change a sub-advisory agreement with a sub-adviser. Applicable law requires a Fund to obtain shareholder approval in order to act on most of these types of recommendations, even if the Fund's Board has approved the proposed action and believes that the action is in shareholders' best interests. BA Advisors and the Funds have applied for relief from the SEC to permit the Funds to act on many of BA Advisors' recommendations with approval only by the Funds' Board and not by Fund shareholders. BA Advisors or a Fund would inform the Fund's shareholders of any actions taken in reliance on this relief. Until BA Advisors and the Funds obtain the relief, each Fund will continue to submit these matters to shareholders for their approval to the extent required by applicable law. [GRAPHIC] Banc of America Capital Management, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Banc of America Capital Management, LLC BACAP is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Its management expertise covers all major domestic asset classes, including equity and fixed income securities, and money market instruments. Currently managing more than $125 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 60 funds in the Nations Funds Family. BACAP takes a team approach to investment management. Each team has access to the latest technology and analytical resources. BACAP is the investment sub-adviser to the Funds shown in the table below. The table also tells you which internal BACAP asset management team is responsible for making the day-to-day investment decisions for each Fund.
Fund BACAP Team Nations Short-Term Income Fund Fixed Income Management Team Nations Short-Intermediate Government Fund Fixed Income Management Team Nations Government Securities Fund Fixed Income Management Team Nations Intermediate Bond Fund1 Fixed Income Management Team Nations Bond Fund Fixed Income Management Team Nations Strategic Income Fund Fixed Income Management Team
(1) Nations Intermediate Bond Fund doesn't have its own investment sub-adviser because it invests in Nations Intermediate Bond Master Portfolio. BACAP is the investment sub-adviser to the Master Portfolio. 46 [GRAPHIC] MacKay Shields LLC 9 West 57th Street New York, New York 10019 MacKay Shields LLC Founded in 1938, MacKay Shields is an independently-managed, wholly-owned subsidiary of New York Life Insurance Company. The firm's 63 investment professionals manage more than $30 billion in assets, including over $6 billion in high yield assets. MacKay Shields' High Yield Portfolio Management Team is responsible for making the day-to-day decisions for Nations High Yield Bond Master Portfolio. Prior performance of other high yield accounts managed by MacKay Shields Nations High Yield Bond Fund commenced its operations on February 14, 2000. The table below is designed to show you how a composite of similar high yield accounts managed by MacKay Shields performed over various time periods in the past. The accounts comprising the MacKay Shields composite have investment objectives, policies and strategies that are substantially similar to those of Nations High Yield Bond Master Portfolio. The table below shows the returns for the MacKay Shields composite compared with the CSFB Global High Yield Index for the periods ending December 31, 2000. The returns of the MacKay Shields composite reflect deductions of account fees and expenses, and assume all dividends and distributions have been reinvested. Average annual total returns as of December 31, 2000
CSFB MacKay Shields Global High Yield Composite (%) Index (%) one year (3.40)% (5.22)% three years 4.26% (0.52)% five years 9.67% 4.50% ten years 15.24% 11.20%
Annual total returns as of December 31
CSFB MacKay Shields Global High Yield Composite (%) Index (%) 2000 (3.4)% (5.2)% 1999 10.7% 3.3% 1998 5.0% 0.6% 1997 15.9% 12.6% 1996 19.6% 12.4% 1995 21.2% 17.4% 1994 2.6% (1.0)% 1993 23.1% 18.9% 1992 23.4% 16.7% 1991 (since 7/1/91) 12.8% 12.9%
47 This information is designed to demonstrate the historical track record of MacKay Shields. It does not indicate how the Fund will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's fees and expenses. The MacKay Shields composite includes all high yield accounts managed by MacKay Shields. The accounts don't pay the same expenses that mutual funds pay and aren't subject to the diversification rules, tax restrictions and investment limits under the 1940 Act or Subchapter M of the Internal Revenue Code. Returns could have been lower if the composite had been subject to these expenses and regulations and reflected a deduction for investment advisory fees. Performance is expressed in U.S. dollars. The aggregate returns of the accounts in the composite may not reflect the returns of any particular account of MacKay Shields. For further information regarding the composite performance, please see the SAI. [GRAPHIC] Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 Other service providers The Funds are distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. Stephens may pay commissions, distribution (12b-1) and shareholder servicing fees, and/or other compensation to companies for selling shares and providing services to investors. BA Advisors is also co-administrator of the Funds, and assists in overseeing the administrative operations of the Funds. The Funds pay BA Advisors and Stephens a combined fee for their services, plus certain out-of-pocket expenses. The fee is calculated as an annual percentage of the average daily net assets of the Funds, and is paid monthly, as follows:
Government & Corporate Bond Funds (except Nations High Yield Bond Fund) 0.22% Nations High Yield Bond Fund 0.23%
[GRAPHIC] PFPC Inc. 400 Bellevue Parkway Wilmington, Delaware 19809 PFPC Inc. (PFPC) is the transfer agent for the Funds' shares. Its responsibilities include processing purchases, sales and exchanges, calculating and paying distributions, keeping shareholder records, preparing account statements and providing customer service. 48 About your investment - -------------------------------------------------------------------------------- [GRAPHIC] We've used the term, investment professional, to refer to the person who has assisted you with buying Nations Funds. Selling agent or servicing agent (sometimes referred to as a selling agent) means the company that employs your investment professional. Selling and servicing agents include banks, brokerage firms, mutual fund dealers and other financial institutions, including affiliates of Bank of America. [GRAPHIC] For more information about how to choose a share class, contact your investment professional or call us at 1.800.321.7854. [GRAPHIC] Before you invest, please note that over time, distribution (12b-1) and shareholder servicing fees will increase the cost of your investment, and may cost you more than any sales charges you may pay. For more information, see How selling and servicing agents are paid. [GRAPHIC] Choosing a share class Before you can invest in the Funds, you'll need to choose a share class. There are three classes of shares of each Fund offered by this prospectus except Nations Short-Term Income Fund, which doesn't offer Investor B Shares to new investors. Each class has its own sales charges and fees. The table below compares the charges and fees and other features of the share classes.
Nations Short-Intermediate Nations Government Fund, Government Nations Securities Fund, Intermediate Nations Strategic Nations Bond Fund, Income Fund, Short-Term Nations Nations High Yield Investor A Shares Income Fund Bond Fund Bond Fund Maximum amount you no limit no limit no limit can buy Maximum front-end 1.00% 3.25% 4.75% sales charge Maximum deferred none none none sales charge(1) Maximum annual 0.25% 0.25% 0.25% distribution distribution (12b-1)/ distribution (12b-1)/ distribution (12b-1)/ and shareholder service fee(2) service fee service fee servicing fees Conversion feature none none none
(1) A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2) Nations Short-Term Income Fund pays this fee under a separate servicing plan. 49
Nations Nations Short-Intermediate Government Government Fund, Securities Fund, Nations Intermediate Nations Strategic Nations Bond Fund, Income Fund, Short-Term Nations Nations High Yield Investor B Shares Income Bond Fund Bond Fund Maximum amount $250,000 $250,000 $250,000 you can buy Maximum front-end none none none sales charge Maximum deferred none 3.00%(1) 5.00%(1) sales charge Redemption fee none none none Maximum annual 0.75% 0.75% 0.75% distribution and distribution distribution distribution shareholder (12b-1) fee and (12b-1) fee and (12b-1) fee and servicing fees 0.25% service fee 0.25% service fee 0.25% service fee Conversion feature none yes yes
(1) This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details.
Nations Nations Short-Intermediate Government Government Fund, Securities Fund, Nations Intermediate Nations Strategic Nations Bond Fund, Income Fund, Short-Term Nations Nations High Yield Investor C Shares Income Fund Bond Fund Bond Fund Maximum amount no limit no limit no limit you can buy Maximum none none none front-end sales charge Maximum deferred 1.00% 1.00% 1.00% sales charge(1) Redemption fee none none none Maximum annual 0.75% 0.75% 0.75% distribution and distribution distribution distribution shareholder (12b-1) fee and (12b-1) fee and (12b-1) fee and servicing fees 0.25% service fee 0.25% service fee 0.25% service fee Conversion feature none none none
(1) This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. 50 The share class you choose will depend on how much you're investing, how long you're planning to stay invested, and how you prefer to pay the sales charge. The total cost of your investment over the time you expect to hold your shares will be affected by the distribution (12b-1) and shareholder servicing fees, as well as by the amount of any front-end sales charge or contingent deferred sales charge (CDSC) that applies, and when you're required to pay the charge. You should think about these things carefully before you invest. Investor A Shares have a front-end sales charge, which is deducted when you buy your shares. This means that a smaller amount is invested in the Funds, unless you qualify for a waiver or reduction of the sales charge. However, Investor A Shares have lower ongoing distribution (12b-1) and/or shareholder servicing fees than Investor B and Investor C Shares. This means that Investor A Shares can be expected to pay relatively higher dividends per share. Investor B Shares have limits on how much you can invest. When you buy Investor B or Investor C Shares, the full amount is invested in the Funds. However, you may pay a CDSC when you sell your shares. Over time, Investor B and Investor C Shares can incur distribution (12b-1) and shareholder servicing fees that are equal to or more than the front-end sales charge, and the distribution (12b-1) and shareholder servicing fees you would pay for Investor A Shares. Although the full amount of your purchase is invested in the Funds, any positive investment return on this money may be partially or fully offset by the expected higher annual expenses of Investor B and Investor C Shares. You should also consider the conversion feature for Investor B Shares, which is described in About Investor B Shares. [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by a Fund every business day. [GRAPHIC] About Investor A Shares There is no limit to the amount you can invest in Investor A Shares. You generally will pay a front-end sales charge when you buy your shares, or in some cases, a CDSC when you sell your shares. Front-end sales charge You'll pay a front-end sales charge when you buy Investor A Shares, unless: o you qualify for a waiver of the sales charge. You can find out if you qualify for a waiver in the section, When you might not have to pay a sales charge - Front end sales charges o you're reinvesting distributions The sales charge you'll pay depends on the Fund you're buying and the amount you're investing -- generally, the larger the investment, the smaller the percentage sales charge. 51
Nations Short-Term Income Fund Amount retained by selling Sales charge Sales charge agents as a % of the as a % of the as a % of the offering price net asset value offering price Amount you bought per share per share per share $0-$99,999 1.00% 1.01% 0.75% $100,000-$249,999 0.75% 0.76% 0.50% $250,000-$999,999 0.50% 0.50% 0.40% $1,000,000 or more 0.00% 0.00% 1.00%(1)
Nations Short-Intermediate Government Fund Nations Intermediate Bond Fund Nations Bond Fund Amount retained by selling Sales charge Sales charge agents as a % of the as a % of the as a % of the offering price net asset value offering price Amount you bought per share per share per share $0-$99,999 3.25% 3.36% 3.00% $100,000- $249,999 2.50% 2.56% 2.25% $250,000- $499,999 2.00% 2.04% 1.75% $500,000- $999,999 1.50% 1.53% 1.25% $1,000,000 or more 0.00% 0.00% 1.00%(1)
Nations Government Securities Fund Nations Strategic Income Fund Nations High Yield Bond Fund Amount retained by selling Sales charge Sales charge agents as a % of the as a % of the as a % of the offering price net asset value offering price Amount you bought per share per share per share $0-$49,999 4.75% 4.99% 4.25% $50,000-$99,999 4.50% 4.71% 4.00% $100,000-$249,999 3.50% 3.63% 3.00% $250,000-$499,999 2.50% 2.56% 2.25% $500,000-$999,999 2.00% 2.04% 1.75% $1,000,000 or more 0.00% 0.00% 1.00%(1)
(1) 1.00% on the first $3,000,000, 0.50% on the next $47,000,000, 0.25% on amounts over $50,000,000. Stephens pays the amount retained by selling agents on investments of $1,000,000 or more, but may be reimbursed when a CDSC is deducted if the shares are sold within eighteen months from the time they were bought. Please see How selling and servicing agents are paid for more information. 52 Contingent deferred sales charge If you own or buy $1,000,000 or more of Investor A Shares, there is one situation when you'll pay a CDSC: o If you buy your shares on or after August 1, 1999 and sell them within 18 months of buying them, you'll pay a CDSC of 1.00%. The CDSC is calculated from the day your purchase is accepted (the trade date). We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. You won't pay a CDSC on any increase in net asset value since you bought your shares, or on any shares you receive from reinvested distributions. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. [GRAPHIC] About Investor B Shares You can buy up to $250,000 of Investor B Shares. You don't pay a sales charge when you buy Investor B Shares, but you may have to pay a CDSC when you sell them. Investor B Shares are not available for Nations Short-Term Income Fund. Contingent deferred sales charge You'll pay a CDSC when you sell your Investor B Shares, unless: o you bought the shares on or after January 1, 1996 and before August 1, 1997 o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge - Contingent deferred sales charges 53 The CDSC you pay depends on the Fund you bought, when you bought your shares, how much you bought in some cases, and how long you held them.
Nations Short-Intermediate Government Fund Nations Intermediate Bond Fund Nations Bond Fund If you sell your shares during the following year: You'll pay a CDSC of: - --------------------------------- --------------------------------------------------------------------- Shares you bought Shares Shares on or after you you bought Shares you bought between 1/1/1996 bought after 8/1/1997 and 11/15/1998 and before before 11/15/1998 in the following amounts: 8/1/1997 1/1/1996 ------------ -------------------------- ------------- --------- $500,000- $0-$499,999 $999,999 the first year you own them 3.0% 3.0% 2.0% none 4.0% the second year you own them 3.0% 2.0% 1.0% none 3.0% the third year you own them 2.0% 1.0% none none 3.0% the fourth year you own them 1.0% none none none 2.0% the fifth year you own them none none none none 2.0% the sixth year you own them none none none none 1.0% after six years of owning them none none none none none
Nations Government Securities Fund Nations Strategic Income Fund Nations High Yield Bond Fund If you sell your shares during the following year: You'll pay a CDSC of: - --------------------------------- ------------------------------------------------------------------------- Shares you bought Shares Shares on or after you you bought Shares you bought between 1/1/1996 bought after 8/1/1997 and 11/15/1998 and before before 11/15/1998 in the following amounts: 8/1/1997 1/1/1996 ------------ ------------------------------------ ------------- --------- $250,000- $500,000- $0-$249,999 $499,999 $999,999 the first year you own them 5.0% 4.0% 3.0% 2.0% none 5.0% the second year you own them 4.0% 3.0% 2.0% 1.0% none 4.0% the third year you own them 3.0% 3.0% 1.0% none none 3.0% the fourth year you own them 3.0% 2.0% none none none 2.0% the fifth year you own them 2.0% 1.0% none none none 2.0% the sixth year you own them 1.0% none none none none 1.0% after six years of owning them none none none none none none
The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor B Shares. Please see How selling and servicing agents are paid for more information. 54 About the conversion feature Investor B Shares generally convert automatically to Investor A Shares according to the following schedule:
Nations Short-Intermediate Government Fund Nations Intermediate Bond Fund Nations Bond Fund Will convert to Investor A Shares Investor B Shares you bought after you've owned them for after November 15, 1998 eight years between August 1, 1997 and November 15, 1998 $0-$249,999 six years $250,000-$499,999 six years $500,000-$999,999 five years before August 1, 1997 six years
Nations Government Securities Fund Nations Strategic Income Fund Nations High Yield Bond Fund Will convert to Investor A Shares Investor B Shares you bought after you've owned them for after November 15, 1998 eight years between August 1, 1997 and November 15, 1998 $0-$249,999 nine years $250,000-$499,999 six years $500,000-$999,999 five years before August 1, 1997 eight years
The conversion feature allows you to benefit from the lower operating costs of Investor A Shares, which can help increase total returns. Here's how the conversion works: o We won't convert your shares if you tell your investment professional, selling agent or the transfer agent within 90 days before the conversion date that you don't want your shares to be converted. Remember, it's in your best interest to convert your shares because Investor A Shares have lower expenses. o Shares are converted at the end of the month in which they become eligible for conversion. Any shares you received from reinvested distributions on these shares will convert to Investor A Shares at the same time. o You'll receive the same dollar value of Investor A Shares as the Investor B Shares that were converted. No sales charge or other charges apply. o Investor B Shares that you received from an exchange of Investor B Shares of another Nations Fund will convert based on the day you bought the original shares. Your conversion date may be later if you exchanged to or from a Nations Money Market Fund. o Conversions are free from federal tax. 55 [GRAPHIC] About Investor C Shares There is no limit to the amount you can invest in Investor C Shares. You don't pay a sales charge when you buy Investor C Shares, but you may pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC of 1.00% when you sell Investor C Shares within one year of buying them, unless: o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge - Contingent deferred sales charges The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor C Shares. Please see How selling and servicing agents are paid for more information. [GRAPHIC] Please contact your investment professional for more information about reductions and waivers of sales charges. You should tell your investment professional that you may qualify for a reduction or a waiver before buying shares. We can change or cancel these terms at any time. Any change or cancellation applies only to future purchases. When you might not have to pay a sales charge Front-end sales charges (Investor A Shares) There are three ways you can lower the front-end sales charge you pay on Investor A Shares: o Combine purchases you've already made Rights of accumulation allow you to combine the value of Investor A, Investor B and Investor C Shares you already own with Investor A Shares you're buying to calculate the sales charge. The sales charge is based on the total value of the shares you already own, or the original purchase cost, whichever is higher, plus the value of the shares you're buying. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify for rights of accumulation. o Combine purchases you plan to make By signing a letter of intent, you can combine the value of shares you already own with the value of shares you plan to buy over a 13-month period to calculate the sales charge. o You can choose to start the 13-month period up to 90 days before you sign the letter of intent. o Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. 56 o If you don't buy as much as you planned within the period, you must pay the difference between the charges you've paid and the charges that actually apply to the shares you've bought. o Your first purchase must be at least 5% of the minimum amount for the sales charge level that applies to the total amount you plan to buy. o If the purchase you've made later qualifies for a reduced sales charge through the 90-day backdating provisions, we'll make an adjustment for the lower charge when the letter of intent expires. Any adjustment will be used to buy additional shares at the reduced sales charge. o Combine purchases with family members You can receive a quantity discount by combining purchases of Investor A Shares that you, your spouse and children under age 21 make on the same day. Some distributions or payments from the dissolution of certain qualified plans also qualify for the quantity discount. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: o full-time employees and retired employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries and the immediate families of these people o banks, trust companies and thrift institutions, acting as fiduciaries o individuals receiving a distribution from a Bank of America trust or other fiduciary account may use the proceeds of that distribution to buy Investor A Shares without paying a front-end sales charge, as long as the proceeds are invested in the Funds within 90 days of the date of distribution o Nations Funds' Trustees, Directors and employees of its investment sub-advisers o registered broker/dealers that have entered into a Nations Funds dealer agreement with Stephens may buy Investor A Shares without paying a front-end sales charge for their investment account only o registered personnel and employees of these broker/dealers and their family members may buy Investor A Shares without paying a front-end sales charge according to the internal policies and procedures of the employing broker/dealer as long as these purchases are made for their own investment purposes o employees or partners of any service provider to the Funds o investors who buy through accounts established with certain fee-based investment advisers or financial planners, wrap fee accounts and other managed agency/asset allocation accounts o shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at net asset value 57 The following plans can buy Investor A Shares without paying a front-end sales charge: o pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the Internal Revenue Code of 1986, as amended (the tax code) o employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must: o have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or o sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or o be an employer-sponsored plan with at least 100 eligible participants, or o be a participant in an alliance program that has signed an agreement with the Fund or a selling agent o certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors You can also buy Investor A Shares without paying a sales charge if you buy the shares within 120 days of selling the same Fund. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. Contingent deferred sales charges (Investor A, Investor B and Investor C Shares) You won't pay a CDSC on the following transactions: o shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner o distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors o the following retirement plan distributions: o lump-sum or other distributions from a qualified corporate or self-employed retirement plan following the retirement (or following attainment of age 59 1/2 in the case of a "key employee" of a "top heavy" plan) o distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 o a tax-free return of an excess contribution to an IRA o distributions from a qualified retirement plan that aren't subject to the 10% additional federal withdrawal tax under Section 72(t)(2) of the tax code 58 o payments made to pay medical expenses which exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least 12 weeks o shares sold under our right to liquidate a shareholder's account, including instances where the aggregate net asset value of Investor A, Investor B or Investor C Shares held in the account is less than the minimum account size o if you exchange Investor B or Investor C Shares of a Nations Fund that were bought through a Bank of America employee benefit plan for Investor A Shares of a Nations Fund o withdrawals made under the Automatic Withdrawal Plan described in Buying, selling and exchanging shares, if the total withdrawals of Investor A, Investor B or Investor C Shares made in a year are less than 12% of the total value of those shares in your account. A CDSC may only apply to Investor A Shares if you bought more than $1,000,000 We'll also waive the CDSC on the sale of Investor A or Investor C Shares bought before September 30, 1994 by current or retired employees of Bank of America Corporation (and its predecessors) and its affiliates, or by current or former trustees or directors of the Nations Funds or other management companies managed by Bank of America. You won't pay a CDSC on the sale of Investor B or Investor C Shares if you reinvest any of the proceeds in the same Fund within 120 days of the sale. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. 59 [GRAPHIC] When you sell shares of a mutual, fund, the fund is effectively "buying" them back from you. This is called a redemption. [GRAPHIC] Buying, selling and exchanging shares You can invest in the Funds through your selling agent or directly from Nations Funds. We encourage you to consult with an investment professional who can open an account for you with a selling agent and help you with your investment decisions. Once you have an account, you can buy, sell and exchange shares by contacting your investment professional or selling agent. They will look after any paperwork that's needed to complete a transaction and send your order to us. You should also ask your selling agent about its limits, fees and policies for buying, selling and exchanging shares, which may be different from those described here, and about its related programs or services. The table on the next page summarizes some key information about buying, selling and exchanging shares. You'll find sales charges and other fees that apply to these transactions in Choosing a share class. The Funds also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. Please contact your investment professional, or call us at 1.800.321.7854 if you have any questions or you need help placing an order. 60
Ways to buy, sell or How much you can buy, exchange sell or exchange Other things to know ------------------ ---------------------------------------- --------------------------------------------------- Buying shares In a lump sum minimum initial investment: There is no limit to the amount you can invest in o $1,000 for regular accounts Investor A and C Shares. You can invest up to o $500 for traditional and Roth IRA $250,000 in Investor B Shares. accounts o $250 for certain fee-based accounts Investor B Shares are only available to existing o no minimum for certain retirement customers of Nations Short-Term Income Fund. plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: o $100 for all accounts Using our minimum initial investment: You can buy shares twice a month, monthly or Systematic o $100 quarterly, using automatic transfers from your Investment Plan minimum additional investment: bank account. o $50 - ------------------------------------------------------------------------------------------------------------------------------------ Selling shares In a lump sum o you can sell up to $50,000 of your We'll deduct any CDSC from the amount you're shares by telephone, otherwise there selling and send you or your selling agent the are no limits to the amount you can balance, usually within three business days of sell receiving your order. o other restrictions may apply to If you paid for your shares with a check that withdrawals from retirement plan wasn't certified, we'll hold the sale proceeds accounts when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared. Using our o minimum $25 per withdrawal Your account balance must be at least $10,000 Automatic to set up the plan. You can make withdrawals Withdrawal Plan twice a month, monthly, quarterly, bi-annually or annually. We'll send your money by check or deposit it directly to your bank account. No CDSC is deducted if you withdraw 12% or less of the value of your shares in a class. - ------------------------------------------------------------------------------------------------------------------------------------ Exchanging shares In a lump sum o minimum $1,000 per exchange You can exchange your Investor A Shares for Investor A Shares of any other Nations Fund, except Index Funds. You won't pay a front-end sales charge, CDSC or redemption fee on the shares you're exchanging. You can exchange your Investor B Shares for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You can exchange your Investor C Shares for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of a Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Using our o minimum $25 per exchange You must already have an investment in the Automatic Funds into which you want to exchange. You can Exchange Feature make exchanges monthly or quarterly.
61 [GRAPHIC] A business day is any day that the New York Stock Exchange (NYSE) is open. A business day ends at the close of regular trading on the NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes early, the business day ends as of the time the NYSE closes. The NYSE is closed on weekends and on the following national holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. How shares are priced All transactions are based on the price of a Fund's shares -- or its net asset value per share. We calculate net asset value per share for each class of each Fund at the end of each business day. First, we calculate the net asset value for each class of a Fund by determining the value of the Fund's assets in the class and then subtracting its liabilities. Next, we divide this amount by the number of shares that investors are holding in the class. Valuing securities in a Fund The value of a Fund's assets is based on the total market value of all of the securities it holds. The prices reported on stock exchanges and securities markets around the world are usually used to value securities in a Fund. If prices aren't readily available, or the value of a security has been materially affected by events occurring after a foreign exchange closes, we'll base the price of a security on its fair value. When a Fund uses fair value to price securities it may value those securities higher or lower than another fund that uses market quotations to price the same securities. We use the amortized cost method, which approximates market value, to value short-term investments maturing in 60 days or less. International markets may be open on days when U.S. markets are closed. The value of foreign securities owned by a Fund could change on days when Fund shares may not be bought or sold. How orders are processed Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents before the end of a business day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive that day's net asset value per share. Orders received after the end of a business day will receive the next business day's net asset value per share. The business day that applies to your order is also called the trade date. We may refuse any order to buy or exchange shares. If this happens, we'll return any money we've received to your selling agent. Telephone orders You can place orders to buy, sell or exchange by telephone if you complete the telephone authorization section of our account application and send it to us. Here's how telephone orders work: o If you sign up for telephone orders after you open your account, you must have your signature guaranteed. o Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. o We'll take reasonable steps to confirm that telephone instructions are genuine. For example, we require proof of your identification before we will act on instructions received by telephone and may record telephone conversations. If we and our service providers don't take these steps, we may be liable for any losses from unauthorized or fraudulent instructions. o Telephone orders may be difficult to complete during periods of significant economic or market change. 62 [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by a Fund every business day. [GRAPHIC] Buying shares Here are some general rules for buying shares: o You buy Investor A Shares at the offering price per share. You buy Investor B and Investor C Shares at net asset value per share. o If we don't receive your money within three business days of receiving your order, we'll refuse the order. o Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. o Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. Minimum initial investment The minimum initial amount you can buy is usually $1,000. If you're buying shares through one of the following accounts or plans, the minimum initial amount you can buy is: o $500 for traditional and Roth individual retirement accounts (IRAs) o $250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts o $100 using our Systematic Investment Plan o There is no minimum for 401(k) plans, simplified employee pension plans (SEPs), salary reduction-simplified employee pension plans (SAR-SEPs), Savings Incentives Match Plans for Employees (SIMPLE IRAs), salary reduction IRAs (SAR-IRAs) or other similar kinds of accounts. However, if the value of your account falls below $1,000 for 401(k) plans or $500 for the other plans within one year after you open your account, we may sell your shares. We'll give you 60 days notice in writing if we're going to do this Minimum additional investment You can make additional purchases of $100, or $50 if you use our Systematic Investment Plan. Systematic Investment Plan You can make regular purchases of $50 or more using automatic transfers from your bank account to the Funds you choose. You can contact your investment professional or us to set up the plan. Here's how the plan works: o You can buy shares twice a month, monthly or quarterly. o You can choose to have us transfer your money on or about the 15th or the last day of the month. o Some exceptions may apply to employees of Bank of America and its affiliates, and to plans set up before August 1, 1997. For details, please contact your investment professional. 63 [GRAPHIC] For more information about telephone orders, see How orders are processed. [GRAPHIC] Selling shares Here are some general rules for selling shares: o We'll deduct any CDSC from the amount you're selling and send you the balance. o If you're selling your shares through a selling agent, we'll normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. Your selling agent is responsible for depositing the sale proceeds to your account on time. o If you're selling your shares directly through us, we'll normally send the sale proceeds by mail or electronic transfer them to your bank account within three business days after the Fund receives your order. o You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. o If you paid for your shares with a check that wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared, whichever is later. o If you hold any shares in certificate form, you must sign the certificates (or send a signed stock power with them) and send them to PFPC. Your signature must be guaranteed unless you've made other arrangements with us. We may ask for any other information we need to prove that the order is properly authorized. o Under certain circumstances allowed under the Investment Company Act of 1940 (1940 Act), we can pay you in securities or other property when you sell you shares. o We can delay payment of the sale proceeds for up to seven days. o Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. We may sell your shares: o if the value of your account falls below $500. We'll give you 60 days notice in writing if we're going to do this o if your selling agent tells us to sell your shares under arrangements made between the selling agent and you o under certain other circumstances allowed under the 1940 Act 64 Automatic Withdrawal Plan The Automatic Withdrawal Plan lets you withdraw $25 or more twice a month, monthly, quarterly, bi-annually or annually. You can contact your investment professional or us to set up the plan. Here's how the plan works: o Your account balance must be at least $10,000 to set up the plan. o If you set up the plan after you've opened your account, your signature must be guaranteed. o You can choose to have us transfer your money on or about the 10th or the 25th of the month. o You won't pay a CDSC on Investor A, Investor B or Investor C Shares if you withdraw 12% or less of the value of those shares in a year. Otherwise, we'll deduct any CDSC from the withdrawals. o We'll send you a check or deposit the money directly to your bank account. o You can cancel the plan by giving your selling agent or us 30 days notice in writing. It's important to remember that if you withdraw more than your investment in the Fund is earning, you'll eventually use up your original investment. [GRAPHIC] You should make sure you understand the investment objective and principal investment strategies of the Fund you're exchanging into. Please read its prospectus carefully. [GRAPHIC] Exchanging shares You can sell shares of one Fund to buy shares of another Nations Fund. This is called an exchange. You might want to do this if your investment goals or tolerance for risk changes. Here's how exchanges work: o You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. o The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. o You may only make exchanges into a Fund that is legally sold in your state of residence. o You generally may only make an exchange into a Fund that is accepting investments. o We may limit the number of exchanges you can make within a specified period of time. o We may change or cancel your right to make an exchange by giving the amount of notice required by regulatory authorities (generally 60 days for a material change or cancellation). o You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. 65 Exchanging Investor A Shares You can exchange Investor A Shares of a Fund for Investor A Shares of any other Nations Fund, except Index Funds. Here are some rules for exchanging Investor A Shares: o You won't pay a front-end sales charge on the shares of the Fund you're exchanging. o You won't pay a CDSC, if applicable, on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC at that time will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. o You won't pay a redemption fee on the shares you're exchanging. Any redemption fee will be deducted when you sell the shares you received from the exchange. Any redemption fee will be paid to the original Fund. o If you received Investor A Shares of Nations Short-Term Income Fund directly or indirectly from an exchange of Investor B Shares of another Fund, you can exchange these shares for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds; or o Investor B Shares of Nations Reserves Money Market Funds. A CDSC may apply to the shares you receive from the exchange, and to any Investor B Shares you receive from an exchange of these shares. The CDSC will be based on the period from when you bought your original Investor B Shares until you sell the shares you received from the exchange. Exchanging Investor B Shares You can exchange Investor B Shares of a Fund for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Investor C Shares of a Nations Money Market Fund from an exchange of Investor B Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Investor C Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. 66 Exchanging Investor C Shares You can exchange Investor C Shares of a Fund for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of a Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Daily Shares of a Nations Money Market Fund through an exchange of Investor C Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Daily Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. Automatic Exchange Feature The Automatic Exchange Feature lets you exchange $25 or more of Investor A, Investor B or Investor C Shares every month or every quarter. You can contact your investment professional or us to set up the plan. Here's how automatic exchanges work: o Send your request to PFPC in writing or call 1.800.321.7854. o If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. o You must already have an investment in the Funds you want to exchange. o You can choose to have us transfer your money on or about the 1st or the 15th day of the month. o The rules for making exchanges apply to automatic exchanges. 67 [GRAPHIC] How selling and servicing agents are paid Selling and servicing agents usually receive compensation based on your investment in the Funds. The kind and amount of the compensation depends on the share class in which you invest. Selling agents typically pay a portion of the compensation they receive to their investment professionals. Commissions Your selling agent may receive an up-front commission (reallowance) when you buy shares of a Fund. The amount of this commission depends on which share class you choose: o up to 4.25% of the offering price per share of Investor A Shares. The commission is paid from the sales charge we deduct when you buy your shares o up to 4.00% of the net asset value per share of Investor B Shares. The commission is not deducted from your purchase -- we pay your selling agent directly o up to 1.00% of the net asset value per share of Investor C Shares. The commission is not deducted from your purchase -- we pay your selling agent directly If you buy Investor B or Investor C Shares you will be subject to higher distribution (12b-1) and shareholder servicing fees and may be subject to a CDSC when you sell your shares. [GRAPHIC] The financial institution or intermediary that buys shares for you is also sometimes referred to as a selling agent. The distribution fee is often referred to as a "12b-1" fee because it's paid through a plan approved under Rule 12b-1 under the 1940 Act. Your selling agent may charge other fees for services provided to your account. Distribution (12b-1) and shareholder servicing fees Stephens and selling and servicing agents may be compensated for selling shares and providing services to investors under distribution and shareholder servicing plans. The amount of the fee depends on the class of shares you own:
Maximum annual distribution (12b-1) and shareholder servicing fees (as an annual % of average daily net assets) Investor A Shares 0.25% combined distribution (12b-1) and shareholder servicing fee(1) Investor B Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee Investor C Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee
(1) Nations Short-Term Income Fund pays this fee under a separate servicing plan. Fees are calculated daily and paid monthly. Because these fees are paid out of the Funds' assets on an ongoing basis, they will increase the cost of your investment over time, and may cost you more than any sales charges you may pay. The Funds pay these fees to Stephens and/or to eligible selling and servicing agents and financial institutions, including BA Advisors or its affiliates, for as long as the plans continue. We may reduce or discontinue payments at any time. 68 Other compensation Selling and servicing agents may also receive: o a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds o additional amounts on all sales of shares: o up to 1.00% of the offering price per share of Investor A Shares o up to 1.00% of the net asset value per share of Investor B Shares o up to 1.00% of the net asset value per share of Investor C Shares o non-cash compensation like trips to sales seminars, tickets to sporting events, theater or other entertainment, opportunities to participate in golf or other outings and gift certificates for meals or merchandise This compensation, which is not paid by the Funds, is discretionary and may be available only to selected selling and servicing agents. For example, Stephens sometimes sponsors promotions involving Banc of America Investment Services, Inc., an affiliate of BA Advisors, and certain other selling or servicing agents. Selected selling and servicing agents also may receive compensation for opening a minimum number of accounts. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. 69 [GRAPHIC] The power of compounding Reinvesting your distributions buys you more shares of a Fund -- which lets you take advantage of the potential for compound growth. Putting the money you earn back into your investment means it, in turn, may earn even more money. Over time, the power of compounding has the potential to significantly increase the value of your investment. There is no assurance, however, that you'll earn more money if you reinvest your distributions. [GRAPHIC] Distributions and taxes About distributions A mutual fund can make money two ways: o It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. o A fund can also have capital gain if the value of its investments increases. If a fund sells an investment at a gain, the gain is realized. If a fund continues to hold the investment, any gain is unrealized. A mutual fund is not subject to federal income tax as long as it distributes its net investment income and realized capital gain to its shareholders. The Funds intend to pay out a sufficient amount of their income and capital gain to their shareholders so the Funds won't have to pay any federal income tax. When a Fund makes this kind of a payment, it's split among all shares, and is called a distribution. All of the Funds distribute any net realized capital gain at least once a year. All of the Funds, except Nations Intermediate Bond Fund and Nations High Yield Bond Fund, declare distributions of net investment income daily and pay them monthly. Nations Intermediate Bond Fund and Nations High Yield Bond Fund declare and pay distributions of net investment income monthly. Any distribution you receive is based on the number of shares you hold on the record date, which is usually the day the distribution is declared (daily dividend Funds) or the day before the distribution is declared (all other Funds). Shares are eligible to receive net investment income distributions from the settlement date (daily dividend Funds), trade date (all other Funds) or realized capital gain from the trade date of the purchase up to and including the day before the shares are sold. Different share classes of a Fund usually pay different net investment income distribution amounts, because each class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. We'll automatically reinvest distributions in additional shares of the same Fund unless you tell us you want to receive your distributions in cash. You can do this by writing to us at the address on the back cover, or by calling us at 1.800.321.7854. We generally pay cash distributions within five business days after the end of the month, quarter or year in which the distribution was made. If you sell all of your shares, we'll normally pay any distribution that applies to those shares in cash within five business days after the sale was made. If you buy shares of a Fund shortly before it makes a distribution, you will, in effect, receive part of your purchase back in the distribution, which is subject to tax. Similarly, if you buy shares of a Fund that holds securities with unrealized capital gain, you will, in effect, receive part of your purchase back if and when the Fund sells those securities and realizes and distributes the gain. This distribution is also subject to tax. The Funds have built up, or have the potential to build up, high levels of unrealized capital gain. 70 [GRAPHIC] This information is a summary of how federal income taxes may affect your investment in the Funds. It is not intended as a substitute for careful tax planning. You should consult with your own tax adviser about your situation, including any foreign, state and local taxes that may apply. [GRAPHIC] For more information about taxes, please see the SAI. How taxes affect your investment Distributions that come from net investment income, net short-term capital gain and certain other items generally are taxable to you as ordinary income. Distributions that come from net long-term capital gain generally are taxable to you as long-term capital gain. Corporate shareholders generally won't be able to deduct any distributions from a Fund when determining their taxable income. In general, all distributions are taxable to you when paid, whether they are paid in cash or automatically reinvested in additional shares of the Fund. However, any distributions declared to shareholders of record in October, November or December of one year and distributed in January of the following year will be taxable as if they had been paid to you on December 31 of the first year. We'll send you a notice every year that tells you how much you've received in distributions during the year and their federal tax status. Foreign, state and local taxes may also apply to these distributions. U.S. government obligations If you invest in U.S. government obligations directly, interest on those obligations is free from state and local and individual income taxes. Distributions you receive that come from interest each Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. Withholding tax We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts to be paid for in securities or other property and exchanges) if: o you haven't given us a correct Taxpayer Identification Number (TIN) and haven't certified that the TIN is correct and withholding doesn't apply o the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records o the IRS informs us that you're otherwise subject to backup withholding The IRS may also impose penalties against you if you don't give us a correct TIN. Amounts we withhold are applied to your federal income tax liability. You may receive a refund from the IRS if the withholding tax results in an overpayment of taxes. We're also normally required by federal law to withhold tax on distributions (other than capital gain distributions) paid to foreign shareholders. Taxation of redemptions and exchanges Your redemptions (including redemptions paid in securities) and exchanges of Fund shares will usually result in a taxable capital gain or loss, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. 71 [GRAPHIC] Financial highlights The financial highlights table is designed to help you understand how the Funds have performed for the past five years or, if shorter, the period of the Fund's operations. Certain information reflects financial results for a single Fund share. The total investment return line indicates how much an investment in the Fund would have earned, assuming all dividends and distributions had been reinvested. This information, except as noted below, has been audited by PricewaterhouseCoopers LLP. The independent accountants' report and Nations Funds financial statements are incorporated by reference into the SAI. Please see the back cover to find out how you can get a copy. 72
Nations Short-Term Income Fund For a Share outstanding throughout each year Year ended Year ended Investor A Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 9.51 $ 9.79 Net investment income 0.56 0.54 Net realized and unrealized gain/(loss) on investments 0.30 (0.28) Net increase/(decrease) in net asset value from operations 0.86 0.26 Distributions: Dividends from net investment income (0.56) (0.54) Total dividends and distributions (0.56) (0.54) Net asset value, end of year $ 9.81 $ 9.51 Total return++ 9.28% 2.76% =================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $7,658 $11,831 Ratio of operating expenses to average net assets 0.76%(a) 0.73%(a) Ratio of net investment income to average net assets 5.79% 5.63% Portfolio turnover rate 42% 62% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.86%(a) 0.88%(a) Year ended Year ended Year ended Investor A Shares 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 9.77 $ 9.68 $ 9.76 Net investment income 0.54 0.54 0.56 Net realized and unrealized gain/(loss) on investments 0.02 0.09 (0.08) Net increase/(decrease) in net asset value from operations 0.56 0.63 0.48 Distributions: Dividends from net investment income (0.54) (0.54) (0.56) Total dividends and distributions (0.54) (0.54) (0.56) Net asset value, end of year $ 9.79 $ 9.77 $ 9.68 Total return++ 5.85% 6.67% 5.04% ========================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $14,652 $13,688 $6,169 Ratio of operating expenses to average net assets 0.70%(a) 0.76%(a)(b) 0.75%(b) Ratio of net investment income to average net assets 5.50% 5.55% 5.77% Portfolio turnover rate 64% 66% 172% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.05%(a) 1.06%(a) 1.05%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. Nations Short-Term Income Fund For a Share outstanding throughout each year
Year ended Year ended Investor B Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 9.51 $ 9.79 Net investment income 0.48 0.51 Net realized and unrealized gain/(loss) on investments 0.29 (0.28) Net increase/(decrease) in net asset value from operations 0.77 0.23 Distributions: Dividends from net investment income (0.48) (0.51) Total dividends and distributions (0.48) (0.51) Net asset value, end of year $ 9.80 $ 9.51 Total return++ 8.36% 2.40% =================================================== ======= ======= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $2,515 $2,914 Ratio of operating expenses to average net assets 1.51%(a) 1.05%(a) Ratio of net investment income to average net assets 5.04% 5.31% Portfolio turnover rate 42% 62% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.61%(a) 1.63%(a) Year ended Year ended Year ended Investor B Shares 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 9.77 $ 9.68 $ 9.76 Net investment income 0.52 0.53 0.55 Net realized and unrealized gain/(loss) on investments 0.02 0.09 (0.08) Net increase/(decrease) in net asset value from operations 0.54 0.62 0.47 Distributions: Dividends from net investment income (0.52) (0.53) (0.55) Total dividends and distributions (0.52) (0.53) (0.55) Net asset value, end of year $ 9.79 $ 9.77 $ 9.68 Total return++ 5.70% 6.51% 4.89% =================================================== ======= ======= ======= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $5,825 $4,602 $5,536 Ratio of operating expenses to average net assets 0.85%(a) 0.91%(a)(b) 0.90%(b) Ratio of net investment income to average net assets 5.35% 5.40% 5.62% Portfolio turnover rate 64% 66% 172% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.80%(a) 1.21%(a) 1.20%
++ Total return represents aggregate total return for the periods indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 73 Nations Short-Term Income Fund For a Share outstanding throughout each year
Year ended Year ended Investor C Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 9.51 $ 9.79 Net investment income 0.48 0.47 Net realized and unrealized gain/(loss) on investments 0.29 (0.28) Net increase/(decrease) in net asset value from operations 0.77 0.19 Distributions: Dividends from net investment income (0.48) (0.47) Total dividends and distributions (0.48) (0.47) Net asset value, end of year $ 9.80 $ 9.51 Total return++ 8.37% 1.97% ======================================================= ======= ======= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 833 $ 987 Ratio of operating expenses to average net assets 1.51%(a) 1.50%(a) Ratio of net investment income to average net assets 5.04% 4.86% Portfolio turnover rate 42% 62% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.61%(a) 1.63%(a) Year ended Year ended Year ended Investor C Shares 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 9.77 $ 9.68 $ 9.76 Net investment income 0.52 0.53 0.55 Net realized and unrealized gain/(loss) on investments 0.02 0.09 (0.08) Net increase/(decrease) in net asset value from operations 0.54 0.62 0.47 Distributions: Dividends from net investment income (0.52) (0.53) (0.55) Total dividends and distributions (0.52) (0.53) (0.55) Net asset value, end of year $ 9.79 $ 9.77 $ 9.68 Total return++ 5.64% 6.51% 4.89% ======================================================= ======= ======= ======= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,744 $2,992 $4,063 Ratio of operating expenses to average net assets 1.01%(a) 0.91%(a)(b) 0.90%(b) Ratio of net investment income to average net assets 5.19% 5.40% 5.62% Portfolio turnover rate 64% 66% 172% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.80%(a) 1.21%(a) 1.20%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. Nations Short-Intermediate Government Fund For a Share outstanding throughout each year
Year ended Year ended Investor A Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 3.94 $ 4.10 Net investment income 0.22 0.22 Net realized and unrealized gain/(loss) on investments 0.21 (0.16) Net increase/(decrease) in net asset value from operations 0.43 0.06 Distributions: Dividends from net investment income (0.22) (0.22) Total dividends and distributions (0.22) (0.22) Net asset value, end of year $ 4.15 $ 3.94 Total return++ 11.31% 1.43% ======================================================= ======= ======= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $44,244 $45,341 Ratio of operating expenses to average net assets 0.82%(a) 0.80%(a) Ratio of net investment income to average net assets 5.54% 5.39% Portfolio turnover rate 108% 177% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.84%(a) 0.90%(a) Year ended Year ended Year ended Investor A Shares 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 4.12 $ 3.99 $ 4.07 Net investment income 0.21 0.22 0.22 Net realized and unrealized gain/(loss) on investments (0.02) 0.13 (0.08) Net increase/(decrease) in net asset value from operations 0.19 0.35 0.14 Distributions: Dividends from net investment income (0.21) (0.22) (0.22) Total dividends and distributions (0.21) (0.22) (0.22) Net asset value, end of year $ 4.10 $ 4.12 $ 3.99 Total return++ 4.76% 8.89% 3.51% ======================================================= ======= ======= ======= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $44,793 $49,478 $42,468 Ratio of operating expenses to average net assets 0.78%(a) 0.81% 0.83%(a)(b) Ratio of net investment income to average net assets 5.16% 5.33% 5.53% Portfolio turnover rate 242% 538% 529% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.03%(a) 1.01% 1.03%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than 0.01%. (a) The effect of the custodial expense offset 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%. 74 Nations Short-Intermediate Government Fund For a Share outstanding through each year
Year ended Year ended Investor B Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 3.94 $ 4.10 Net investment income 0.19 0.19 Net realized and unrealized gain/(loss) on investments 0.21 (0.16) Net increase/(decrease) in net asset value from operations 0.40 0.03 Distributions: Dividends from net investment income (0.19) (0.19) Total dividends and distributions (0.19) (0.19) Net asset value, end of year $ 4.15 $ 3.94 Total return++ 10.46% 0.70% ======================================================= ======= ======= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $8,199 $8,400 Ratio of operating expenses to average net assets 1.59%(a) 1.51%(a) Ratio of net investment income to average net assets 4.77% 4.68% Portfolio turnover rate 108% 177% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.59%(a) 1.65%(a) Year ended Year ended Year ended Investor B Shares 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 4.12 $ 3.99 $ 4.07 Net investment income 0.19 0.20 0.20 Net realized and unrealized gain/(loss) on investments (0.02) 0.13 (0.08) Net increase/(decrease) in net asset value from operations 0.17 0.33 0.12 Distributions: Dividends from net investment income (0.19) (0.20) (0.20) Total dividends and distributions (0.19) (0.20) (0.20) Net asset value, end of year $ 4.10 $ 4.12 $ 3.99 Total return++ 4.14% 8.35% 3.10% ======================================================= ======= ======= ======= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $9,591 $9,815 $10,788 Ratio of operating expenses to average net assets 1.38%(a) 1.34% 1.23%(a)(b) Ratio of net investment income to average net assets 4.56% 4.80% 5.13% Portfolio turnover rate 242% 538% 529% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.78%(a) 1.54% 1.43%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. Nations Short-Intermediate Government Fund For a Share outstanding throughout each year
Year ended Year ended Investor C Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 3.93 $ 4.09 Net investment income 0.19 0.19 Net realized and unrealized gain/(loss) on investments 0.21 (0.16) Net increase/(decrease) in net asset value from operations 0.40 0.03 Distributions: Dividends from net investment income (0.19) (0.19) Total dividends and distributions (0.19) (0.19) Net asset value, end of year $ 4.14 $ 3.93 Total return++ 10.49% 0.74% ======================================================= ======= ======= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,079 $ 661 Ratio of operating expenses to average net assets 1.59%(a) 1.54%(a) Ratio of net investment income to average net assets 4.77% 4.65% Portfolio turnover rate 108% 177% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.59%(a) 1.65%(a) Year ended Year ended Year ended Investor C Shares 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 4.12 $ 3.99 $ 4.07 Net investment income 0.19 0.20 0.21 Net realized and unrealized gain/(loss) on investments (0.03) 0.13 (0.08) Net increase/(decrease) in net asset value from operations 0.16 0.33 0.13 Distributions: Dividends from net investment income (0.19) (0.20) (0.21) Total dividends and distributions (0.19) (0.20) (0.21) Net asset value, end of year $ 4.09 $ 4.12 $ 3.99 Total return++ 4.05% 8.45% 3.21% ======================================================= ======= ======= ======= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,190 $1,808 $8,334 Ratio of operating expenses to average net assets 1.34%(a) 1.31% 1.13%(a)(b) Ratio of net investment income to average net assets 4.60% 4.83% 5.23% Portfolio turnover rate 242% 538% 529% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.78%(a) 1.51% 1.33%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 75 Nations Government Securities Fund For a Share outstanding throughout each year
Year ended Year ended Investor A Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 9.37 $ 9.86 Net investment income 0.57 0.57 Net realized and unrealized gain/(loss) on investments 0.49 (0.50) Net increase/(decrease) in net asset value from operations 1.06 0.07 Distributions: Dividends from net investment income (0.57) (0.56) Distributions from capital -- -- Total dividends and distributions (0.57) (0.56) Net asset value, end of year $ 9.86 $ 9.37 Total return++ 11.70% 0.80% ====================================================== ======= ======= Ratios to average net assets/ supplemental data: Net assets, end of year (in 000's) $57,641 $57,485 Ratio of operating expenses to average net assets 1.00%(a) 1.03%(b) Ratio of net investment income to average net assets 5.96% 5.92% Portfolio turnover rate 183% 348% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.11%(a) 1.15% Year ended Year ended Year ended Investor A Shares 03/31/99# 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 9.90 $ 9.39 $ 9.67 Net investment income 0.56 0.52 0.58 Net realized and unrealized gain/(loss) on investments (0.05) 0.51 (0.30) Net increase/(decrease) in net asset value from operations 0.51 1.03 0.28 Distributions: Dividends from net investment income (0.55) (0.52) (0.56) Distributions from capital -- -- (0.00)## Total dividends and distributions (0.55) (0.52) (0.56) Net asset value, end of year $ 9.86 $ 9.90 $ 9.39 Total return++ 5.16% 11.37% 2.92% ====================================================== ======= ======= ======= Ratios to average net assets/ supplemental data: Net assets, end of year (in 000's) $19,167 $8,509 $9,852 Ratio of operating expenses to average net assets 0.98%(a) 1.10%(a)(b) 1.05% Ratio of net investment income to average net assets 5.45% 5.38% 6.03% Portfolio turnover rate 600% 303% 468% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.09%(a) 1.24%(a) 1.19%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01. (a) The effect of the custodial expense offset 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%. Nations Government Securities Fund For a Share outstanding throughout each year
Year ended Year ended Investor B Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 9.38 $ 9.86 Net investment income 0.50 0.49 Net realized and unrealized gain/(loss) on investments 0.49 (0.48) Net increase/(decrease) in net asset value from operations 0.99 0.01 Distributions: Dividends from net investment income (0.50) (0.49) Distributions from capital -- -- Total dividends and distributions (0.50) (0.49) Net asset value, end of year $ 9.87 $ 9.38 Total return++ 10.86% 0.22% ====================================================== ======= ======= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $27,544 $26,988 Ratio of operating expenses to average net assets 1.75%(a) 1.72%(b) Ratio of net investment income to average net assets 5.21% 5.23% Portfolio turnover rate 183% 348% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.86%(a) 1.90% Year ended Year ended Year ended Investor B Shares 03/31/99# 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 9.90 $ 9.39 $ 9.67 Net investment income 0.49 0.47 0.54 Net realized and unrealized gain/(loss) on investments (0.04) 0.51 (0.30) Net increase/(decrease) in net asset value from operations 0.45 0.98 0.24 Distributions: Dividends from net investment income (0.49) (0.47) (0.52) Distributions from capital -- -- (0.00)## Total dividends and distributions (0.49) (0.47) (0.52) Net asset value, end of year $ 9.86 $ 9.90 $ 9.39 Total return++ 4.53% 10.78% 2.51% ====================================================== ======= ======= ======== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $30,109 $32,391 $38,807 Ratio of operating expenses to average net assets 1.58%(a) 1.63%(a)(b) 1.45% Ratio of net investment income to average net assets 4.85% 4.85% 5.63% Portfolio turnover rate 600% 303% 468% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.84%(a) 1.77%(a) 1.59%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01. (a) The effect of the custodial expense offset 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%. 76 Nations Government Securities For a Share outstanding throughout each year Fund
Year ended Year ended Investor C Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 9.34 $ 9.86 Net investment income 0.52 0.49 Net realized and unrealized gain/(loss) on investments 0.48 (0.52) Net increase/(decrease) in net asset value from operations 1.00 (0.03) Distributions: Dividends from net investment income (0.50) (0.49) Distributions from capital -- -- Total dividends and distributions (0.50) (0.49) Net asset value, end of year $ 9.84 $ 9.34 Total return++ 11.03% (0.22)% ====================================================== ======= ======= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,213 $ 238 Ratio of operating expenses to average net assets 1.75%(a) 1.78%(b) Ratio of net investment income to average net assets 5.21% 5.17% Portfolio turnover rate 183% 348% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.86%(a) 1.90% Year ended Year ended Year ended Investor C Shares 03/31/99# 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 9.90 $ 9.39 $ 9.67 Net investment income 0.49 0.48 0.55 Net realized and unrealized gain/(loss) on investments (0.04) 0.51 (0.30) Net increase/(decrease) in net asset value from operations 0.45 0.99 0.25 Distributions: Dividends from net investment income (0.49) (0.48) (0.53) Distributions from capital -- -- (0.00)## Total dividends and distributions (0.49) (0.48) (0.53) Net asset value, end of year $ 9.86 $ 9.90 $ 9.39 Total return++ 4.52% 10.84% 2.67% ====================================================== ======= ======= ======= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $ 213 $ 735 $1,835 Ratio of operating expenses to average net assets 1.59%(a) 1.58%(a)(b) 1.30% Ratio of net investment income to average net assets 4.84% 4.90% 5.78% Portfolio turnover rate 600% 303% 468% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.84%(a) 1.72%(a) 1.44%
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01. (a) The effect of the custodial expense offset 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%. Nations Intermediate Bond Fund For a Share outstanding throughout each period
Year ended Period ended Investor A Shares*,*** 03/31/01# 03/31/00 Operating performance: Net asset value, beginning of period $ 9.15 $ 9.50 Net investment income 0.56 0.46 Net realized and unrealized gain/(loss) on investments 0.40 (0.34) Net increase in net asset value from operations 0.96 0.12 Distributions: Dividends from net investment income (0.56) (0.47) Distributions from net realized capital gains -- -- Total dividends and distributions (0.56) (0.47) Net asset value, end of period $ 9.55 $ 9.15 Total return++ 10.88% 1.34% ==================================================== ======= ======= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $62,617 $45,207 Ratio of operating expenses to average net assets 1.03% 1.06%+ Ratio of net investment income to average net assets 6.06% 5.83%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.06% 1.30%+ Period ended Year ended Year ended Year ended Investor A Shares*,*** 05/14/99 02/28/99 02/28/98 02/28/97** Operating performance: Net asset value, beginning of period $ 9.52 $ 9.69 $ 9.54 $ 9.75 Net investment income 0.10 0.50 0.49 0.52 Net realized and unrealized gain/(loss) on investments (0.04) (0.03) 0.20 (0.15) Net increase in net asset value from operations 0.06 0.47 0.69 0.37 Distributions: Dividends from net investment income (0.08) (0.53) (0.51) (0.52) Distributions from net realized capital gains -- (0.11) (0.03) (0.06) Total dividends and distributions (0.08) (0.64) (0.54) (0.58) Net asset value, end of period $ 9.50 $ 9.52 $ 9.69 $ 9.54 Total return++ 0.66% 4.89% 7.40% 3.92% ==================================================== ======= ======= ======= ======= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $61,412 $63,404 $41,875 $22,937 Ratio of operating expenses to average net assets 1.09%+ 0.90% 0.90% 0.75% Ratio of net investment income to average net assets 4.90%+ 5.14% 5.50% 5.45% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.12%+ 0.90% 1.21% 2.26%
*The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Intermediate Bond Fund A Shares, which were reorganized into the Intermediate Bond Investor A Shares 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. **As of July 22, 1996 the Fund designated the existing series of shares as "A" shares. ***Seafirst shares converted into Investor A Shares on June 23, 2000. +Annualized. ++Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. #Per share net investment income has been calculated using the monthly average shares method. 77 Nations Intermediate Bond Fund For a Share outstanding throughout each period
Year ended Period ended Investor B Shares 03/31/01# 03/31/00* Operating performance: Net asset value, beginning of period $ 9.13 $ 9.52 Net investment income 0.47 0.22 Net realized and unrealized gain/(loss) on investments 0.42 (0.36) Net increase/(decrease) in net asset value from operations 0.89 (0.14) Distributions: Dividends from net investment income (0.51) (0.25) Distributions from net realized capital gains -- -- Total dividends and distributions (0.51) (0.25) Net asset value, end of period $ 9.51 $ 9.13 Total return ++ 9.99% 1.33% =================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $1,290 $ 256 Ratio of operating expenses to average net assets 1.78% 1.81%+ Ratio of net investment income to average net assets 5.31% 5.08%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.81% 2.05%+
* Intermediate Bond Fund Investor B Shares commenced operations on October 20, 1999. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. Nations Intermediate Bond Fund For a Share outstanding throughout each period
Year ended Period ended Investor C Shares* 03/31/01# 03/31/00 Operating performance: Net asset value, beginning of period $ 9.32 $ 9.56 Net investment income 0.47 0.34 Net realized and unrealized gain/(loss) on investments 1.09 (0.23) Net increase in net asset value from operations 1.56 0.11 Distributions: Dividends from net investment income ( 0.41) (0.35) Distributions from net realized capital gains -- -- Total dividends and distributions ( 0.41) (0.35) Net asset value, end of period $ 10.47 $ 9.32 Total return++ 17.06% 1.18% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $ 797 $ 15 Ratio of operating expenses to average net assets 1.78% 1.81%+ Ratio of net investment income to average net assets 5.31% 5.08%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.81% 2.05%+ Period ended Year ended Year ended Period ended Investor C Shares* 05/14/99 02/28/99 02/28/98 02/28/97** Operating performance: Net asset value, beginning of period $ 9.59 $ 9.72 $ 9.54 $ 9.53 Net investment income 0.09 0.46 0.44 0.31 Net realized and unrealized gain/(loss) on investments (0.04) -- 0.19 0.07 Net increase in net asset value from operations 0.05 0.46 0.63 0.38 Distributions: Dividends from net investment income (0.08) (0.48) (0.42) (0.31) Distributions from net realized capital gains -- (0.11) (0.03) (0.06) Total dividends and distributions (0.08) (0.59) (0.45) (0.37) Net asset value, end of period $ 9.56 $ 9.59 $ 9.72 $ 9.54 Total return++ 0.47% 4.76% 6.80% 3.73% =============================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $ 469 $ 495 $ 513 $ 332 Ratio of operating expenses to average net assets 1.57%+ 1.39% 1.39% 1.43%+ Ratio of net investment income to average net assets 4.42%+ 4.67% 4.99% 5.41%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.84%+ 1.65% 1.73% 2.71%+
* The financial information for the fiscal periods through May 14, 1999 reflect the financial information for the Pacific Horizon Intermediate Bond Fund K Shares, which were reorganized into the Intermediate Bond Investor C Shares as of May 21, 1999. Prior to May 21, 1999, the Fund's investment adviser was Bank of America National Trust and Savings Association. Effective May 21, 1999, its investment adviser became Banc of America Advisors, LLC and its investment sub-adviser became Banc of America Capital Management, LLC. **Intermediate Bond Fund Investor C Shares commenced operations on November 20, 1996. +Annualized. ++Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. 78 Nations Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor A Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 9.37 $ 9.93 Net investment income 0.60 0.57 Net realized and unrealized gain/(loss) on investments 0.41 (0.52) Net increase/(decrease) in net asset value from operations 1.01 0.05 Distributions: Dividends from net investment income (0.60) (0.57) Distributions from net realized capital gains (0.00) (0.04) Distributions from capital (0.00) -- Total dividends and distributions (0.60) (0.61) Net asset value, end of year $ 9.78 $ 9.37 Total return++ 11.11% 0.74% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $27,220 $23,420 Ratio of operating expenses to average net assets 0.92%(a) 0.90% Ratio of net investment income to average net assets 6.28% 5.97% Portfolio turnover rate 120% 63% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.92%(a) 0.94% Year ended Year ended Year ended Investor A Shares 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 10.03 $ 9.62 $ 9.93 Net investment income 0.57 0.56 0.56 Net realized and unrealized gain/(loss) on investments ( 0.04) 0.41 (0.20) Net increase/(decrease) in net asset value from operations 0.53 0.97 0.36 Distributions: Dividends from net investment income ( 0.57) ( 0.56) (0.56) Distributions from net realized capital gains ( 0.06) -- (0.11) Distributions from capital -- -- (0.00)## Total dividends and distributions ( 0.63) ( 0.56) (0.67) Net asset value, end of year $ 9.93 $ 10.03 $ 9.62 Total return++ 5.40% 10.30% 3.70% =============================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $32,119 $26,054 $6,345 Ratio of operating expenses to average net assets 0.88%(a) 0.92%(a)(b) 0.91%(a) Ratio of net investment income to average net assets 5.66% 5.66% 5.78% Portfolio turnover rate 107% 244% 368% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.03%(a) 1.03%(a) 1.01%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01. (a) The effect of the custodial expense offset 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%. Nations Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor B Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 9.37 $ 9.93 Net investment income 0.52 0.50 Net realized and unrealized gain/(loss) on investments 0.41 (0.52) Net increase/(decrease) in net asset value from operations 0.93 (0.02) Distributions: Dividends from net investment income (0.52) (0.50) Distributions from net realized capital gains (0.00) (0.04) Distributions from capital (0.00) -- Total dividends and distributions (0.52) (0.54) Net asset value, end of year $ 9.78 $ 9.37 Total return++ 10.29% 0.05% ===================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $6,994 $5,637 Ratio of operating expenses to average net assets 1.67%(a) 1.59% Ratio of net investment income to average net assets 5.53% 5.28% Portfolio turnover rate 120% 63% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.67%(a) 1.69% Year ended Year ended Year ended Investor B Shares 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 10.03 $ 9.62 $ 9.93 Net investment income 0.51 0.51 0.52 Net realized and unrealized gain/(loss) on investments ( 0.04) 0.41 (0.20) Net increase/(decrease) in net asset value from operations 0.47 0.92 0.32 Distributions: Dividends from net investment income ( 0.51) ( 0.51) (0.52) Distributions from net realized capital gains ( 0.06) -- (0.11) Distributions from capital -- -- (0.00)## Total dividends and distributions ( 0.57) ( 0.51) (0.63) Net asset value, end of year $ 9.93 $ 10.03 $ 9.62 Total return++ 4.76% 9.73% 3.23% ============================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $5,440 $2,662 $2,109 Ratio of operating expenses to average net assets 1.48%(a) 1.47%(a)(b) 1.36%(a) Ratio of net investment income to average net assets 5.06% 5.11% 5.33% Portfolio turnover rate 107% 244% 368% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.78%(a) 1.58%(a) 1.46%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01. (a) The effect of the custodial expense offset 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%. 79 Nations Bond Fund For a Share outstanding throughout each year
Year ended Year ended Investor C Shares 03/31/01 03/31/00 Operating performance: Net asset value, beginning of year $ 9.37 $ 9.93 Net investment income 0.52 0.48 Net realized and unrealized gain/(loss) on investments 0.41 (0.52) Net increase/(decrease) in net asset value from operations 0.93 (0.04) Distributions: Dividends from net investment income (0.52) (0.48) Distributions from net realized capital gains (0.00) (0.04) Distributions from capital (0.00) -- Total dividends and distributions (0.52) (0.52) Net asset value, end of year $ 9.78 $ 9.37 Total return++ 10.28% (0.24)% ==================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,321 $ 934 Ratio of operating expenses to average net assets 1.67%(a) 1.67% Ratio of net investment income to average net assets 5.53% 5.20% Portfolio turnover rate 120% 63% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.67%(a) 1.69% Year ended Year ended Year ended Investor C Shares 03/31/99 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 10.03 $ 9.62 $ 9.93 Net investment income 0.51 0.52 0.53 Net realized and unrealized gain/(loss) on investments ( 0.04) 0.41 (0.20) Net increase/(decrease) in net asset value from operations 0.47 0.93 0.33 Distributions: Dividends from net investment income ( 0.51) ( 0.52) (0.53) Distributions from net realized capital gains ( 0.06) -- (0.11) Distributions from capital -- -- (0.00)## Total dividends and distributions ( 0.57) ( 0.52) (0.64) Net asset value, end of year $ 9.93 $ 10.03 $ 9.62 Total return++ 4.90% 9.87% 3.38% ============================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,137 $ 943 $1,068 Ratio of operating expenses to average net assets 1.40%(a) 1.42%(a)(b) 1.21%(a) Ratio of net investment income to average net assets 5.14% 5.16% 5.48% Portfolio turnover rate 107% 244% 368% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.78%(a) 1.53%(a) 1.31%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01. (a) The effect of the custodial expense offset 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%.
Nations Strategic Income Fund For a Share outstanding throughout each year Year ended Year ended Investor A Shares 03/31/01# 03/31/00 Operating performance: Net asset value, beginning of year $ 9.52 $ 10.31 Net investment income 0.63 0.65 Net realized and unrealized gain/(loss) on investments 0.36 ( 0.79) Net increase/(decrease) in net asset value from operations 0.99 ( 0.14) Distributions: Dividends from net investment income (0.63) ( 0.65) Distributions from net realized capital gains -- ( 0.00)## Total dividends and distributions (0.63) ( 0.65) Net asset value, end of year $ 9.88 $ 9.52 Total return++ 10.80% ( 1.30)% ============================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $29,102 $30,870 Ratio of operating expenses to average net assets 0.97% 0.96%(a) Ratio of net investment income to average net assets 6.51% 6.55% Portfolio turnover rate 238% 107% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.09% 1.15%(a) Year ended Year ended Year ended Investor A Shares 03/31/99# 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 10.55 $ 10.11 $ 10.42 Net investment income 0.63 0.63 0.66 Net realized and unrealized gain/(loss) on investments ( 0.14) 0.44 ( 0.18) Net increase/(decrease) in net asset value from operations 0.49 1.07 0.48 Distributions: Dividends from net investment income ( 0.63) ( 0.63) ( 0.66) Distributions from net realized capital gains ( 0.10) -- ( 0.13) Total dividends and distributions ( 0.73) ( 0.63) ( 0.79) Net asset value, end of year $ 10.31 $ 10.55 $ 10.11 Total return++ 4.74% 10.80% 4.71% ====================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $12,954 $11,946 $11,662 Ratio of operating expenses to average net assets 0.95%(a) 0.98%(a) 1.00%(a) Ratio of net investment income to average net assets 6.02% 6.02% 6.48% Portfolio turnover rate 94% 203% 278% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.05%(a) 1.08%(a) 1.10%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. 80 Nations Strategic Income Fund For a Share outstanding throughout each year
Year ended Year ended Investor B Shares 03/31/01# 03/31/00 Operating performance: Net asset value, beginning of year $ 9.52 $ 10.31 Net investment income 0.56 0.59 Net realized and unrealized gain/(loss) on investments 0.37 ( 0.79) Net increase/(decrease) in net asset value from operations 0.93 ( 0.20) Distributions: Dividends from net investment income (0.56) ( 0.59) Distributions from net realized capital gains -- ( 0.00)## Total dividends and distributions (0.56) ( 0.59) Net asset value, end of year $ 9.89 $ 9.52 Total return++ 10.08% ( 1.98)% =================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $50,251 $55,946 Ratio of operating expenses to average net assets 1.72% 1.65%(a) Ratio of net investment income to average net assets 5.76% 5.86% Portfolio turnover rate 238% 107% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.84% 1.90%(a) Year ended Year ended Year ended Investor B Shares 03/31/99# 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 10.55 $ 10.11 $ 10.42 Net investment income 0.57 0.57 0.61 Net realized and unrealized gain/(loss) on investments ( 0.14) 0.44 ( 0.18) Net increase/(decrease) in net asset value from operations 0.43 1.01 0.43 Distributions: Dividends from net investment income ( 0.57) ( 0.57) ( 0.61) Distributions from net realized capital gains ( 0.10) -- ( 0.13) Total dividends and distributions ( 0.67) ( 0.57) ( 0.74) Net asset value, end of year $ 10.31 $ 10.55 $ 10.11 Total return++ 4.11% 10.18% 4.18% ========================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $67,651 $65,248 $70,631 Ratio of operating expenses to average net assets 1.55%(a) 1.55%(a) 1.50%(a) Ratio of net investment income to average net assets 5.42% 5.45% 5.98% Portfolio turnover rate 94% 203% 278% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.80%(a) 1.65%(a) 1.60%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. Nations Strategic Income Fund For a Share outstanding throughout each year
Year ended Year ended Investor C Shares 03/31/01# 03/31/00 Operating performance: Net asset value, beginning of year $ 9.52 $ 10.31 Net investment income 0.56 0.58 Net realized and unrealized gain/(loss) on investments 0.36 ( 0.79) Net increase/(decrease) in net asset value from operations 0.92 ( 0.21) Distributions: Dividends from net investment income (0.56) ( 0.58) Distributions from net realized capital gains -- ( 0.00)## Total dividends and distributions (0.56) ( 0.58) Net asset value, end of year $ 9.88 $ 9.52 Total return++ 9.98% ( 2.04)% ================================================================================ Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,527 $1,202 Ratio of operating expenses to average net assets 1.72% 1.71%(a) Ratio of net investment income to average net assets 5.76% 5.80% Portfolio turnover rate 238% 107% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.84% 1.90%(a) Year ended Year ended Year ended Investor C Shares 03/31/99# 03/31/98 03/31/97# Operating performance: Net asset value, beginning of year $ 10.55 $ 10.11 $ 10.42 Net investment income 0.57 0.58 0.63 Net realized and unrealized gain/(loss) on investments ( 0.14) 0.44 ( 0.18) Net increase/(decrease) in net asset value from operations 0.43 1.02 0.45 Distributions: Dividends from net investment income ( 0.57) ( 0.58) ( 0.63) Distributions from net realized capital gains ( 0.10) -- ( 0.13) Total dividends and distributions ( 0.67) ( 0.58) ( 0.76) Net asset value, end of year $ 10.31 $ 10.55 $ 10.11 Total return++ 4.09% 10.27% 4.44% ======================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $1,474 $2,090 $3,343 Ratio of operating expenses to average net assets 1.56%(a) 1.46%(a) 1.25%(a) Ratio of net investment income to average net assets 5.41% 5.54% 6.23% Portfolio turnover rate 94% 203% 278% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.80%(a) 1.56%(a) 1.35%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. 81 Nations High Yield Bond Fund For a Share outstanding throughout each period
Year ended Period ended Investor A Shares 03/31/01# 03/31/00*# Operating performance: Net asset value, beginning of period $ 9.88 $ 10.00 Net investment income 0.96 0.08 Net realized and unrealized gain/(loss) on investments (0.58) ( 0.12) Net increase/(decrease) in net asset value from operations 0.38 ( 0.04) Distributions: Dividends from net investment income (0.99) ( 0.08) Distributions in excess of net investment income (0.05) -- Total dividends and distributions (1.04) ( 0.08) Net asset value, end of period $ 9.22 $ 9.88 Total return++ 3.99% ( 0.33)% ================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $8,344 $ 371 Ratio of operating expenses to average net assets 1.18% 1.18%+ Ratio of net investment income to average net assets 10.72% 6.78%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.70% 12.91%+
* High Yield Bond Fund Investor A Shares commenced operations on February 14, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. Nations High Yield Bond Fund For a Share outstanding throughout each period
Year ended Period ended Investor B Shares 03/31/01# 03/31/00*# Operating performance: Net asset value, beginning of period $ 9.88 $ 10.00 Net investment income 0.92 0.07 Net realized and unrealized gain/(loss) on investments (0.62) ( 0.12) Net increase/(decrease) in net asset value from operations 0.30 ( 0.05) Distributions: Dividends from net investment income (0.93) ( 0.07) Distributions in excess of net investment income (0.04) -- Total dividends and distributions (0.97) ( 0.07) Net asset value, end of period $ 9.21 $ 9.88 Total return++ 3.29% ( 0.47)% ================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $22,106 $3,426 Ratio of operating expenses to average net assets 1.93% 1.93%+ Ratio of net investment income to average net assets 9.97% 6.03%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.45% 13.66%+
* High Yield Bond Fund Investor B Shares commenced operations on February 17, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. 82 Nations High Yield Bond Fund For a Share outstanding throughout each period
Year ended Period ended Investor C Shares 03/31/01# 03/31/00*# Operating performance: Net asset value, beginning of period $ 9.87 $ 10.02 Net investment income 0.90 0.04 Net realized and unrealized gain/(loss) on investments (0.61) ( 0.12) Net increase/(decrease) in net asset value from operations 0.29 ( 0.08) Distributions: Dividends from net investment income (0.93) ( 0.07) Distributions in excess of net investment income (0.04) -- Total dividends and distributions (0.97) ( 0.07) Net asset value, end of period $ 9.19 $ 9.87 Total return++ 3.20% ( 0.76)% ================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $1,891 $ 59 Ratio of operating expenses to average net assets 1.93% 1.93%+ Ratio of net investment income to average net assets 9.97% 6.03%+ Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.45% 13.66%+
* High Yield Bond Fund Investor C Shares commenced operations on March 8, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. 83 [GRAPHIC] This glossary includes explanations of the important terms that may be used in this prospectus. Some of the terms explained may apply to Nations Funds not included in this prospectus. [GRAPHIC] Terms used in this prospectus Amortized cost method - under Rule 2a-7 of the 1940 Act, the method of calculating an investment company's net asset value whereby portfolio securities are valued at the Fund's acquisition cost as adjusted for amortization of premium or accretion of discount rather than at their current market value. Asset-backed security - a debt security that gives an investor an interest in a pool of assets that is collateralized or "backed" by one or more kinds of assets, including automobile loans or credit card receivables, generally issued by banks, credit card companies or other lenders. Asset-backed securities typically make periodic payments, which may be interest or a combination of interest and a portion of the principal of the underlying assets. Average dollar-weighted maturity - the average length of time until the debt securities held by a Fund reach maturity. In general, the longer the average dollar-weighted maturity, the more a Fund's share price will fluctuate in response to changes in interest rates. Bank obligation - a money market instrument issued by a domestic or U.S. branch of a foreign bank, including certificates of deposit, time deposits and bankers' acceptances. Capital gain or loss - the difference between the purchase price of a security and its selling price. An investor realizes a capital gain when it sells a security for more than it paid for it. An investor realizes a capital loss when it sells a security for less than it paid for it. Cash equivalents - short-term, interest-bearing instruments which can easily be converted into cash, including U.S. government obligations, bank obligations, and certain asset-backed securities, foreign government securities and commercial paper issued by U.S. and foreign issuers which, at the time of investment, is rated at least Prime-2 by Moody's Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch). Collateralized mortgage obligation (CMO) - a type of mortgage-backed security. CMO payment obligations are covered by interest and/or principal payments from a pool of mortgages. In addition, the underlying assets of a CMO are typically separated into classes, called tranches, based on maturity. Each tranche pays a different rate of interest. CMOs are not generally issued by the U.S. government, its agencies or instrumentalities. Commercial paper - a short-term corporate obligation. Commercial paper is typically considered a money market instrument. Common stock - a security that represents part equity ownership in a company. Common stock typically allows an investor to vote at shareholder meetings and to share in the company's profits by receiving dividends. Convertible debt - a debt security that can be exchanged for common stock (or another type of security) on a specified basis and date. Convertible security - a security that can be exchanged for common stock (or another type of security) at a specified rate. Convertible securities include convertible debt, rights and warrants. 84 Crossing networks - an electronic system where anonymous parties can match buy and sell transactions. These transactions don't affect the market, and transaction costs are extremely low. CSFB Global High Yield Index - the Credit Suisse First Boston Global High Yield Index is an unmanaged, trader priced portfolio constructed to mirror the high yield debt market. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Debt security - a security issued by a governmental body or company (the issuer) to help fund their operations or major projects. The issuer pays interest at a specified rate on a specified date or dates, and repays the principal when the security matures. Short-term debt securities include money market instruments such as treasury bills. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Depositary receipts - evidence of the deposit of a security with a custodian bank. American Depositary Receipts (ADRs), for example, are certificates traded in U.S. markets representing an interest of a foreign company. They were created to make it possible for foreign issuers to meet U.S. security registration requirements. Other examples include ADSs, GDRs and EDRs. Derivatives - A derivative is a financial contract whose value is based upon, or "derived" from, an underlying financial asset (such as a stock or a bond), a commodity (such as gold), a market index (such as the S&P 500) or a reference rate (such as the prime lending interest rate). Examples of derivative instruments include futures, options, index-, equity-, commodity- and currency-linked securities, warrants and swap contracts. For a detailed description of the derivatives described here, see the SAI. Diversified - A diversified fund, as defined by the 1940 Act, must have at least 75% of its total assets in cash and cash equivalents, government securities, securities of other investment companies, or other securities. For purposes of this calculation, the fund may not count securities of a single issuer that comprise more than 5% of the fund's assets. Dividend yield - rate of return of dividends paid on a common or preferred stock. It equals the amount of the annual dividend on a stock expressed as a percentage of the stock's current market value. Duration - a security's or portfolio's sensitivity to changes in interest rates. For example, if interest rates rise by one percentage point, the share price of a fund with a duration of five years would decline by about 5%. If interest rates fall by one percentage point, the fund's share price would rise by about 5%. Equity security - an investment that gives an investor an equity ownership right in a company. Equity securities (or "equities") include common and preferred stock, rights and warrants. First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds and has the highest short-term rating from a nationally recognized statistical rating organization (NRSRO), or if unrated, is determined by the Fund's portfolio management team to be of comparable quality, or is a money market fund or a government security. 85 Fixed income security - an intermediate to long-term debt security that matures in more than one year. Foreign security - a debt or equity security determined by a Fund's portfolio management team to be foreign based on an issuer's domicile, its principle place of business, the source of its revenues or other factors. Forward foreign currency contracts - a forward foreign currency contract includes an obligation to purchase or sell a foreign currency at a specified future date. Forward purchase agreement - a contract obligating one party to buy and another party to sell an equity security, commodity, currency or other financial instrument at a specific future date. Fundamental analysis - a method of securities analysis that tries to evaluate the intrinsic, or "true," value of a particular stock. It includes a study of the overall economy, industry conditions and the financial condition and management of a company. Futures contract - a contract to buy or sell underlying instruments at a specified price on a specified future date. The price is typically set through a futures exchange. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to NRSROs such as S&P and Moody's. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by a Fund's Board. Please see the SAI for more information about credit ratings. High yield debt security - debt securities that, at the time of purchase, are rated "BB" or below by S&P or "Ba" or below by Moody's, or that are unrated and determined by the portfolio management team to be of comparable quality. Interest rate swap - an agreement between two parties to exchange periodic interest payments based on a predetermined principal amount. Investment grade - a debt security that has been given a medium to high credit rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating by other NRSROs) based on the issuer's ability to pay interest and repay principal on time. The portfolio management team may consider an unrated debt security to be investment grade if the team believes it is of comparable quality. Please see the SAI for more information about credit ratings. Lehman 3-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of two to three years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman 7-Year Municipal Bond Index - a broad-based, unmanaged index of investment grade bonds with maturities of seven to eight years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 86 Lehman Aggregate Bond Index - an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government Bond Index - an unmanaged index of government bonds with an average maturity of approximately nine years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government/Corporate Bond Index - an unmanaged index of U.S. government, U.S. Treasury and agency securities, and corporate and Yankee bonds. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Intermediate Government Bond Index - an unmanaged index of U.S. government agency and U.S. Treasury securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Intermediate Government/Corporate Bond Index - an unmanaged index of all publicly issued investment grade corporate, U.S. Treasury, and U.S. government and agency securities with maturities of 1 to 10 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Municipal Bond Index - a broad-based, unmanaged index of 8,000 investment grade bonds with long-term maturities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Liquidity - a measurement of how easily a security can be bought or sold at a price that is close to its market value. Merrill Lynch 1-3 Year Treasury Index - an unmanaged index of U.S. Treasury bonds with maturities of 1 to 3 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Money market instrument - a short-term debt security that is considered to mature in 13 months or less. Money market instruments include U.S. Treasury obligations, U.S. government obligations, certificates of deposit, bankers' acceptances, commercial paper, repurchase agreements and certain municipal securities. Mortgage-backed security or Mortgage-related security - a debt security that gives you an interest in, and is backed by, a pool of residential mortgages issued by the U.S. government or by financial institutions. The underlying mortgages may be guaranteed by the U.S. government or one of its agencies, authorities or instrumentalities. Mortgage-backed securities typically make monthly payments, which are a combination of interest and a portion of the principal of the underlying mortgages. 87 Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public or private projects and services. "General obligations" are typically backed by the issuer's full taxing and revenue-raising powers. "Revenue securities" depend on the income earned by a specific project or authority, like road or bridge tolls, user fees for water or revenues from a utility. Interest income from municipal securities that pay for "public" projects and services is exempt from federal income taxes and is generally exempt from state taxes if an investor lives in the state that issued the security. If an investor lives in the municipality that issued the security, interest income may also be exempt from local taxes. Non-diversified - a fund that holds securities of fewer issuers than other kinds of funds. Non-diversified funds tend to have greater price swings than more diversified funds because events affecting one or more of its securities may have a disproportionately large effect on the fund. NRSRO - A nationally recognized statistical rating organization, such as S&P or Moody's. Options - An option is the right to buy or sell a security based on an agreed upon price at a specified time. For example, an option may give the holder of a stock the right to sell the stock to another party, allowing the seller to profit if the price has fallen below the agreed price. Options may also be based on the movement of an index such as the S&P 500. Over-the-counter market - a market where dealers trade securities through a telephone or computer network rather than through a public stock exchange. Preferred stock - a type of equity security that gives you a limited ownership right in a company, with certain preferences or priority over common stock. Preferred stock generally pays a fixed annual dividend. If the company goes bankrupt, preferred shareholders generally receive their share of the company's remaining assets before common shareholders and after bondholders and other creditors. Ownership of preferred stock typically does not come with certain voting rights that come with common stock. Pre-refunded bond - a bond that is repaid before its maturity date. The repayment is generally financed by a new issue. Issuers generally pre-refund bonds during periods of lower interest rates to reduce their interest costs. Price-to-earnings ratio (P/E ratio) - the current price of a share divided by its actual or estimated earnings per share. The P/E ratio is one measure of the value of a company. Private placement - a private placement is the sale of stocks, bonds or other investments directly to a qualified investor without having to register the offering with the SEC or other comparable foreign regulatory authorities. Qualified investors are typically large institutional investors or high net worth individuals. Securities acquired through private placements generally may not be resold. Quantitative analysis - an analysis of financial information about a company or security to identify securities that have the potential for growth or are otherwise suitable for a fund to buy. 88 Real Estate Investment Trust (REIT) - a portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls, and real-estate-related loans or interests. Repurchase agreement - a short-term (often overnight) investment arrangement. The investor agrees to buy certain securities from the borrower and the borrower promises to buy them back at a specified date and price. The difference between the purchase price paid by the investor and the repurchase price paid by the borrower represents the investor's return. Repurchase agreements are popular because they provide low-risk returns and can allow a fund to remain fully invested. Reverse repurchase agreement - a repurchase agreement in which an investor sells a security to another party, like a bank or dealer, in return for cash, and agrees to buy the security back at a specified date and price. Reverse repurchase agreements are, in effect, loans to a fund. Right - a temporary privilege allowing investors who already own a common stock to buy additional shares directly from the company at a specified price or formula. Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds, but is not a first-tier security. Senior security - a debt security that allows holders to receive their share of a company's remaining assets in a bankruptcy before other bondholders, creditors, and common and preferred shareholders. Settlement date - the date on which an order is settled either by payment or delivery of securities. Total return swap - an agreement between two parties to exchange periodic interest payments for the total return of an equity or fixed income instrument. Trade date - the effective date of a purchase, sale or exchange transaction, or other instructions sent to us. The trade date is determined by the day and time we receive the order or instructions in a form that's acceptable to us. U.S. government obligations - a wide range of debt securities issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities. U.S. Treasury obligation - a debt security issued by the U.S. Treasury. Warrant - a certificate that gives you the right to buy common shares at a specified price within a specified period of time. Zero-coupon bond - a bond that makes no periodic interest payments. Zero coupon bonds are sold at a deep discount to their face value and mature at face value. The difference between the face value at maturity and the purchase price represents the return. 89 [GRAPHIC] Where to find more information You'll find more information about Nations Funds Government & Corporate Bond Funds in the following documents: Annual and semi-annual reports The annual and semi-annual reports contain information about Fund investments and performance, the financial statements and the independent accountants' reports. The annual report also includes a discussion about the market conditions and investment strategies that had a significant effect on each Fund's performance during the period covered. [GRAPHIC] Statement of Additional Information The SAI contains additional information about the Funds and their policies. The SAI is legally part of this prospectus (it's incorporated by reference). A copy has been filed with the SEC. You can obtain a free copy of these documents, request other information about the Funds and make shareholder inquiries by contacting Nations Funds: By telephone: 1.800.321.7854 By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nations-funds.com Information about the Funds can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. The reports and other information about the Funds are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. SEC file numbers: Nations Fund Trust, 811-04305 Nations Reserves, 811-6030 Nations Funds Trust, 811-09645 BONDPROIX-8/01 [NATIONS FUNDS LOGO] [GRAPHIC] Nations Marsico Funds Prospectus -- Investor A, B and C Shares August 1, 2001 Stock Funds Nations Marsico Growth & Income Fund Nations Marsico Focused Equities Fund Nations Marsico 21st Century Fund The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Not FDIC Insured - ----------------- May Lose Value - ----------------- No Bank Guarantee [NATIONS FUNDS] An overview of the Funds - -------------------------------------------------------------------------------- [GRAPHIC] Terms used in this prospectus In this prospectus, we, us and our refer to the Nations Funds family (Nations Funds or Nations Funds Family). Some other important terms we've used may be new to you. These are printed in italics where they first appear in a section and are described in Terms used in this prospectus. [GRAPHIC] You'll find Terms used in this prospectus on page 51. Your investment in these Funds is not a bank deposit and is not insured or guaranteed by Bank of America, N.A. (Bank of America), the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Your investment may lose money. Affiliates of Bank of America are paid for the services they provide to the Funds. This booklet, which is called a prospectus, tells you about some Nations Funds Stock Funds -- Nations Marsico Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. About the Funds The Nations Marsico Funds invest primarily in equity securities. Nations Marsico Focused Equities Fund and Nations Marsico Growth & Income Fund invest primarily in securities of large capitalization U.S. companies. Nations Marsico 21st Century Fund invests primarily in securities of U.S. or foreign companies of any size. The Funds also have different risk/return characteristics because they invest in different kinds of securities. Equity securities have the potential to provide you with higher returns than many other kinds of investments, but they also tend to have the highest risk. There's always a risk that you'll lose money or you may not earn as much as you expect. Choosing the right Funds for you Not every Fund is right for every investor. When you're choosing a Fund to invest in, you should consider things like your investment goals, how much risk you can accept and how long you're planning to hold your investment. The Nations Marsico Funds all focus on long-term growth. They may be suitable for you if: o you have longer-term investment goals o they're part of a balanced portfolio o you want to try to protect your portfolio against a loss of buying power that inflation can cause over time They may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with equity securities o you have short-term investment goals o you're looking for a regular stream of income You'll find a discussion of each Fund's principal investments, strategies and risks in the Fund descriptions that start on page 4. For more information If you have any questions about the Funds, please call us at 1.800.321.7854 or contact your investment professional. You'll find more information about the Funds in the Statement of Additional Information (SAI). The SAI includes more detailed information about each Fund's investments, policies, performance and management, among other things. Please turn to the back cover to find out how you can get a copy. 2 What's inside - -------------------------------------------------------------------------------- [GRAPHIC] Banc of America Advisors, LLC Banc of America Advisors, LLC (BA Advisors) is the investment adviser to each of the Funds. BA Advisors is responsible for the overall management and supervision of the investment management of each Fund. BA Advisors and Nations Funds have engaged a sub-adviser, which is responsible for the day-to-day investment decisions for each of the Funds. [GRAPHIC] You'll find more about BA Advisors and the sub-adviser starting on page 20. [GRAPHIC] About the Funds
Nations Marsico Growth & Income Fund 4 Sub-adviser: Marsico Capital Management, LLC ------------------------------------------------------------------ Nations Marsico Focused Equities Fund 9 Sub-adviser: Marsico Capital Management, LLC ------------------------------------------------------------------ Nations Marsico 21st Century Fund 14 Sub-adviser: Marsico Capital Management, LLC ------------------------------------------------------------------ Other important information 18 ------------------------------------------------------------------ How the Funds are managed 20
[GRAPHIC] About your investment
Information for investors Choosing a share class 23 About Investor A Shares 24 Front-end sales charge 24 Contingent deferred sales charge 25 About Investor B Shares 25 Contingent deferred sales charge 25 About Investor C Shares 27 Contingent deferred sales charge 27 When you might not have to pay a sales charge 27 Buying, selling and exchanging shares 31 How orders are processed 33 How selling and servicing agents are paid 39 Distributions and taxes 41 ------------------------------------------------------------------ Financial highlights 43 ------------------------------------------------------------------ Terms used in this prospectus 51 ------------------------------------------------------------------ Where to find more information back cover
3 [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Marsico Capital Management, LLC (Marsico Capital) is its sub-adviser. Thomas F. Marsico is its portfolio manager and makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about Marsico Capital and Mr. Marsico on page 21. [GRAPHIC] Why invest in a growth and income fund? Growth and income funds can invest in a mix of equity and fixed income securities. This can help reduce volatility and provide the Fund with the flexibility to shift among securities that offer the potential for higher returns. While this Fund invests in a wide range of companies and industries, it holds fewer investments than other kinds of funds. This means it can have greater price swings than more diversified funds. It also means it may have relatively higher returns when one of its investments performs well, or relatively lower returns when an investment performs poorly. [GRAPHIC] Nations Marsico Growth & Income Fund Investment objective The Fund seeks long-term growth of capital with a limited emphasis on income. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations Marsico Growth & Income Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio invests primarily in equity securities of large capitalization companies that are selected for their growth potential. It invests at least 25% of its assets in securities that are believed to have income potential, and generally holds 35 to 50 securities. It may hold up to 25% of its assets in foreign securities. Marsico Capital may shift assets between growth and income securities based on its assessment of market, financial and economic conditions. The Master Portfolio, however, is not designed to produce a consistent level of income. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Marsico Capital uses an approach that combines "top-down" economic analysis with "bottom-up" stock selection. The "top-down" approach takes into consideration such macroeconomic factors as interest rates, inflation, the regulatory environment and the global competitive landscape. In addition, Marsico Capital also examines such factors as the most attractive global investment opportunities, industry consolidation and the sustainability of economic trends. As a result of the "top-down" analysis, Marsico Capital identifies sectors, industries and companies which it believes should benefit from the overall trends observed. Marsico Capital then looks for individual companies with earnings growth potential that may not be recognized by the market at large. In determining whether a particular company is suitable for investment, Marsico Capital focuses on a number of different attributes including the company's specific market expertise or dominance, its franchise durability and pricing power, solid fundamentals (strong balance sheet, improving returns on equity, ability to generate free cash flow), strong management and reasonable valuations in the context of projected growth rates. As part of this fundamental, "bottom-up" research, Marsico Capital may visit with various levels of a company's management as well as with its customers, suppliers and competitors. Marsico Capital also prepares detailed earnings and cash flow models of companies. These models permit it to project earnings growth and other important characteristics under different scenarios. Each model is customized to follow a particular company and is intended to replicate and describe a company's past, present and future performance. The models are comprised of quantitative information and detailed narratives that reflect updated interpretations of corporate data. Marsico Capital may sell a security when it believes there is a deterioration in the company's financial situation, the security is overvalued, when there is a negative development in the company's competitive, regulatory or economic environment, and for other reasons. 4 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Marsico Growth & Income Fund has the following risks: o Investment strategy risk - Marsico Capital uses an investment strategy that tries to identify equities with growth or income potential. There is a risk that the value of these investments will not rise as high as Marsico Capital expects, or will fall. o Stock market risk - The value of the stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Master Portfolio may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. o Interest rate risk - The prices of the Master Portfolio's fixed income securities will tend to fall when interest rates rise and to rise when interest rates fall. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - The Master Portfolio could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but is generally not a factor for U.S. government obligations. o Foreign investment risk - Because the Master Portfolio may invest up to 25% of its assets in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 5 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. For information about the performance of other stock funds managed by Thomas Marsico, see How the Funds are managed. [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1998 1999 2000 38.62% 52.11% -15.47% *Year-to-date return as of June 30, 2001: -12.49% Best and worst quarterly returns during this period Best: 4th quarter 1999: 35.19% Worst: 3rd quarter 1998: -12.24% Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment.
Since 1 year Inception* Investor A Shares -20.32% 18.88% Investor B Shares -20.26% 19.75% Investor C Shares -16.91% 20.49% S&P 500 -9.10% 12.26%
*The inception date of Investor A Shares, Investor B Shares and Investor C Shares is December 31, 1997. The return for the index shown is from that date. 6 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund. Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.75% 0.75% 0.75% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.35% 0.35% 0.35% ----- -------- -------- Total annual Fund operating expenses 1.35% 2.10% 2.10% ===== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. 7 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $705 $979 $1,273 $2,109 Investor B Shares $713 $958 $1,329 $2,240 Investor C Shares $313 $658 $1,129 $2,431
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $213 $658 $1,129 $2,240 Investor C Shares $213 $658 $1,129 $2,431
8 [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Marsico Capital is its sub-adviser. Thomas F. Marsico is its portfolio manager and makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about Marsico Capital and Mr. Marsico on page 21. [GRAPHIC] What is a focused fund? A focused fund invests in a small number of companies with earnings that are believed to have the potential to grow significantly. This Fund focuses on large, established and well-known U.S. companies. Because a focused fund holds fewer investments than other kinds of funds, it can have greater price swings than more diversified funds. It may earn relatively higher returns when one of its investments performs well, or relatively lower returns when an investment performs poorly. Nations Marsico Focused Equities Fund [GRAPHIC] Investment objective The Fund seeks long-term growth of capital. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations Marsico Focused Equities Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in common stocks of large companies. The Master Portfolio, which is non-diversified, generally holds a core position of 20 to 30 common stocks. It may invest up to 25% of its assets in foreign securities. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Marsico Capital uses an approach that combines "top-down" economic analysis with "bottom-up" stock selection. The "top-down" approach takes into consideration such macroeconomic factors as interest rates, inflation, the regulatory environment and the global competitive landscape. In addition, Marsico Capital also examines such factors as the most attractive global investment opportunities, industry consolidation and the sustainability of economic trends. As a result of the "top-down" analysis, Marsico Capital identifies sectors, industries and companies which it believes should benefit from the overall trends observed. Marsico Capital then looks for individual companies with earnings growth potential that may not be recognized by the market at large. In determining whether a particular company is suitable for investment, Marsico Capital focuses on a number of different attributes including the company's specific market expertise or dominance, its franchise durability and pricing power, solid fundamentals (strong balance sheet, improving returns on equity, ability to generate free cash flow), strong management and reasonable valuations in the context of projected growth rates. As part of this fundamental, "bottom-up" research, Marsico Capital may visit with various levels of a company's management as well as with its customers, suppliers and competitors. Marsico Capital also prepares detailed earnings and cash flow models of companies. These models permit it to project earnings growth and other important characteristics under different scenarios. Each model is customized to follow a particular company and is intended to replicate and describe a company's past, present and future performance. The models are comprised of quantitative information and detailed narratives that reflect updated interpretations of corporate data. Marsico Capital may sell a security when it believes there is a deterioration in the company's financial situation, the security is overvalued, when there is a negative development in the company's competitive, regulatory or economic environment, and for other reasons. 9 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Marsico Focused Equities Fund has the following risks: o Investment strategy risk - There is a risk that the value of the Master Portfolio's investments will not rise as high as Marsico Capital expects, or will fall. o Holding fewer investments - The Master Portfolio is considered to be non-diversified because it may hold fewer investments than other kinds of equity funds. This increases the risk that its value could go down significantly if even only one of its investments performs poorly. The value of the Master Portfolio will tend to have greater price swings than the value of more diversified equity funds. The Master Portfolio may become a diversified fund by limiting the investments in which more than 5% of its total assets are invested. o Stock market risk - The value of the stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Technology and technology-related risk - The Master Portfolio may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. o Foreign investment risk - Because the Master Portfolio may invest up to 25% of its assets in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 10 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. For information about the performance of other stock funds managed by Thomas Marsico, see How the Funds are managed. [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1998 1999 2000 50.14% 52.85% -17.32% *Year-to-date return as of June 30, 2001: -14.12% Best and worst quarterly returns during this period Best: 4th quarter 1999: 33.11% Worst: 4th quarter 2000: -12.85% Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment.
Since 1 year inception* Investor A Shares -22.07% 21.38% Investor B Shares -22.00% 22.39% Investor C Shares -18.73% 23.16% S&P 500 -9.10% 12.26%
*The inception date of Investor A Shares, Investor B Shares and Investor C Shares is December 31, 1997. The return for the index shown is from that date. 11 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.75% 0.75% 0.75% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.34% 0.34% 0.34% ----- -------- -------- Total annual Fund operating expenses 1.34% 2.09% 2.09% ===== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. 12 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $704 $976 $1,268 $2,098 Investor B Shares $712 $955 $1,324 $2,229 Investor C Shares $312 $655 $1,124 $2,421
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $212 $655 $1,124 $2,229 Investor C Shares $212 $655 $1,124 $2,421
13 [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Marsico Capital is its sub-adviser. James A. Hillary is its portfolio manager and makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about Marsico Capital and Mr. Hillary on page 21. [GRAPHIC] What is a multi-cap fund? A multi-cap fund invests in companies across the capitalization spectrum -- small, mid and large companies. As a multi-cap fund, this Fund may invest in large, established and well-known U.S. and foreign companies, as well as small, new and relatively unknown companies that are believed to have the potential to grow significantly. Nations Marsico 21st Century Fund [GRAPHIC] Investment objective The Fund seeks long-term growth of capital. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations Marsico 21st Century Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio is an aggressive growth fund that primarily invests in equity securities of companies of any capitalization size. The Master Portfolio will focus on paradigm shifting technologies and companies seeking to take advantage of technological innovations in the way business is conducted. The Master Portfolio may invest without limit in foreign securities. The Master Portfolio also may invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Marsico Capital uses an approach that combines "top-down" economic analysis with "bottom-up" stock selection. The "top-down" approach takes into consideration such macroeconomic factors as interest rates, inflation, the regulatory environment and the global competitive landscape. In addition, Marsico Capital also examines such factors as the most attractive global investment opportunities, industry consolidation and the sustainability of economic trends. As a result of the "top-down" analysis, Marsico Capital identifies sectors, industries and companies which it believes should benefit from the overall trends observed. Marsico Capital then looks for individual companies with earnings growth potential that may not be recognized by the market at large. In determining whether a particular company is suitable for investment, Marsico Capital focuses on a number of different attributes including the company's specific market expertise or dominance, its franchise durability and pricing power, solid fundamentals (strong balance sheet, improving returns on equity, ability to generate free cash flow), strong management and reasonable valuations in the context of projected growth rates. As part of this fundamental, "bottom-up" research, Marsico Capital may visit with various levels of a company's management as well as with its customers, suppliers and competitors. Marsico Capital also prepares detailed earnings and cash flow models of companies. These models permit it to project earnings growth and other important characteristics under different scenarios. Each model is customized to follow a particular company and is intended to replicate and describe a company's past, present and future performance. The models are comprised of quantitative information and detailed narratives that reflect updated interpretations of corporate data. Marsico Capital may sell a security when it believes there is a deterioration in the company's financial situation, the security is overvalued, when there is a negative development in the company's competitive, regulatory or economic environment, and for other reasons. 14 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Marsico 21st Century Fund has the following risks: o Investment strategy risk - There is a risk that the value of the Master Portfolio's investments will not rise as high as Marsico Capital expects, or will fall. o Stock market risk - The value of any stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Small company risk - Stocks of smaller companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains but also carry more risk. o Technology and technology-related risk - The Master Portfolio may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. o Foreign investment risk - Because the Master Portfolio may invest without limitation in foreign securities, it can be affected by the risks of foreign investing. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. 15 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.75% 0.75% 0.75% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.60% 0.60% 0.60% ----- -------- -------- Total annual Fund operating expenses 1.60% 2.35% 2.35% ===== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5)These fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. 16 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $729 $1,052 $1,397 $2,369 Investor B Shares $738 $1,033 $1,455 $2,499 Investor C Shares $338 $ 733 $1,255 $2,686
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares:
1 year 3 years 5 years 10 years Investor B Shares $238 $733 $1,255 $2,499 Investor C Shares $238 $733 $1,255 $2,686
17 [GRAPHIC] Other important information You'll find specific information about each Fund's principal investments, strategies and risks in the descriptions starting on page 4. The following are some other risks and information you should consider before you invest: o Changing investment objectives and policies - The investment objective and certain investment policies of any Fund can be changed without shareholder approval. Other investment policies may be changed only with shareholder approval. o Holding other kinds of investments - The Master Portfolios may hold investments that aren't part of their principal investment strategies. Please refer to the SAI for more information. The portfolio managers can also choose not to invest in specific securities described in this prospectus and in the SAI. o Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Master Portfolios may invest up to 25% of their assets in Nations Money Market Funds. BA Advisors and its affiliates are entitled to receive fees from the Nations Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Master Portfolios for services provided directly. BA Advisors may waive fees which it is entitled to receive from either the Nations Money Market Funds or the Master Portfolios. o Foreign investment risk - Funds that invest in foreign securities may be affected by changes in currency exchange rates and the costs of converting currencies; foreign government controls on foreign investment, repatriation of capital, and currency and exchange; foreign taxes; inadequate supervision and regulation of some foreign markets; difficulty selling some investments, which may increase volatility; different settlement practices or delayed settlements in some markets; difficulty getting complete or accurate information about foreign companies; less strict accounting, auditing and financial reporting standards than those in the U.S.; political, economic or social instability; and difficulty enforcing legal rights outside the U.S. If a Fund invests in emerging markets there may be other risks involved, such as those of immature economies and less developed and more thinly traded securities markets. o Investing defensively - A Master Portfolio may temporarily hold investments that are not part of its investment objective or its principal investment strategies to try to protect it during a market or economic downturn or because of political or other conditions. A Fund may not achieve its investment objective while it is investing defensively. o Securities lending program - A Master Portfolio may lend portfolio securities to approved broker-dealers or other financial institutions on a fully collateralized basis in order to earn additional income. There may be delays in receiving additional collateral after the loan is made or in recovering the securities loaned. 18 o Bank of America and its affiliates - Bank of America and its affiliates currently provide services to some or all of the Funds, including investment advisory, investment sub-advisory, co-administration and brokerage services, and are paid for providing these services. Bank of America and its affiliates also may, at times, provide other services and be compensated for them, including transfer agency, interfund lending and securities lending services, or make loans to the Funds. Finally, Bank of America or its affiliates may serve as counterparties in transactions with Nations Funds where permitted by law or regulation, and may receive compensation in that capacity. o Portfolio turnover - A Master Portfolio that replaces -- or turns over -- more than 100% of its investments in a year is considered to trade frequently. Frequent trading can result in larger distributions of short-term capital gains to shareholders. These gains are taxable at higher rates than long-term capital gains. Frequent trading can also mean higher brokerage and other transaction costs, which could reduce the Fund's returns. The Master Portfolios generally buy securities for capital appreciation, investment income, or both, and don't engage in short-term trading. You'll find the portfolio turnover rate for the Master Portfolios in Financial highlights. 19 [GRAPHIC] Banc of America Advisors, LLC One Bank of America Plaza Charlotte, North Carolina 28255 [GRAPHIC] How the Funds are managed Investment adviser BA Advisors is the investment adviser to over 75 mutual fund portfolios in the Nations Funds Family, including the Stock Funds described in this prospectus. BA Advisors is a registered investment adviser. It's a wholly-owned subsidiary of Bank of America, which is owned by Bank of America Corporation. Nations Funds pays BA Advisors an annual fee for its investment advisory services. The fee is calculated as a percentage of the average daily net assets of each Fund and is paid monthly. BA Advisors uses part of this money to pay the investment sub-adviser for the services it provides to each Fund. The following chart shows the maximum advisory fees BA Advisors can receive, along with the actual advisory fees it received during the Funds' last fiscal year: Annual investment advisory fee, as a % of average daily net assets
Maximum Actual fee advisory paid last fee fiscal year Nations Marsico Growth & Income Fund(1) 0.75% 0.75% Nations Marsico Focused Equities Fund(1) 0.75% 0.75% Nations Marsico 21st Century Fund(1) 0.75% N/A
(1) These Funds don't have their own investment adviser because they invest in Nations Marsico Growth & Income Master Portfolio, Nations Marsico Focused Equities Master Portfolio and Nations Marsico 21st Century Master Portfolio, respectively. BA Advisors is the investment adviser to the Master Portfolios. Investment sub-adviser Nations Funds and BA Advisors engage one or more investment sub-advisers for each Master Portfolio to make day-to-day investment decisions for the Master Portfolio. BA Advisors retains ultimate responsibility (subject to Board oversight) for overseeing the sub-advisers and evaluates the Master Portfolios' needs and available sub-advisers' skills and abilities on an ongoing basis. Based on its evaluations, BA Advisors may at times recommend to a Master Portfolio's Board that the Master Portfolio: o change, add or terminate one or more sub-advisers; o continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or o materially change a sub-advisory agreement with a sub-adviser. Applicable law requires a Fund to obtain shareholder approval in order to act on most of these types of recommendations, even if the Fund's Board has approved the proposed action and believes that the action is in shareholders' best interests. BA Advisors and the Master Portfolios have applied for relief from the SEC to permit the Master Portfolios to act on many of BA Advisors' recommendations with approval only by the Funds' Board and not by Fund shareholders. BA Advisors or a Fund would inform the Fund's shareholders of any actions taken in reliance on this relief. Until BA Advisors and the Master Portfolios obtain the relief, each Fund will continue to submit these matters to shareholders for their approval to the extent required by applicable law. 20 [GRAPHIC] Marsico Capital Management, LLC 1200 17th Street Suite 1300 Denver, Colorado 80202 Marsico Capital Management, LLC Marsico Capital is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Marsico Capital is a full service investment advisory firm founded by Thomas F. Marsico in September 1997. Marsico Capital currently has over $13 billion in assets under management. Marsico Capital is the investment sub-adviser to: o Nations Marsico Growth & Income Master Portfolio o Nations Marsico Focused Equities Master Portfolio o Nations Marsico 21st Century Master Portfolio James A. Hillary is the portfolio manager of Nations Marsico 21st Century Master Portfolio. Mr. Hillary has eleven years of experience as a securities analyst and portfolio manager and is a founding member of Marsico Capital Management. Prior to joining Marsico Capital in 1997, Mr. Hillary was a portfolio manager at W.H. Reaves, a New Jersey-based money management firm where he managed equity mutual funds and separate accounts. He holds a Bachelor's degree from Rutgers University and a law degree from Fordham University. Mr. Hillary is also a certified public accountant. Thomas F. Marsico, Chairman and Chief Executive Officer of Marsico Capital, is the portfolio manager responsible for making the day-to-day investment decisions for Nations Marsico Focused Equities Master Portfolio and Nations Marsico Growth & Income Master Portfolio. Mr. Marsico was an executive vice president and portfolio manager at Janus Capital Corporation from 1988 until he formed Marsico Capital in September 1997. He has more than 20 years of experience as a securities analyst and portfolio manager. Performance of other stock funds managed by Thomas Marsico Nations Marsico Focused Equities Fund and Nations Marsico Growth & Income Fund have been in operation since December 31, 1997, so they have a relatively short performance history. The tables below are designed to show you how similar stock funds managed by Thomas Marsico performed in the past. The Janus Twenty Fund has an investment objective, policies and strategies that are substantially similar to Nations Marsico Focused Equities Fund. Mr. Marsico managed the Janus Twenty Fund from January 31, 1988 through August 11, 1997. He had full discretionary authority for selecting investments for that fund, which had approximately $6 billion in net assets on August 11, 1997. The table below shows the returns for the Janus Twenty Fund compared with the S&P 500 for the periods ending August 7, 1997. The returns reflect deductions of fees and expenses, and assume all dividends and distributions have been reinvested. 21 [GRAPHIC] Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 [GRAPHIC] PFPC Inc. 400 Bellevue Parkway Wilmington, Delaware 19809 Average annual total returns as of August 7, 1997 Janus Twenty Fund (%) S&P 500 (%) one year 48.21 46.41 three years 32.07 30.63 five years 20.02 20.98 during the period of Mr. Marsico's management (January 31, 1988 to August 7, 1997) 23.38 18.20
This information is designed to show the historical track record of Mr. Marsico. It does not indicate how the Fund has performed or will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's expenses. The Janus Growth and Income Fund has an investment objective, policies and strategies that are substantially similar to Nations Marsico Growth & Income Fund. Mr. Marsico managed the Janus Growth and Income Fund from its inception on May 31, 1991 through August 11, 1997. He had full discretionary authority for selecting investments for that fund, which had approximately $1.7 billion in net assets on August 11, 1997. The table below shows the returns for the Janus Growth and Income Fund compared with the S&P 500 for the period ending August 7, 1997. The returns reflect deductions of fees and expenses, and assume all dividends and distributions have been reinvested. Average annual total returns as of August 7, 1997 Janus Growth and Income Fund (%) S&P 500 (%) one year 47.77 46.41 three years 31.13 30.63 five years 21.16 20.98 during the period of Mr. Marsico's management (May 31, 1991 to August 7, 1997) 21.19 18.59
This information is designed to show the historical track record of Mr. Marsico. It does not indicate how the Fund has performed or will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's expenses. Other service providers The Funds are distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. Stephens may pay commissions, distribution (12b-1) and shareholder servicing fees, and/or other compensation to companies for selling shares and providing services to investors. BA Advisors is also co-administrator of the Funds, and assists in overseeing the administrative operations of the Funds. The Funds pay BA Advisors and Stephens a combined fee of 0.23% for their services, plus certain out-of-pocket expenses. The fee is calculated as an annual percentage of the average daily net assets of the Funds, and is paid monthly. PFPC Inc. (PFPC) is the transfer agent for the Funds' shares. Its responsibilities include processing purchases, sales and exchanges, calculating and paying distributions, keeping shareholder records, preparing account statements and providing customer service. 22 About your investment - -------------------------------------------------------------------------------- [GRAPHIC] We've used the term, investment professional, to refer to the person who has assisted you with buying Nations Funds. Selling agent or servicing agent (sometimes referred to as a selling agent) means the company that employs your investment professional. Selling and servicing agents include banks, brokerage firms, mutual fund dealers and other financial institutions, including affiliates of Bank of America. [GRAPHIC] For more information about how to choose a share class, contact your investment professional or call us at 1.800.321.7854. [GRAPHIC] Before you invest, please note that, over time, distribution (12b-1) and shareholder servicing fees will increase the cost of your investment, and may cost you more than any sales charges you may pay. For more information, see How selling and servicing agents are paid. [GRAPHIC] Choosing a share class Before you can invest in the Funds, you'll need to choose a share class. There are three classes of shares of each Fund offered by this prospectus. Each class has its own sales charges and fees. The table below compares the charges and fees and other features of the share classes. Investor A Investor B Investor C Shares Shares Shares Maximum amount no limit $250,000 no limit you can buy Maximum front-end 5.75% none none sales charge Maximum deferred none(1) 5.00%(2) 1.00%(3) sales charge Maximum annual 0.25% distribution 0.75% distribution 0.75% distribution distribution (12b-1)/service (12b-1) fee and (12b-1) fee and and shareholder fee 0.25% service fee 0.25% service fee servicing fees Conversion feature none yes none
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. The share class you choose will depend on how much you're investing, how long you're planning to stay invested, and how you prefer to pay the sales charge. The total cost of your investment over the time you expect to hold your shares will be affected by the distribution (12b-1) and shareholder servicing fees, as well as by the amount of any front-end sales charge or contingent deferred sales charge (CDSC) that applies, and when you're required to pay the charge. You should think about these things carefully before you invest. Investor A Shares have a front-end sales charge, which is deducted when you buy your shares. This means that a smaller amount is invested in the Funds, unless you qualify for a waiver or reduction of the sales charge. However, Investor A Shares have lower ongoing distribution (12b-1) and/or shareholder servicing fees than Investor B and Investor C Shares. This means that Investor A Shares can be expected to pay relatively higher dividends per share. 23 [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by a Fund every business day. Investor B Shares have limits on how much you can invest. When you buy Investor B or Investor C Shares, the full amount is invested in the Funds. However, you may pay a CDSC when you sell your shares. Over time, Investor B and Investor C Shares can incur distribution (12b-1) and shareholder servicing fees that are equal to or more than the front-end sales charge, and the distribution (12b-1) and shareholder servicing fees you would pay for Investor A Shares. Although the full amount of your purchase is invested in the Funds, any positive investment return on this money may be partially or fully offset by the expected higher annual expenses of Investor B and Investor C Shares. You should also consider the conversion feature for Investor B Shares, which is described in About Investor B Shares. [GRAPHIC] About Investor A Shares There is no limit to the amount you can invest in Investor A Shares. You generally will pay a front-end sales charge when you buy your shares, or in some cases, a CDSC when you sell your shares. Front-end sales charge You'll pay a front-end sales charge when you buy Investor A Shares, unless: o you qualify for a waiver of the sales charge. You can find out if you qualify for a waiver in the section, When you might not have to pay a sales charge - Front end sales charges o you're reinvesting distributions The sales charge you'll pay depends on the amount you're investing -- generally, the larger the investment, the smaller the percentage sales charge. Amount retained Sales charge Sales charge by selling agents as a % of the as a % of the as a % of the offering price net asset value offering price Amount you bought per share per share per share $0-$49,999 5.75% 6.10% 5.00% $50,000-$99,999 4.50% 4.71% 3.75% $100,000-$249,999 3.50% 3.63% 2.75% $250,000-$499,999 2.50% 2.56% 2.00% $500,000-$999,999 2.00% 2.04% 1.75% $1,000,000 or more 0.00% 0.00% 1.00%(1)
(1)1.00% on the first $3,000,000, 0.50% on the next $47,000,000, 0.25% on amounts over $50,000,000. Stephens pays the amount retained by selling agents on investments of $1,000,000 or more, but may be reimbursed when a CDSC is deducted if the shares are sold within eighteen months from the time they were bought. Please see How selling and servicing agents are paid for more information. 24 Contingent deferred sales charge If you own or buy $1,000,000 or more of Investor A Shares, there is one situation when you'll pay a CDSC: o If you buy your shares on or after August 1, 1999 and sell them within 18 months of buying them, you'll pay a CDSC of 1.00%. The CDSC is calculated from the day your purchase is accepted (the trade date). We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. You won't pay a CDSC on any increase in net asset value since you bought your shares, or on any shares you receive from reinvested distributions. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. [GRAPHIC] About Investor B Shares You can buy up to $250,000 of Investor B Shares. You don't pay a sales charge when you buy Investor B Shares, but you may have to pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC when you sell your Investor B Shares, unless: o you bought the shares on or after January 1, 1996 and before August 1, 1997 o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge - Contingent deferred sales charges The CDSC you pay depends on when you bought your shares, how much you bought in some cases, and how long you held them.
If you sell your shares during the following year: You'll pay a CDSC of: - ------------------------------------------------------------------------------------------------------------ Shares you bought Shares Shares on or after you you bought Shares you bought between 1/1/1996 bought after 8/1/1997 and 11/15/1998 and before before 11/15/1998 in the following amounts: 8/1/1997 1/1/1996 ------------ ----------------------------------- ------------ ---------- $250,000- $500,000- $0-$249,999 $499,999 $999,999 the first year you own them 5.0% 5.0% 3.0% 2.0% none 5.0% the second year you own them 4.0% 4.0% 2.0% 1.0% none 4.0% the third year you own them 3.0% 3.0% 1.0% none none 3.0% the fourth year you own them 3.0% 3.0% none none none 2.0% the fifth year you own them 2.0% 2.0% none none none 2.0% the sixth year you own them 1.0% 1.0% none none none 1.0% after six years of owning them none none none none none none
25 The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor B Shares. Please see How selling and servicing agents are paid for more information. About the conversion feature Investor B Shares generally convert automatically to Investor A Shares according to the following schedule:
Will convert to Investor A Shares Investor B Shares you bought after you've owned them for after November 15, 1998 eight years between August 1, 1997 and November 15, 1998 $0-$249,000 nine years $250,000-$499,999 six years $500,000-$999,999 five years before August 1, 1997 nine years
The conversion feature allows you to benefit from the lower operating costs of Investor A Shares, which can help increase total returns. Here's how the conversion works: o We won't convert your shares if you tell your investment professional, selling agent or the transfer agent within 90 days before the conversion date that you don't want your shares to be converted. Remember, it's in your best interest to convert your shares because Investor A Shares have lower expenses. o Shares are converted at the end of the month in which they become eligible for conversion. Any shares you received from reinvested distributions on these shares will convert to Investor A Shares at the same time. o You'll receive the same dollar value of Investor A Shares as the Investor B Shares that were converted. No sales charge or other charges apply. o Investor B Shares that you received from an exchange of Investor B Shares of another Nations Fund will convert based on the day you bought the original shares. Your conversion date may be later if you exchanged to or from a Nations Money Market Fund. o Conversions are free from federal tax. 26 [GRAPHIC] Please contact your investment professional for more information about reductions and waivers of sales charges. You should tell your investment professional that you may qualify for a reduction or a waiver before buying shares. We can change or cancel these terms at any time. Any change or cancellation applies only to future purchases. [GRAPHIC] About Investor C Shares There is no limit to the amount you can invest in Investor C Shares. You don't pay a sales charge when you buy Investor C Shares, but you may pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC of 1.00% when you sell Investor C Shares within one year of buying them, unless: o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge - Contingent deferred sales charges The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor C Shares. Please see How selling and servicing agents are paid for more information. When you might not have to pay a sales charge Front-end sales charges (Investor A Shares) There are three ways you can lower the front-end sales charge you pay on Investor A Shares: o Combine purchases you've already made Rights of accumulation allow you to combine the value of Investor A, Investor B and Investor C Shares you already own with Investor A Shares you're buying to calculate the sales charge. The sales charge is based on the total value of the shares you already own, or the original purchase cost, whichever is higher, plus the value of the shares you're buying. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify for rights of accumulation. o Combine purchases you plan to make By signing a letter of intent, you can combine the value of shares you already own with the value of shares you plan to buy over a 13-month period to calculate the sales charge. o You can choose to start the 13-month period up to 90 days before you sign the letter of intent. o Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. o If you don't buy as much as you planned within the period, you must pay the difference between the charges you've paid and the charges that actually apply to the shares you've bought. 27 o Your first purchase must be at least 5% of the minimum amount for the sales charge level that applies to the total amount you plan to buy. o If the purchase you've made later qualifies for a reduced sales charge through the 90-day backdating provisions, we'll make an adjustment for the lower charge when the letter of intent expires. Any adjustment will be used to buy additional shares at the reduced sales charge. o Combine purchases with family members You can receive a quantity discount by combining purchases of Investor A Shares that you, your spouse and children under age 21 make on the same day. Some distributions or payments from the dissolution of certain qualified plans also qualify for the quantity discount. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: o full-time employees and retired employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries and the immediate families of these people o banks, trust companies and thrift institutions acting as fiducuaries o individuals receiving a distribution from a Bank of America trust or other fiduciary account may use the proceeds of that distribution to buy Investor A Shares without paying a front-end sales charge, as long as the proceeds are invested in the Funds within 90 days of the date of distribution o Nations Funds' Trustees, Directors and employees of its investment sub-advisers o registered broker/dealers that have entered into a Nations Funds dealer agreement with Stephens may buy Investor A Shares without paying a front-end sales charge for their investment account only o registered personnel and employees of these broker/dealers and their family members may buy Investor A Shares without paying a front-end sales charge according to the internal policies and procedures of the employing broker/dealer as long as these purchases are made for their own investment purposes o employees or partners of any service provider to the Funds o investors who buy through accounts established with certain fee-based investment advisers or financial planners, wrap fee accounts and other managed agency/asset allocation accounts o shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at net asset value 28 The following plans can buy Investor A Shares without paying a front-end sales charge: o pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the Internal Revenue Code of 1986, as amended (the tax code) o employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must: o have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or o sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or o be an employer-sponsored plan with at least 100 eligible participants, or o be a participant in an alliance program that has signed an agreement with the Fund or a selling agent o certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors You can also buy Investor A Shares without paying a sales charge if you buy the shares within 120 days of selling the same Fund. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. 29 Contingent deferred sales charges (Investor A, Investor B and Investor C Shares) You won't pay a CDSC on the following transactions: o shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner o distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors o the following retirement plan distributions: o lump-sum or other distributions from a qualified corporate or self-employed retirement plan following the retirement (or following attainment of age 59 1/2 in the case of a "key employee" of a "top heavy" plan) o distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 o a tax-free return of an excess contribution to an IRA o distributions from a qualified retirement plan that aren't subject to the 10% additional federal withdrawal tax under Section 72(t)(2) of the tax code o payments made to pay medical expenses which exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least 12 weeks o shares sold under our right to liquidate a shareholder's account, including instances where the aggregate net asset value of Investor A, Investor B or Investor C Shares held in the account is less than the minimum account size o If you exchange Investor B or Investor C Shares of a Nations Fund that were bought through a Bank of America employee benefit plan for Investor A Shares of a Nations Fund o withdrawals made under the Automatic Withdrawal Plan described in Buying, selling and exchanging shares, if the total withdrawals of Investor A, Investor B or Investor C Shares made in a year are less than 12% of the total value of those shares in your account. A CDSC may only apply to Investor A Shares if you bought more than $1,000,000 We'll also waive the CDSC on the sale of Investor A or Investor C Shares bought before September 30, 1994 by current or retired employees of Bank of America Corporation (and its predecessors) and its affiliates, or by current or former trustees or directors of the Nations Funds or other management companies managed by Bank of America. You won't pay a CDSC on the sale of Investor B or Investor C Shares if you reinvest any of the proceeds in the same Fund within 120 days of the sale. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. 30 [GRAPHIC] When you sell shares of a mutual fund, the fund is effectively "buying" them back from you. This is called a redemption. [GRAPHIC] Buying, selling and exchanging shares You can invest in the Funds through your selling agent or directly from Nations Funds. We encourage you to consult with an investment professional who can open an account for you with a selling agent and help you with your investment decisions. Once you have an account, you can buy, sell and exchange shares by contacting your investment professional or selling agent. They will look after any paperwork that's needed to complete a transaction and send your order to us. You should also ask your selling agent about its limits, fees and policies for buying, selling and exchanging shares, which may be different from those described here, and about its related programs or services. The table on the next page summarizes some key information about buying, selling and exchanging shares. You'll find sales charges and other fees that apply to these transactions in Choosing a share class. The Funds also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. Please contact your investment professional, or call us at 1.800.321.7854 if you have questions or you need help placing an order. 31
Ways to buy, sell or How much you can buy, exchange sell or exchange Other things to know ----------------- ----------------------------------- ---------------------------------------------------- Buying shares In a lump sum minimum initial investment: There is no limit to the amount you can invest in o $1,000 for regular accounts Investor A and C Shares. You can invest up to o $500 for traditional and Roth $250,000 in Investor B Shares. IRA accounts o $250 for certain fee-based accounts o no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: o $100 for all accounts Using our minimum initial investment: You can buy shares twice a month, monthly or Systematic o $100 quarterly, using automatic transfers from your Investment Plan minimum additional investment: bank account. o $50 - ------------------------------------------------------------------------------------------------------------------------------------ Selling shares In a lump sum o you can sell up to $50,000 of We'll deduct any CDSC from the amount you're your shares by telephone, selling and send you or your selling agent the otherwise there are no limits to balance, usually within three business days of the amount you can sell receiving your order. o other restrictions may apply to If you paid for your shares with a check that withdrawals from retirement wasn't certified, we'll hold the sale proceeds plan accounts when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared. Using our o minimum $25 per withdrawal Your account balance must be at least $10,000 to Automatic set up the plan. You can make withdrawals twice Withdrawal Plan a month, monthly, quarterly, bi-annually or annually. We'll send your money by check or deposit it directly to your bank account. No CDSC is deducted if you withdraw 12% or less of the value of your shares in a class. - ------------------------------------------------------------------------------------------------------------------------------------ Exchanging shares In a lump sum o minimum $1,000 per exchange You can exchange your Investor A Shares for Investor A shares of any other Nations Fund, except Index Funds. You won't pay a front-end sales charge, CDSC or redemption fee on the shares you're exchanging. You can exchange your Investor B Shares for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You can exchange your Investor C Shares for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of a Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Using our o minimum $25 per exchange You must already have an investment in the Automatic Funds into which you want to exchange. You can Exchange make exchanges monthly or quarterly. Feature
32 [GRAPHIC] A business day is any day that the New York Stock Exchange (NYSE) is open. A business day ends at the close of regular trading on the NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes early, the business day ends as of the time the NYSE closes. The NYSE is closed on weekends and on the following national holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. How shares are priced All transactions are based on the price of a Fund's shares -- or its net asset value per share. We calculate net asset value per share for each class of each Fund at the end of each business day. First, we calculate the net asset value for each class of a Fund by determining the value of the Fund's assets in the class and then subtracting its liabilities. Next, we divide this amount by the number of shares that investors are holding in the class. Valuing securities in a Fund The value of a Fund's assets is based on the total market value of all of the securities it holds. The prices reported on stock exchanges and securities markets around the world are usually used to value securities in a Master Portfolio. If prices aren't readily available, or the value of a security has been materially affected by events occurring after a foreign exchange closes, we'll base the price of a security on its fair value. When a Master Portfolio uses fair value to price securities it may value those securities higher or lower than another fund that uses market quotations to price the same securities. We use the amortized cost method, which approximates market value, to value short-term investments maturing in 60 days or less. International markets may be open on days when U.S. markets are closed. The value of foreign securities owned by a Master Portfolio could change on days when Fund shares may not be bought or sold. How orders are processed Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents before the end of a business day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive that day's net asset value per share. Orders received after the end of a business day will receive the next business day's net asset value per share. The business day that applies to your order is also called the trade date. We may refuse any order to buy or exchange shares. If this happens, we'll return any money we've received to your selling agent. Telephone orders You can place orders to buy, sell or exchange by telephone if you complete the telephone authorization section of our account application and send it to us. Here's how telephone orders work: o If you sign up for telephone orders after you open your account, you must have your signature guaranteed. o Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. o We'll take reasonable steps to confirm that telephone instructions are genuine. For example, we require proof of your identification before we will act on instructions received by telephone and may record telephone conversations. If we and our service providers don't take these steps, we may be liable for any losses from unauthorized or fraudulent instructions. o Telephone orders may be difficult to complete during periods of significant economic or market change. 33 [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by a Fund every business day. [GRAPHIC] Buying shares Here are some general rules for buying shares: o You buy Investor A Shares at the offering price per share. You buy Investor B and Investor C Shares at net asset value per share. o If we don't receive your money within three business days of receiving your order, we'll refuse the order. o Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. o Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. Minimum initial investment The minimum initial amount you can buy is usually $1,000. If you're buying shares through one of the following accounts or plans, the minimum initial amount you can buy is: o $500 for traditional and Roth individual retirement accounts (IRAs) o $250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts o $100 using our Systematic Investment Plan o There is no minimum for 401(k) plans, simplified employee pension plans (SEPs), salary reduction-simplified employee pension plans (SAR-SEPs), Savings Incentives Match Plans for Employees (SIMPLE IRAs), salary reduction-IRAs (SAR-IRAs) or other similar kinds of accounts. However, if the value of your account falls below $1,000 for 401(k) plans or $500 for the other plans within one year after you open your account, we may sell your shares. We'll give you 60 days notice in writing if we're going to do this Minimum additional investment You can make additional purchases of $100, or $50 if you use our Systematic Investment Plan. 34 [GRAPHIC] For more information about telephone orders, see How orders are processed. Systematic Investment Plan You can make regular purchases of $50 or more using automatic transfers from your bank account to the Funds you choose. You can contact your investment professional or us to set up the plan. Here's how the plan works: o You can buy shares twice a month, monthly or quarterly. o You can choose to have us transfer your money on or about the 15th or the last day of the month. o Some exceptions may apply to employees of Bank of America and its affiliates, and to plans set up before August 1, 1997. For details, please contact your investment professional. [GRAPHIC] Selling shares Here are some general rules for selling shares: o We'll deduct any CDSC from the amount you're selling and send you the balance. o If you're selling your shares through a selling agent, we'll normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. Your selling agent is responsible for depositing the sale proceeds to your account on time. o If you're selling your shares directly through us, we'll normally send the sale proceeds by mail or electronic transfer them to your bank account within three business days after the Fund receives your order. o You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. o If you paid for your shares with a check that wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared, whichever is later. o If you hold any shares in certificate form, you must sign the certificates (or send a signed stock power with them) and send them to PFPC. Your signature must be guaranteed unless you've made other arrangements with us. We may ask for any other information we need to prove that the order is properly authorized. o Under certain circumstances allowed under the Investment Company Act of 1940 (1940 Act), we can pay you in securities or other property when you sell your shares. o We can delay payment of the sale proceeds for up to seven days. o Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. 35 We may sell your shares: o if the value of your account falls below $500. We'll give you 60 days notice in writing if we're going to do this o if your selling agent tells us to sell your shares under arrangements made between the selling agent and you o under certain other circumstances allowed under the 1940 Act Automatic Withdrawal Plan The Automatic Withdrawal Plan lets you withdraw $25 or more twice a month, monthly, quarterly, bi-annually or annually. You can contact your investment professional or us to set up the plan. Here's how the plan works: o Your account balance must be at least $10,000 to set up the plan. o If you set up the plan after you've opened your account, your signature must be guaranteed. o You can choose to have us transfer your money on or about the 10th or the 25th of the month. o You won't pay a CDSC on Investor A, Investor B or Investor C Shares if you withdraw 12% or less of the value of those shares in a year. Otherwise, we'll deduct any CDSC from the withdrawals. o We'll send you a check or deposit the money directly to your bank account. o You can cancel the plan by giving your selling agent or us 30 days notice in writing. It's important to remember that if you withdraw more than your investment in the Fund is earning, you'll eventually use up your original investment. [GRAPHIC] You should make sure you understand the investment objective and principal investment strategies of the Fund you're exchanging into. Please read its prospectus carefully. [GRAPHIC] Exchanging shares You can sell shares of a Fund to buy shares of another Nations Fund. This is called an exchange. You might want to do this if your investment goals or tolerance for risk changes. Here's how exchanges work: o You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. o The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. o You may only make exchanges into a Fund that is legally sold in your state of residence. o You generally may only make an exchange into a Fund that is accepting investments. 36 o We may limit the number of exchanges you can make within a specified period of time. o We may change or cancel your right to make an exchange by giving the amount of notice required by regulatory authorities (generally 60 days for a material change or cancellation). o You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. Exchanging Investor A Shares You can exchange Investor A Shares of a Fund for Investor A Shares of any other Nations Fund, except Index Funds. Here are some rules for exchanging Investor A Shares: o You won't pay a front-end sales charge on the shares of the Fund you're exchanging. o You won't pay a CDSC, if applicable, on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC at that time will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. o You won't pay a redemption fee on the shares you're exchanging. Any redemption fee will be deducted when you sell the shares you received from the exchange. Any redemption fee will be paid to the original Fund. Exchanging Investor B Shares You can exchange Investor B Shares of a Fund for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Investor C Shares of a Nations Money Market Fund through an exchange of Investor B Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Investor C Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. 37 Exchanging Investor C Shares You can exchange Investor C Shares of a Fund for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of a Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Daily Shares of a Nations Money Market Fund through an exchange of Investor C Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Daily Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. Automatic Exchange Feature The Automatic Exchange Feature lets you exchange $25 or more of Investor A, Investor B or Investor C Shares every month or every quarter. You can contact your investment professional or us to set up the plan. Here's how automatic exchanges work: o Send your request to PFPC in writing or call 1.800.321.7854. o If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. o You must already have an investment in the Funds you want to exchange. o You can choose to have us transfer your money on or about the 1st or the 15th day of the month. o The rules for making exchanges apply to automatic exchanges. 38 [GRAPHIC] The financial institution or intermediary that buys shares for you is also sometimes referred to as a selling agent. The distribution fee is often referred to as a "12b-1" fee because it's paid through a plan approved under Rule 12b-1 under the 1940 Act. Your selling agent may charge other fees for services provided to your account. [GRAPHIC] How selling and servicing agents are paid Selling and servicing agents usually receive compensation based on your investment in the Funds. The kind and amount of the compensation depends on the share class in which you invest. Selling agents typically pay a portion of the compensation they receive to their investment professionals. Commissions Your selling agent may receive an up-front commission (reallowance) when you buy shares of a Fund. The amount of this commission depends on which share class you choose: o up to 5.00% of the offering price per share of Investor A Shares. The commission is paid from the sales charge we deduct when you buy your shares o up to 4.00% of the net asset value per share of Investor B Shares. The commission is not deducted from your purchase -- we pay your selling agent directly o up to 1.00% of the net asset value per share of Investor C Shares. The commission is not deducted from your purchase -- we pay your selling agent directly If you buy Investor B or Investor C Shares you will be subject to higher distribution (12b-1) and shareholder servicing fees and may be subject to a CDSC when you sell your shares. Distribution (12b-1) and shareholder servicing fees Stephens and selling and servicing agents may be compensated for selling shares and providing services to investors under distribution and shareholder servicing plans. The amount of the fee depends on the class of shares you own:
Maximum annual distribution (12b-1) and shareholder servicing fees (as an annual % of average daily net assets) Investor A Shares 0.25% combined distribution (12b-1) and shareholder servicing fee Investor B Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee Investor C Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee
Fees are calculated daily and paid monthly. Because these fees are paid out of the Funds' assets on an ongoing basis, they will increase the cost of your investment over time, and may cost you more than any sales charges you may pay. The Funds pay these fees to Stephens and/or to eligible selling and servicing agents and financial institutions, including BA Advisors or its affiliates, for as long as the plans continue. We may reduce or discontinue payments at any time. 39 Other compensation Selling and servicing agents may also receive: o a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Funds o additional amounts on all sales of shares: o up to 1.00% of the offering price per share of Investor A Shares o up to 1.00% of the net asset value per share of Investor B Shares o up to 1.00% of the net asset value per share of Investor C Shares o non-cash compensation like trips to sales seminars, tickets to sporting events, theater or other entertainment, opportunities to participate in golf or other outings and gift certificates for meals or merchandise This compensation, which is not paid by the Funds, is discretionary and may be available only to selected selling and servicing agents. For example, Stephens sometimes sponsors promotions involving Banc of America Investment Services, Inc., an affiliate of BA Advisors, and certain other selling or servicing agents. Selected selling and servicing agents also may receive compensation for opening a minimum number of accounts. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. 40 [GRAPHIC] The power of compounding Reinvesting your distributions buys you more shares of a Fund -- which lets you take advantage of the potential for compound growth. Putting the money you earn back into your investment means it, in turn, may earn even more money. Over time, the power of compounding has the potential to significantly increase the value of your investment. There is no assurance, however, that you'll earn more money if you reinvest your distributions. [GRAPHIC] Distributions and taxes About distributions A mutual fund can make money two ways: o It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. o A fund can also have capital gain if the value of its investments increases. If a fund sells an investment at a gain, the gain is realized. If a fund continues to hold the investment, any gain is unrealized. A mutual fund is not subject to federal income tax as long as it distributes its net investment income and realized capital gain to its shareholders. The Funds intend to pay out a sufficient amount of their income and capital gain to their shareholders so the Funds won't have to pay any federal income tax. When a Fund makes this kind of a payment, it's split among all shares, and is called a distribution. All of the Funds distribute any net realized capital gain at least once a year. The frequency of distributions of net investment income varies by Fund:
Frequency of Fund income distributions Nations Marsico Growth & Income Fund quarterly Nations Marsico Focused Equities Fund quarterly Nations Marsico 21st Century Fund quarterly
Any distribution you receive is based on the number of shares you hold on the record date, which is usually the day the distribution is declared (daily dividend Funds) or the day before the distribution is declared (all other Funds). Shares are eligible to receive net investment income distributions from the settlement date (daily dividend Funds), trade date (all other Funds) or realized capital gain from the trade date of the purchase up to and including the day before the shares are sold. Different share classes of a Fund usually pay different net investment income distribution amounts, because each class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. We'll automatically reinvest distributions in additional shares of the same Fund unless you tell us you want to receive your distributions in cash. You can do this by writing to us at the address on the back cover, or by calling us at 1.800.321.7854. We generally pay cash distributions within five business days after the end of the month, quarter or year in which the distribution was made. If you sell all of your shares, we'll normally pay any distribution that applies to those shares in cash within five business days after the sale was made. 41 [GRAPHIC] This information is a summary of how federal income taxes may affect your investment in the Funds. It is not intended as a substitute for careful tax planning. You should consult with your own tax adviser about your situation, including any foreign, state and local taxes that may apply. [GRAPHIC] For more information about taxes, please see the SAI. If you buy shares of a Fund shortly before it makes a distribution, you will, in effect, receive part of your purchase back in the distribution, which is subject to tax. Similarly, if you buy shares of a Fund that holds securities with unrealized capital gain, you will, in effect, receive part of your purchase back if and when the Fund sells those securities and distributes the gain. This distribution is also subject to tax. The Funds have built up, or have the potential to build up, high levels of unrealized capital gain. How taxes affect your investment Distributions that come from net investment income, net short-term capital gain and certain other items generally are taxable to you as ordinary income. A portion of such distributions to corporate shareholders may qualify for the dividends-received deduction. Distributions that come from net long-term capital gain generally are taxable to you as long-term capital gain. In general, all distributions are taxable to you when paid, whether they are paid in cash or automatically reinvested in additional shares of the Fund. However, any distributions declared to shareholders of record in October, November or December of one year and distributed in January of the following year will be taxable as if they had been paid to you on December 31 of the first year. We'll send you a notice every year that tells you how much you've received in distributions during the year and their federal tax status. Foreign, state and local taxes may also apply to these distributions. Withholding tax We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts to be paid for in securities or other property and exchanges) if: o you haven't given us a correct Taxpayer Identification Number (TIN) and haven't certified that the TIN is correct and withholding doesn't apply o the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records o the IRS informs us that you're otherwise subject to backup withholding The IRS may also impose penalties against you if you don't give us a correct TIN. Amounts we withhold are applied to your federal income tax liability. You may receive a refund from the IRS if the withholding tax results in an overpayment of taxes. We're also normally required by federal law to withhold tax on distributions (other than capital gain distributions) paid to foreign shareholders. Taxation of redemptions and exchanges Your redemptions (including redemptions paid in securities) and exchanges of Fund shares will usually result in a taxable capital gain or loss, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. 42 [GRAPHIC] Financial highlights The financial highlights table is designed to help you understand how the Funds have performed for the past five years or, if shorter, the period of a Fund's operations. Certain information reflects financial results for a single Fund share. The total investment return line indicates how much an investment in the Fund would have earned, assuming all dividends and distributions had been reinvested. This information has been audited by PricewaterhouseCoopers LLP. The independent accountants' report and Nations Funds financial statements are incorporated by reference into the SAI. Please see the back cover to find out how you can get a copy. 43
Nations Marsico Growth & Income Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor A Shares 03/31/01 03/31/00 03/31/99# 03/31/98*# Operating performance: Net asset value, beginning of period $21.62 $14.95 $12.02 $10.00 Net investment income/(loss) (0.05) (0.11) (0.03) 0.00(b) Net realized and unrealized gain/(loss) on investments (6.54) 6.82 2.97 2.02 Net increase/(decrease) in net asset value from operations (6.59) 6.71 2.94 2.02 Distributions: Distributions from net realized capital gains (0.16) (0.04) (0.01) -- Net asset value, end of the period $14.87 $21.62 $14.95 $12.02 Total return++ (30.63)% 45.01% 24.38% 20.20% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $164,031 $175,859 $43,392 $1,141 Ratio of operating expenses to average net assets 1.35% 1.48%(a) 1.50%(a) 1.34%+(a) Ratio of net investment income/(loss) to average net assets (0.28)% (0.62)% (0.20)% 0.13%+ Portfolio turnover rate -- 55%(c) 150% 22% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.35% 1.48%(a) 1.50%(a) 2.22%+(a) * Nations Marsico Growth & Income Fund Investor A Shares commenced operations on December 31, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents less than $0.01 per share. (c) Amount represents results prior to conversion to a master-feeder structure.
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Nations Marsico Growth & Income Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor B Shares 03/31/01 03/31/00 03/31/99# 03/31/98*# Operating performance: Net asset value, beginning of period $21.31 $14.85 $12.02 $10.00 Net investment income/(loss) (0.18) (0.24) (0.12) (0.02) Net realized and unrealized gain/(loss) on investments (6.42) 6.74 2.96 2.04 Net increase/(decrease) in net asset value from operations (6.60) 6.50 2.84 2.02 Distributions: Distributions from net realized capital gains (0.16) (0.04) (0.01) -- Net asset value, end of period $14.55 $21.31 $14.85 $12.02 Total return++ (31.13)% 43.90% 23.55% 20.20% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $239,621 $305,607 $99,257 $7,907 Ratio of operating expenses to average net assets 2.10% 2.23%(a) 2.25%(a) 2.09%+(a) Ratio of net investment income/(loss) to average net assets (1.03)% (1.37)% (0.95)% (0.62)%+ Portfolio turnover rate -- 55%(b) 150% 22% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.10% 2.23%(a) 2.25%(a) 2.97%+(a) * Nations Marsico Growth & Income Fund Investor B Shares commenced operations on December 31, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure.
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Nations Marsico Growth & Income Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor C Shares 03/31/01 03/31/00 03/31/99# 03/31/98*# Operating performance: Net asset value, beginning of period $21.34 $14.86 $12.02 $10.00 Net investment income/(loss) (0.17) (0.25) (0.12) (0.02) Net realized and unrealized gain/(loss) on investments (6.44) 6.77 2.97 2.04 Net increase/(decrease) in net asset value from operations (6.61) 6.52 2.85 2.02 Distributions: Distributions from net realized capital gains (0.16) (0.04) (0.01) -- Net asset value, end of period $14.57 $21.34 $14.86 $12.02 Total return++ (31.10)% 43.93% 23.63% 20.20% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $32,365 $34,785 $3,233 $518 Ratio of operating expenses to average net assets 2.10% 2.23%(a) 2.25%(a) 2.09%+(a) Ratio of net investment income/(loss) to average net assets (1.03)% (1.37)% (0.95)% (0.62)%+ Portfolio turnover rate -- 55%(b) 150% 22% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.10% 2.23%(a) 2.25%(a) 2.97%+(a) * Nations Marsico Growth & Income Fund Investor C Shares commenced operations on December 31, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure.
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Nations Marsico Focused Equities Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor A Shares 03/31/01 03/31/00# 03/31/99# 03/31/98*# Operating performance: Net asset value, beginning of period $22.56 $16.73 $12.14 $10.00 Net investment income/(loss) (0.06) (0.03) (0.04) (0.01) Net realized and unrealized gain/(loss) on investments (7.11) 6.09 4.64 2.15 Net increase/(decrease) in net asset value from operations (7.17) 6.06 4.60 2.14 Distributions: Distributions from net realized capital gains (0.08) (0.23) (0.01) -- Net asset value, end of period $15.31 $22.56 $16.73 $12.14 Total return++ (31.80)% 36.62% 37.94% 21.40% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $491,437 $690,166 $238,137 $6,056 Ratio of operating expenses to average net assets 1.34% 1.41%(a) 1.31%(a) 1.77%+(a) Ratio of net investment income/(loss) to average net assets (0.30)% (0.60)% (0.20)% (0.55)%+ Portfolio turnover rate -- 53%(b) 177% 25% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.34% 1.41%(a) 1.31%(a) 1.77%+(a) * Nations Marsico Focused Equities Fund Investor A Shares commenced operations on December 31, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure.
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Nations Marsico Focused Equities Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor B Shares 03/31/01 03/31/00# 03/31/99# 03/31/98*# Operating performance: Net asset value, beginning of period $22.26 $16.62 $12.13 $10.00 Net investment income/(loss) (0.20) (0.09) (0.12) (0.04) Net realized and unrealized gain/(loss) on investments (6.98) 5.96 4.62 2.17 Net increase/(decrease) in net asset value from operations (7.18) 5.87 4.50 2.13 Distributions: Distributions from net realized capital gains (0.08) (0.23) (0.01) -- Net asset value, end of period $15.00 $22.26 $16.62 $12.13 Total return ++ (32.32)% 35.71% 37.15% 21.30% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $741,285 $1,003,840 $306,365 $20,446 Ratio of operating expenses to average net assets 2.09% 2.16%(a) 2.06%(a) 2.52%+(a) Ratio of net investment income/(loss) to average net assets (1.05)% (1.35)% (0.95)% (1.30)%+ Portfolio turnover rate -- 53%(b) 177% 25% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.09% 2.16%(a) 2.06%(a) 2.52%+(a) * Nations Marsico Focused Equities Fund Investor B Shares commenced operations on December 31, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure.
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Nations Marsico Focused Equities Fund For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor C Shares 03/31/01 03/31/00# 03/31/99# 03/31/98*# Operating performance: Net asset value, beginning of period $22.33 $16.67 $12.13 $10.00 Net investment income/(loss) (0.20) (0.08) (0.14) (0.04) Net realized and unrealized gain/(loss) on investments (7.00) 5.97 4.69 2.17 Net increase/(decrease) in net asset value from operations (7.20) 5.89 4.55 2.13 Distributions: Distributions from net realized capital gains (0.08) (0.23) (0.01) -- Net asset value, end of period $15.05 $22.33 $16.67 $12.13 Total return++ (32.31)% 35.72% 37.56% 21.30% ==================================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $203,642 $247,509 $13,682 $469 Ratio of operating expenses to average net assets 2.09% 2.16%(a) 2.06%(a) 2.52%+(a) Ratio of net investment income/(loss) to average net assets (1.05)% (1.35)% (0.95)% (1.30)%+ Portfolio turnover rate -- 53%(b) 177% 25% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.09% 2.16%(a) 2.06%(a) 2.52%+(a) * Nations Marsico Focused Equities Fund Investor C Shares commenced operations on December 31, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charge. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure.
Nations Marsico 21st Century Fund For a Share outstanding throughout the period Period ended Investor A Shares 03/31/01* Operating Performance: Net asset value, beginning of period $10.00 Net investment income/(loss) (0.06) Net realized and unrealized gain/(loss) on investments (2.97) Net increase/(decrease) in net asset value from operations (3.03) Net asset value, end of period $6.97 Total return++ (30.30)% ==================================================================================================================================== Ratios/supplemental data: Net assets at end of period (in 000's) $19,644 Ratio of operating expenses to average net assets 1.60%+ Ratio of net investment income/(loss) to average net assets (0.66)%+ Portfolio turnover rate 426% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.60%+ * Marsico 21st Century Fund Investor A Shares commenced operations on April 10, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges.
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Nations Marsico 21st Century Fund For a Share outstanding throughout the period Period ended Investor B Shares 03/31/01* Operating performance: Net asset value, beginning of period $10.00 Net investment income/(loss) (0.11) Net realized and unrealized gain/(loss) on investments (2.97) Net increase/(decrease) in net asset value from operations (3.08) Net asset value, end of period $6.92 Total return++ (30.80)% ==================================================================================================================================== Ratios/supplemental data: Net assets at end of period (in 000's) $50,404 Ratio of operating expenses to average net assets 2.35%+ Ratio of net investment income/(loss) to average net assets (1.41)%+ Portfolio turnover rate 426% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.35%+ * Marsico 21st Century Fund Investor B Shares commenced operations on April 10, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges.
Nations Marsico 21st Century Fund For a Share outstanding throughout the period Period ended Investor C Shares 03/31/01* Operating performance: Net asset value, beginning of period $10.00 Net investment income/(loss) (0.11) Net realized and unrealized gain/(loss) on investments (2.97) Net increase/(decrease) in net asset value from operations (3.08) Net asset value, end of period $6.92 Total return++ (30.80)% ==================================================================================================================================== Ratios/supplemental data: Net assets at end of period (in 000's) $6,557 Ratio of operating expenses to average net assets 2.35%+ Ratio of net investment income/(loss) to average net assets (1.41)%+ Portfolio turnover rate 426% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.35%+ * Marsico 21st Century Fund Investor C Shares commenced operations on April 10, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges.
50 [GRAPHIC] This glossary includes explanations of the important terms that may be used in this prospectus. Some of the terms explained may apply to Nations Funds not included in this prospectus. [GRAPHIC] Terms used in this prospectus Amortized cost method - under Rule 2a-7 of the 1940 Act, the method of calculating an investment company's net asset value whereby portfolio securities are valued at the Fund's acquisition cost as adjusted for amortization of premium or accretion of discount rather than at their current market value. Asset-backed security - a debt security that gives an investor an interest in a pool of assets that is collateralized or "backed" by one or more kinds of assets, including automobile loans or credit card receivables, generally issued by banks, credit card companies or other lenders. Asset-backed securities typically make periodic payments, which may be interest or a combination of interest and a portion of the principal of the underlying assets. Average dollar-weighted maturity - the average length of time until the debt securities held by a Fund reach maturity. In general, the longer the average dollar-weighted maturity, the more a Fund's share price will fluctuate in response to changes in interest rates. Bank obligation - a money market instrument issued by a domestic or U.S. branch of a foreign bank, including certificates of deposit, time deposits and bankers' acceptances. Capital gain or loss - the difference between the purchase price of a security and its selling price. An investor realizes a capital gain when it sells a security for more than it paid for it. An investor realizes a capital loss when it sells a security for less than it paid for it. Cash equivalents - short-term, interest-bearing instruments which can easily be converted into cash, including U.S. government obligations, bank obligations, and certain asset-backed securities, foreign government securities and commercial paper issued by U.S. and foreign issuers which, at the time of investment, is rated at least Prime-2 by Moody's Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch). Collateralized mortgage obligation (CMO) - a type of mortgage-backed security. CMO payment obligations are covered by interest and/or principal payments from a pool of mortgages. In addition, the underlying assets of a CMO are typically separated into classes, called tranches, based on maturity. Each tranche pays a different rate of interest. CMOs are not generally issued by the U.S. government, its agencies or instrumentalities. Commercial paper - a short-term corporate obligation. Commercial paper is typically considered a money market instrument. Common stock - a security that represents part equity ownership in a company. Common stock typically allows an investor to vote at shareholder meetings and to share in the company's profits by receiving dividends. 51 Convertible debt - a debt security that can be exchanged for common stock (or another type of security) on a specified basis and date. Convertible security - a security that can be exchanged for common stock (or another type of security) at a specified rate. Convertible securities include convertible debt, rights and warrants. Crossing networks - an electronic system where anonymous parties can match buy and sell transactions. These transactions don't affect the market, and transaction costs are extremely low. CSFB Convertible Securities Index - 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. Debt security - a security issued by a governmental body or company (the issuer) to help fund their operations or major projects. The issuer pays interest at a specified rate on a specified date or dates, and repays the principal when the security matures. Short-term debt securities include money market instruments such as treasury bills. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Depositary receipts - evidence of the deposit of a security with a custodian bank. American Depositary Receipts (ADRs), for example, are certificates traded in U.S. markets representing an interest of a foreign company. They were created to make it possible for foreign issuers to meet U.S. security registration requirements. Other examples include ADSs, GDRs and EDRs. Derivatives - A derivative is a financial contract whose value is based upon, or "derived" from, an underlying financial asset (such as a stock or a bond), a commodity (such as gold), a market index (such as the S&P 500) or a reference rate (such as the prime lending interest rate). Examples of derivative instruments include futures, options, index-, equity-, commodity- and currency-linked securities, warrants and swap contracts. For a detailed description of the derivatives described here, see the SAI. Diversified - A diversified fund, as defined by the 1940 Act, must have at least 75% of its total assets in cash and cash equivalents, government securities, securities of other investment companies, or other securities. For purposes of this calculation, the fund may not count securities of a single issuer that comprise more than 5% of the fund's assets. Dividend yield - rate of return of dividends paid on a common or preferred stock. It equals the amount of the annual dividend on a stock expressed as a percentage of the stock's current market value. Duration - a security's or portfolio's sensitivity to changes in interest rates. For example, if interest rates rise by one percentage point, the share price of a fund with a duration of five years would decline by about 5%. If interest rates fall by one percentage point, the fund's share price would rise by about 5%. 52 Equity security - an investment that gives an investor an equity ownership right in a company. Equity securities (or "equities") include common and preferred stock, rights and warrants. First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds and has the highest short-term rating from a nationally recognized statistical rating organization (NRSRO), or if unrated, is determined by the Fund's portfolio management team to be of comparable quality, or is a money market fund or a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Foreign security - a debt or equity security determined by a Fund's portfolio management team to be foreign based on an issuer's domicile, its principle place of business, the source of its revenues or other factors. Forward foreign currency contracts - a forward foreign currency contract includes an obligation to purchase or sell a foreign currency at a specified future date. Forward purchase agreement - a contract obligating one party to buy and another party to sell an equity security, commodity, currency or other financial instrument at a specific future date. Fundamental analysis - a method of securities analysis that tries to evaluate the intrinsic, or "true," value of a particular stock. It includes a study of the overall economy, industry conditions and the financial condition and management of a company. Futures contract - a contract to buy or sell underlying instruments at a specified price on a specified future date. The price is typically set through a futures exchange. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to NRSROs such as S&P and Moody's. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by a Fund's Board. Please see the SAI for more information about credit ratings. High yield debt security - debt securities that, at the time of purchase, are rated "BB" or below by S&P or "Ba" or below by Moody's, or that are unrated and determined by the portfolio management team to be of comparable quality. Interest rate swap - an agreement between two parties to exchange periodic interest payments based on a predetermined principal amount. 53 Investment grade - a debt security that has been given a medium to high credit rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating by other NRSROs) based on the issuer's ability to pay interest and repay principal on time. The portfolio management team may consider an unrated debt security to be investment grade if the team believes it is of comparable quality. Please see the SAI for more information about credit ratings. Lehman Aggregate Bond Index - an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government/Corporate Bond Index - an unmanaged index of U.S. government, U.S. Treasury and agency securities, and corporate and Yankee bonds. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Liquidity - a measurement of how easily a security can be bought or sold at a price that is close to its market value. Money market instrument - a short-term debt security that is considered to mature in 13 months or less. Money market instruments include U.S. Treasury obligations, U.S. government obligations, certificates of deposit, bankers' acceptances, commercial paper, repurchase agreements and certain municipal securities. Mortgage-backed security or Mortgage-related security - a debt security that gives you an interest in, and is backed by, a pool of residential mortgages issued by the U.S. government or by financial institutions. The underlying mortgages may be guaranteed by the U.S. government or one of its agencies, authorities or instrumentalities. Mortgage-backed securities typically make monthly payments, which are a combination of interest and a portion of the principal of the underlying mortgages. MSCI EAFE Index - Morgan Stanley Capital International Europe, Australasia and Far East Index is an unmanaged, capitalization-weighted index. The index reflects the relative size of each market consisting of securities listed on exchanges in European, Australasian and Far Eastern markets and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investment. It is not available for investment. MSCI World Index - Morgan Stanley Capital International World Index is an unmanaged index consisting of securities listed on exchanges in the major European and Asian countries, Australia and the U.S. and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investing. It is not available for investment. 54 Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public or private projects and services. "General obligations" are typically backed by the issuer's full taxing and revenue-raising powers. "Revenue securities" depend on the income earned by a specific project or authority, like road or bridge tolls, user fees for water or revenues from a utility. Interest income from municipal securities that pay for "public" projects and services is exempt from federal income taxes and is generally exempt from state taxes if an investor lives in the state that issued the security. If an investor lives in the municipality that issued the security, interest income may also be exempt from local taxes. Non-diversified - a fund that holds securities of fewer issuers than other kinds of funds. Non-diversified funds tend to have greater price swings than more diversified funds because events affecting one or more of its securities may have a disproportionately large effect on the fund. NRSRO - A nationally recognized statistical rating organization, such as S&P or Moody's. Options - An option is the right to buy or sell a security based on an agreed upon price at a specified time. For example, an option may give the holder of a stock the right to sell the stock to another party, allowing the seller to profit if the price has fallen below the agreed price. Options may also be based on the movement of an index such as the S&P 500. Over-the-counter market - a market where dealers trade securities through a telephone or computer network rather than through a public stock exchange. Preferred stock - a type of equity security that gives you a limited ownership right in a company, with certain preferences or priority over common stock. Preferred stock generally pays a fixed annual dividend. If the company goes bankrupt, preferred shareholders generally receive their share of the company's remaining assets before common shareholders and after bondholders and other creditors. Ownership of preferred stock typically does not come with certain voting rights that come with common stock. Pre-refunded bond - a bond that is repaid before its maturity date. The repayment is generally financed by a new issue. Issuers generally pre-refund bonds during periods of lower interest rates to reduce their interest costs. Price-to-earnings ratio (P/E ratio) - the current price of a share divided by its actual or estimated earnings per share. The P/E ratio is one measure of the value of a company. Private placement - a private placement is the sale of stocks, bonds or other investments directly to a qualified investor without having to register the offering with the SEC or other comparable foreign regulatory authorities. Qualified investors are typically large institutional investors or high net worth individuals. Securities acquired through private placements generally may not be resold. 55 Quantitative analysis - an analysis of financial information about a company or security to identify securities that have the potential for growth or are otherwise suitable for a fund to buy. Real Estate Investment Trust (REIT) - a portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls, and real-estate-related loans or interests. Repurchase agreement - a short-term (often overnight) investment arrangement. The investor agrees to buy certain securities from the borrower and the borrower promises to buy them back at a specified date and price. The difference between the purchase price paid by the investor and the repurchase price paid by the borrower represents the investor's return. Repurchase agreements are popular because they provide low-risk returns and can allow a fund to remain fully invested. Reverse repurchase agreement - a repurchase agreement in which an investor sells a security to another party, like a bank or dealer, in return for cash, and agrees to buy the security back at a specified date and price. Reverse repurchase agreements are, in effect, loans to a fund. Right - a temporary privilege allowing investors who already own a common stock to buy additional shares directly from the company at a specified price or formula. Russell 1000 Index - 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. The Russell 3000 Index is a listing of 3000 corporations by the Frank Russell Company that is intended to be representative of the U.S. economy. The Russell 1000 is considered a "large cap" index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 2000 Index - 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. 56 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. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 3000 Growth Index - an unmanaged index comprised of securities in the Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies based on total market capitalization, with a greater than average growth orientation. Companies in the Russell 3000 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. S&P 500(1) - Standard & Poor's 500 Composite Stock Price Index, an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P/BARRA Value Index(1) - an unmanaged index of a subset of stocks from the S&P 500 that have low price-to-book ratios relative to the S&P 500 as a whole. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P/IFC Investables Index - an unmanaged index that tracks more than 1,400 stocks in 25 emerging markets in Asia, Latin America, Eastern Europe, Africa and the Middle East. The index is weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P MidCap 400(1) - an unmanaged index of 400 domestic stocks chosen for market size, liquidity and industry representation. The index is weighted by market value, and is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SmallCap 600(1) - Standard & Poor's SmallCap 600 Index, an unmanaged index of 600 common stocks, weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SuperComposite 1500(1) - an unmanaged index created by Standard & Poors combining the companies represented in three other indices -- the S&P 500, MidCap 400, and SmallCap 600. The index represents 87% of the total capitalization of U.S. equity markets. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds, but is not a first-tier security. 57 Senior security - a debt security that allows holders to receive their share of a company's remaining assets in a bankruptcy before other bondholders, creditors, and common and preferred shareholders. Settlement date - the date on which an order is settled either by payment or delivery of securities. Total return swap - an agreement between two parties to exchange periodic interest payments for the total return of an equity or fixed income instrument. Trade date - the effective date of a purchase, sale or exchange transaction, or other instructions sent to us. The trade date is determined by the day and time we receive the order or instructions in a form that's acceptable to us. U.S. government obligations - a wide range of debt securities issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities. U.S. Treasury obligation - a debt security issued by the U.S. Treasury. Warrant - a certificate that gives you the right to buy common shares at a specified price within a specified period of time. Zero-coupon bond - a bond that makes no periodic interest payments. Zero coupon bonds are sold at a deep discount to their face value and mature at face value. The difference between the face value at maturity and the purchase price represents the return. (1)S&P and BARRA have not reviewed any stock included in the S&P SuperComposite 1500, S&P 500, S&P SmallCap 600, S&P MidCap 400 Index or BARRA Value Index for its investment merit. S&P and BARRA determine and calculate their indices independently of the Funds and are not a sponsor or affiliate of the Funds. S&P and BARRA give no information and make no statements about the suitability of investing in the Funds or the ability of their indices to track stock market performance. S&P and BARRA make no guarantees about the indices, any data included in them and the suitability of the indices or their data for any purpose. "Standard and Poor's," "S&P 500" and "S&P 600" are trademarks of The McGraw-Hill Companies, Inc. 58 (THIS PAGE INTENTIONALLY LEFT BLANK) [GRAPHIC] Where to find more information You'll find more information about Nations Marsico Funds in the following documents: Annual and semi-annual reports The annual and semi-annual reports contain information about Fund investments and performance, the financial statements and the independent accountants' reports. The annual report also includes a discussion about the market conditions and investment strategies that had a significant effect on each Fund's performance during the period covered. [GRAPHIC] Statement of Additional Information The SAI contains additional information about the Funds and their policies. The SAI is legally part of this prospectus (it's incorporated by reference). A copy has been filed with the SEC. You can obtain a free copy of these documents, request other information about the Funds and make shareholder inquiries by contacting Nations Funds: By telephone: 1.800.321.7854 By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nations-funds.com Information about the Funds can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. The reports and other information about the Funds are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. SEC file numbers: Nations Funds Trust, 811-09645 NMCMBOPROIX-8/01 [NATIONS FUNDS LOGO] [GRAPHIC] Nations International Value Fund Prospectus -- Investor A, B and C Shares August 1, 2001 The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. - --------------------- Not FDIC Insured - --------------------- May Lose Value - --------------------- No Bank Guarantee - --------------------- [NATIONS FUNDS] An overview of the Fund - -------------------------------------------------------------------------------- [GRAPHIC] Terms used in this prospectus In this prospectus, we, us and our refer to the Nations Funds family (Nations Funds or Nations Funds Family). Some other important terms we've used may be new to you. These are printed in italics where they first appear in a section and are described in Terms used in this prospectus. [GRAPHIC] You'll find Terms used in this prospectus on page 39. Your investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, N. A. (Bank of America), the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Your investment may lose money. Affiliates of Bank of America are paid for the services they provide to the Fund. This booklet, which is called a prospectus, tells you about one Nations Funds International Stock Fund -- Nations International Value Fund. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. About the Fund Nations International Value Fund focuses on long-term growth by investing primarily in equity securities of companies outside the U.S. Foreign securities have the potential to provide you with higher returns than many other kinds of investments, but they involve special risks not associated with investing in the U.S. stock market, which you need to be aware of before you invest. There's always the risk that you'll lose money or you may not earn as much as you expect. Is this Fund right for you? Not every fund is right for every investor. When you're choosing a fund to invest in, you should consider things like your investment goals, how much risk you can accept and how long you're planning to hold your investment. Nations International Value Fund may be suitable for you if: o you have longer-term investment goals o it's part of a balanced portfolio o you want to try to protect your portfolio against a loss of buying power that inflation can cause over time It may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with foreign securities o you have short-term investment goals o you're looking for a regular stream of income You'll find a discussion of the Fund's principal investments, strategies and risks in the Fund description that starts on page 4. For more information If you have any questions about the Fund, please call us at 1.800.321.7854 or contact your investment professional. You'll find more information about the Fund in the Statement of Additional Information (SAI). The SAI includes more detailed information about the Fund's investments, policies, performance and management, among other things. Please turn to the back cover to find out how you can get a copy. 2 What's inside - -------------------------------------------------------------------------------- [GRAPHIC] Banc of America Advisors, LLC Banc of America Advisors, LLC (BA Advisors) is the investment adviser to the Fund. BA Advisors is responsible for the overall management and supervision of the investment management of the Fund. BA Advisors and Nations Funds have engaged a sub-adviser, which is responsible for the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BA Advisors and the sub-adviser starting on page 10. [GRAPHIC] About the Fund Nations International Value Fund 4 Sub-adviser: Brandes Investment Partners, L.P. - ----------------------------------------------------------------- Other important information 9 - ----------------------------------------------------------------- How the Fund is managed 10 [GRAPHIC] About your investment Information for investors Choosing a share class 13 About Investor A Shares 14 Front-end sales charge 14 Contingent deferred sales charge 15 About Investor B Shares 15 Contingent deferred sales charge 15 About Investor C Shares 17 Contingent deferred sales charge 17 When you might not have to pay a sales charge 17 Buying, selling and exchanging shares 21 How orders are processed 23 How selling and servicing agents are paid 30 Distributions and taxes 32 - ----------------------------------------------------------------- Financial highlights 35 - ----------------------------------------------------------------- Terms used in this prospectus 39 - ----------------------------------------------------------------- Where to find more information back cover 3 [GRAPHIC] About the sub-adviser The Fund does not have its own investment adviser or sub-adviser because it's a "feeder fund." A feeder fund typically invests all of its assets in another fund, which is called a "master portfolio." Master Portfolio and Fund are sometimes used interchangeably. BA Advisors is the Master Portfolio's investment adviser, and Brandes Investment Partners, L.P. (Brandes) is its sub-adviser. Brandes' Large Cap Investment Committee makes the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] You'll find more about Brandes on page 11. [GRAPHIC] What is the Graham and Dodd approach to investing? Benjamin Graham is widely regarded as the founder of this classic value approach to investing and a pioneer in modern security analysis. In his 1934 book, Security Analysis, co-written by David Dodd, Graham introduced the idea that stocks should be chosen by identifying the "true" long-term -- or intrinsic -- value of a company based on measurable data. Benjamin Graham and David Dodd have never had any affiliation with the Fund. The management team follows this approach, looking at each stock as though it's a business that's for sale. By buying stocks at what it believes are favorable prices, the Master Portfolio looks for the potential for appreciation over the business cycle, and for a margin of safety against price declines. Nations International Value Fund [GRAPHIC] Investment objective The Fund seeks long-term capital appreciation by investing primarily in equity securities of foreign issuers, including emerging markets countries. [GRAPHIC] Principal investment strategies The Fund invests all of its assets in Nations International Value Master Portfolio (the Master Portfolio). The Master Portfolio has the same investment objective as the Fund. The Master Portfolio normally invests at least 65% of its assets in foreign companies anywhere in the world that have a market capitalization of more than $1 billion at the time of investment. The Master Portfolio typically invests in at least three countries other than the United States at any one time. The Master Portfolio primarily invests in equity securities either directly or indirectly through closed-end investment companies and depositary receipts. The Master Portfolio may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The management team uses the "Graham and Dodd" value approach to selecting securities and managing the Master Portfolio. The team invests in a company when its current price appears to be below its true long-term -- or intrinsic -- value. The team uses fundamental analysis to determine intrinsic value, and will look at a company's book value, cash flow, capital structure, and management record, as well as its industry and its position in the industry. This analysis includes a review of company reports, filings with the SEC, computer databases, industry publications, general and business publications, brokerage firm research reports and other information sources, as well as interviews with company management. The team may sell a security when its price reaches the target set by the team, there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, and for other reasons. 4 [GRAPHIC] Limits on investments To help manage risk, the Master Portfolio has certain limits on its investments. These limits apply at the time an investment is made: o The Master Portfolio will normally invest no more than 5% of its assets in a single security. o It may not invest more than the greater of: o 20% of its assets in a single country or industry, or o 150% of the weighting of a single country or industry in the MSCI EAFE Index (limited to less than 25% of its assets in a single industry, other than U.S. government securities). o It generally may not invest more than 20% of its assets in emerging markets or developing countries. [GRAPHIC] You'll find more about other risks of investing in the Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations International Value Fund has the following risks: o Investment strategy risk - The team chooses stocks it believes are undervalued or out of favor with the expectation that these stocks will eventually rise in value. There is a risk that the value of these investments will not rise as high or as quickly as the team expects, or will fall. o Foreign investment risk - Because the Master Portfolio invests primarily in foreign securities, it can be affected by the risks of foreign investing. Funds that invest in foreign securities may be affected by changes in currency exchange rates and the costs of converting currencies; foreign government controls on foreign investment, repatriation of capital, and currency and exchange; foreign taxes; inadequate supervision and regulation of some foreign markets; difficulty selling some investments which may increase volatility; different settlement practices or delayed settlements in some markets; difficulty getting complete or accurate information about foreign companies; less strict accounting, auditing and financial reporting standards than those in the U.S.; political, economic or social instability; and difficulty enforcing legal rights outside the U.S. Significant levels of foreign taxes, including withholding taxes, also may apply to some foreign investments. o Emerging markets risk - Securities issued by companies in developing or emerging market countries, like those in Eastern Europe, the Middle East, Asia or Africa, may be more sensitive to the risks of foreign investing. In particular, these countries may experience instability resulting from rapid social, political and economic development. Many of these countries are dependent on international trade, which makes them sensitive to world commodity prices and economic downturns in other countries. Some emerging countries have a higher risk of currency devaluation, and some countries may experience long periods of high inflation or rapid changes in inflation rates. o Stock market risk - The value of the stocks the Master Portfolio holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Investing in the Master Portfolio - Other mutual funds and eligible investors can buy shares in the Master Portfolio. All investors in the Master Portfolio invest under the same terms and conditions as the Fund and pay a proportionate share of the Master Portfolio's expenses. Other feeder funds that invest in the Master Portfolio may have different share prices and returns than the Fund because different feeder funds typically have varying sales charges, and ongoing administrative and other expenses. The Fund could withdraw its entire investment from the Master Portfolio if it believes it's in the best interests of the Fund to do so (for example, if the Master Portfolio changed its investment objective). It is unlikely that this would happen, but if it did, the Fund's portfolio could be less diversified and therefore less liquid, and expenses could increase. The Fund might also have to pay brokerage, tax or other charges. 5 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. For information about the performance of other international accounts managed by Brandes, see How the Funds are managed. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [PERFORMANCE GRAPH APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1996 1997 1998 1999 2000 15.32% 20.38% 11.82% 52.43% 2.94% *Year-to-date return as of June 30, 2001: -6.96% Best and worst quarterly returns during this period Best: 4th quarter 1999: 24.15% Worst: 3rd quarter 1998: -16.57% [GRAPHIC] The Fund's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the MSCI EAFE Index (Morgan Stanley Capital International Europe, Australasia and Far East Index), an unmanaged, capitalization-weighted index consisting of securities listed on exchanges in European, Australasian and Far Eastern Markets. The index is not available for investment. Since 1 year 5 years inception* Investor A Shares -2.97% 18.08% 17.92% Investor B Shares -2.51% -- 15.84% Investor C Shares 1.25% -- 21.56% MSCI EAFE Index -14.17% 7.13% 7.13% *The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are December 27, 1995, May 22, 1998 and June 15, 1998, respectively. The return for the index shown is from inception of Investor A Shares. 6 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses(4) (Expenses that are deducted from the Fund's assets)(5) Management fees 0.90% 0.90% 0.90% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses 0.33% 0.33% 0.33% ---- ------ ------ Total annual Fund operating expenses 1.48% 2.23% 2.23% ==== ====== ======
(1) A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2) This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3) This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4) The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (5) The fees and expenses and the example below include the Fund's portion of the fees and expenses deducted from the assets of the Master Portfolio. 7 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $717 $1,017 $1,338 $2,245 Investor B Shares $726 $997 $1,395 $2,376 Investor C Shares $326 $697 $1,195 $2,565
If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $226 $697 $1,195 $2,376 Investor C Shares $226 $697 $1,195 $2,565
8 [GRAPHIC] Other important information You'll find specific information about the Fund's principal investments, strategies and risks in the description starting on page 4. The following are some other risks and information you should consider before you invest: o Changing investment objective and policies - The investment objective and certain investment policies of the Fund can be changed without shareholder approval. Other investment policies may be changed only with shareholder approval. o Holding other kinds of investments - The Master Portfolio may hold investments that aren't part of its principal investment strategies. Please refer to the SAI for more information. The management team can also choose not to invest in specific securities described in this prospectus and in the SAI. o Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Master Portfolio may invest up to 25% of its assets in Nations Money Market Funds. BA Advisors and its affiliates are entitled to receive fees from the Nations Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Master Portfolio for services provided directly. BA Advisors may waive fees which it is entitled to receive from either the Nations Money Market Funds or the Master Portfolio. o Investing defensively - The Master Portfolio may temporarily hold investments that are not part of its investment objective or its principal investment strategies to try to protect it during a market or economic downturn or because of political or other conditions. The Master Portfolio may not achieve its investment objective while it is investing defensively. o Securities lending program - The Master Portfolio may lend portfolio securities to approved broker-dealers or other financial institutions on a fully collateralized basis in order to earn additional income. There may be delays in receiving additional collateral after the loan is made or in recovering the securities loaned. o Bank of America and its affiliates - Bank of America and its affiliates currently provide services to the Fund, including investment advisory, investment sub-advisory, co-administration and brokerage services, and are paid for providing these services. Bank of America and its affiliates also may, at times, provide other services and be compensated for them, including transfer agency, interfund lending and securities lending services, or make loans to the Fund. Finally, Bank of America or its affiliates may serve as counterparties in transactions with Nations Funds where permitted by law or regulation, and may receive compensation in that capacity. o Portfolio turnover - A fund that replaces -- or turns over -- more than 100% of its investments in a year is considered to trade frequently. Frequent trading can result in larger distributions of short-term capital gains to shareholders. These gains are taxable at higher rates than long-term capital gains. Frequent trading can also mean higher brokerage and other transaction costs, which could reduce the Fund's returns. The Master Portfolio generally buys securities for capital appreciation, investment income, or both, and doesn't engage in short-term trading. You'll find the portfolio turnover rate for the Fund in Financial highlights. 9 [GRAPHIC] How the Fund is managed [GRAPHIC] Banc of America Advisors, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Investment adviser BA Advisors is the investment adviser to over 75 mutual fund portfolios in the Nations Funds Family, including the Fund described in this prospectus. BA Advisors is a registered investment adviser. It's a wholly-owned subsidiary of Bank of America, which is owned by Bank of America Corporation. Nations Funds pays BA Advisors an annual fee for its investment advisory services. The fee is calculated as a percentage of the average daily net assets of the Fund and is paid monthly. BA Advisors uses part of this money to pay the investment sub-adviser for the services it provides to the Fund. The following chart shows the maximum advisory fees BA Advisors can receive, along with the actual advisory fees it received during the Fund's last fiscal year: Annual investment advisory fee, as a % of average daily net assets
Maximum Actual fee paid advisory fee last fiscal year Nations International Value Fund(1) 0.90% 0.80%
(1) This Fund doesn't have its own investment adviser because it invests in Nations International Value Master Portfolio. BA Advisors is the investment adviser to the Master Portfolio. Investment sub-adviser Nations Funds and BA Advisors engage one or more investment sub-advisers for the Fund to make day-to-day investment decisions for the Master Portfolio. BA Advisors retains ultimate responsibility (subject to Board oversight) for overseeing the sub-advisers and evaluates the Master Portfolio's needs and available sub-advisers' skills and abilities on an ongoing basis. Based on its evaluations, BA Advisors may at times recommend to the Master Portfolio's Board that the Master Portfolio: o change, add or terminate one or more sub-advisers; o continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or o materially change a sub-advisory agreement with a sub-adviser. Applicable law requires the Fund to obtain shareholder approval in order to act on most of these types of recommendations, even if the Fund's Board has approved the proposed action and believes that the action is in shareholders' best interests. BA Advisors and the Master Portfolio have applied for relief from the SEC to permit the Master Portfolio to act on many of BA Advisors' recommendations with approval only by the Fund's Board and not by Fund shareholders. BA Advisors or the Master Portfolio would inform the Fund's shareholders of any actions taken in reliance on this relief. Until BA Advisors and the Master Portfolio obtain the relief, the Fund will continue to submit these matters to shareholders for their approval to the extent required by applicable law. 10 [GRAPHIC] Brandes Investment Partners, L.P. 11988 El Camino Real Suite 500 San Diego, California 92130 Brandes Investment Partners, L.P. Founded in 1974, Brandes is an investment advisory firm with 56 investment professionals who manage more than $50 billion in assets. Brandes uses a value-oriented approach to managing international investments, seeking to build wealth by buying high quality, undervalued stocks. Brandes is the investment sub-adviser to Nations International Value Master Portfolio. Brandes' Large Cap Investment Committee is responsible for making the day-to-day investment decisions for the Master Portfolio. Performance of other international stock accounts managed by Brandes Nations International Value Master Portfolio (including its predecessors) has been in operation since December 27, 1995. The table below is designed to show you how a composite of similar international equity accounts managed by Brandes performed over various periods in the past. The fund and the accounts comprising the Brandes composite's investment objective, policies and strategies are substantially similar to Nations International Value Master Portfolio. The table below shows the returns for the Brandes composite compared with the MSCI EAFE Index for the period ending December 31, 2000. The returns of the Brandes composite reflect deductions of account fees and expenses, and assume all dividends and distributions have been reinvested. Average annual total returns as of December 31, 2000
Brandes MSCI EAFE Composite (%) Index (%) one year 2.80% (14.17)% three years 22.03% 9.35% five years 20.47% 7.13% ten years 19.38% 6.42%
Annual total returns as of December 31
Brandes MSCI EAFE Composite (%) Index (%) 2000 2.80% (14.17)% 1999 53.67% 29.96% 1998 15.03% 20.33% 1997 20.05% 1.78% 1996 16.34% 6.05% 1995 13.75% 11.21% 1994 (2.98)% 7.78% 1993 40.86% 32.56% 1992 6.28% (12.17)% 1991 40.17% 12.13%
This information is designed to demonstrate the historical track record of Brandes. It does not indicate how the Fund has performed or will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's expenses. The Brandes composite includes Brandes International Equity Fund (since 1995) and international equity accounts managed by Brandes. The accounts don't pay the same expenses that mutual funds pay and aren't subject to the diversification rules, tax restrictions and investment limits under the 1940 Act or Subchapter M of the Internal Revenue Code. Returns could have been lower if the composite had been subject to these expenses and regulations. The aggregate returns of the accounts in the composite may not reflect the returns of any particular account of Brandes. 11 [GRAPHIC] Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 Other service providers The Fund is distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. Stephens may pay commissions, distribution (12b-1) and shareholder servicing fees, and/or other compensation to companies for selling shares and providing services to investors. BA Advisors is also co-administrator of the Fund, and assists in overseeing the administrative operations of the Fund. The Fund pays BA Advisors and Stephens a combined fee of 0.22% for their services, plus certain out-of-pocket expenses. The fee is calculated as an annual percentage of the average daily net assets of the Fund, and is paid monthly. [GRAPHIC] PFPC Inc. 400 Bellevue Parkway Wilmington, Delaware 19809 PFPC Inc. (PFPC) is the transfer agent for the Fund's shares. Its responsibilities include processing purchases, sales and exchanges, calculating and paying distributions, keeping shareholder records, preparing account statements and providing customer service. 12 About your investment - -------------------------------------------------------------------------------- [GRAPHIC] We've used the term, investment professional, to refer to the person who has assisted you with buying Nations Funds. Selling agent or servicing agent (sometimes referred to as a selling agent) means the company that employs your investment professional. Selling and servicing agents include banks, brokerage firms, mutual fund dealers and other financial institutions, including affiliates of Bank of America. [GRAPHIC] For more information about how to choose a share class, contact your investment professional or call us at 1.800.321.7854. [GRAPHIC] Before you invest, please note that over time, distribution (12b-1) and shareholder servicing fees will increase the cost of your investment, and may cost you more than any sales charges you may pay. For more information, see How selling and servicing agents are paid. [GRAPHIC] Choosing a share class Before you can invest in the Fund, you'll need to choose a share class. There are three classes of shares of the Fund offered by this prospectus. Each class has its own sales charges and fees. The table below compares the charges and fees and other features of the share classes.
Investor A Investor B Investor C Shares Shares Shares Maximum amount no limit $250,000 no limit you can buy Maximum front-end 5.75% none none sales charge Maximum deferred none(1) 5.00%(2) 1.00%(3) sales charge Maximum annual 0.25% 0.75% 0.75% distribution distribution distribution distribution and shareholder (12b-1)/service fee (12b-1) fee and (12b-1) fee and servicing fees 0.25% service fee 0.25% service fee Conversion feature none yes none
(1) A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2) This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3) This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. The share class you choose will depend on how much you're investing, how long you're planning to stay invested, and how you prefer to pay the sales charge. The total cost of your investment over the time you expect to hold your shares will be affected by the distribution (12b-1) and shareholder servicing fees, as well as by the amount of any front-end sales charge or contingent deferred sales charge (CDSC) that applies and when you're required to pay the charge. You should think about these things carefully before you invest. Investor A Shares have a front-end sales charge, which is deducted when you buy your shares. This means that a smaller amount is invested in the Fund, unless you qualify for a waiver or reduction of the sales charge. However, Investor A Shares have lower ongoing distribution (12b-1) and/or shareholder servicing fees than Investor B and Investor C Shares. This means that Investor A Shares can be expected to pay relatively higher dividends per share. 13 Investor B Shares have limits on how much you can invest. When you buy Investor B or Investor C Shares, the full amount is invested in the Fund. However, you may pay a CDSC when you sell your shares. Over time, Investor B and Investor C Shares can incur distribution (12b-1) and shareholder servicing fees that are equal to or more than the front-end sales charge, and the distribution (12b-1) and shareholder servicing fees you would pay for Investor A Shares. Although the full amount of your purchase is invested in the Fund, any positive investment return on this money may be partially or fully offset by the expected higher annual expenses of Investor B and Investor C Shares. You should also consider the conversion feature for Investor B Shares, which is described in About Investor B Shares. [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by the Fund every business day. [GRAPHIC] About Investor A Shares There is no limit to the amount you can invest in Investor A Shares. You generally will pay a front-end sales charge when you buy your shares, or in some cases, a CDSC when you sell your shares. Front-end sales charge You'll pay a front-end sales charge when you buy Investor A Shares, unless: o you qualify for a waiver of the sales charge. You can find out if you qualify for a waiver in the section, When you might not have to pay a sales charge - Front end sales charges o you're reinvesting distributions The sales charge you'll pay depends on the amount you're investing -- generally, the larger the investment, the smaller the percentage sales charge.
Amount retained by selling Sales charge Sales charge agents as a % of the as a % of the as a % of the offering price net asset value offering price Amount you bought per share per share per share $0-$49,999 5.75% 6.10% 5.00% $50,000-$99,999 4.50% 4.71% 3.75% $100,000-$249,999 3.50% 3.63% 2.75% $250,000-$499,999 2.50% 2.56% 2.00% $500,000-$999,999 2.00% 2.04% 1.75% $1,000,000 or more 0.00% 0.00% 1.00%(1)
(1) 1.00% on the first $3,000,000, 0.50% on the next $47,000,000, 0.25% on amounts over $50,000,000. Stephens pays the amount retained by selling agents on investments of $1,000,000 or more, but may be reimbursed when a CDSC is deducted if the shares are sold within eighteen months from the time they were bought. Please see How selling and servicing agents are paid for more information. 14 Contingent deferred sales charge If you own or buy $1,000,000 or more of Investor A Shares, there is one situation when you'll pay a CDSC: o If you buy your shares on or after August 1, 1999 and sell them within 18 months of buying them, you'll pay a CDSC of 1.00%. The CDSC is calculated from the day your purchase is accepted (the trade date). We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. You won't pay a CDSC on any increase in net asset value since you bought your shares, or on any shares you receive from reinvested distributions. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. [GRAPHIC] About Investor B Shares You can buy up to $250,000 of Investor B Shares. You don't pay a sales charge when you buy Investor B Shares, but you may have to pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC when you sell your Investor B Shares, unless: o you bought the shares on or after January 1, 1996 and before August 1, 1997 o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge - Contingent deferred sales charges The CDSC you pay depends on when you bought your shares, how much you bought in some cases, and how long you held them.
If you sell your shares during the following year: You'll pay a CDSC of: - ---------------------------- ------------------------------------------------- Shares you bought Shares Shares on or after you you bought Shares you bought between 1/1/1996 bought after 8/1/1997 and 11/15/1998 and before before 11/15/1998 in the following amounts: 8/1/1997 1/1/1996 ------------ ------------------------------------ ------------- --------- $250,000- $500,000- $0-$249,999 $499,999 $999,999 the first year you own them 5.0% 5.0% 3.0% 2.0% none 5.0% the second year you own them 4.0% 4.0% 2.0% 1.0% none 4.0% the third year you own them 3.0% 3.0% 1.0% none none 3.0% the fourth year you own them 3.0% 3.0% none none none 2.0% the fifth year you own them 2.0% 2.0% none none none 2.0% the sixth year you own them 1.0% 1.0% none none none 1.0% after six years of owning them none none none none none none
15 The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor B Shares. Please see How selling and servicing agents are paid for more information. About the conversion feature Investor B Shares generally convert automatically to Investor A Shares according to the following schedule:
Will convert to Investor A Shares Investor B Shares you bought after you've owned them for after November 15, 1998 eight years between August 1, 1997 and November 15, 1998 $0-$249,000 nine years $250,000-$499,999 six years $500,000-$999,999 five years before August 1, 1997 nine years
The conversion feature allows you to benefit from the lower operating costs of Investor A Shares, which can help increase total returns. Here's how the conversion works: o We won't convert your shares if you tell your investment professional, selling agent or the transfer agent within 90 days before the conversion date that you don't want your shares to be converted. Remember, it's in your best interest to convert your shares because Investor A Shares have lower expenses. o Shares are converted at the end of the month in which they become eligible for conversion. Any shares you received from reinvested distributions on those shares will convert to Investor A Shares at the same time. o You'll receive the same dollar value of Investor A Shares as the Investor B Shares that were converted. No sales charge or other charges apply. o Investor B Shares that you received from an exchange of Investor B Shares of another Nations Fund will convert based on the day you bought the original shares. Your conversion date may be later if you exchanged to or from a Nations Money Market Fund. o Conversions are free from federal tax. 16 [GRAPHIC] About Investor C Shares There is no limit to the amount you can invest in Investor C Shares. You don't pay a sales charge when you buy Investor C Shares, but you may pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC of 1.00% when you sell Investor C Shares within one year of buying them, unless: o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge - Contingent deferred sales charges The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor C Shares. Please see How selling and servicing agents are paid for more information. [GRAPHIC] Please contact your investment professional for more information about reductions and waivers of sales charges. You should tell your investment professional that you may qualify for a reduction or a waiver before buying shares. We can change or cancel these terms at any time. Any change or cancellation applies only to future purchases. When you might not have to pay a sales charge Front-end sales charges (Investor A Shares) There are three ways you can lower the front-end sales charge you pay on Investor A Shares: o Combine purchases you've already made Rights of accumulation allow you to combine the value of Investor A, Investor B and Investor C Shares you already own with Investor A Shares you're buying to calculate the sales charge. The sales charge is based on the total value of the shares you already own, or the original purchase cost, whichever is higher, plus the value of the shares you're buying. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify for rights of accumulation. o Combine purchases you plan to make By signing a letter of intent, you can combine the value of shares you already own with the value of shares you plan to buy over a 13-month period to calculate the sales charge. o You can choose to start the 13-month period up to 90 days before you sign the letter of intent. o Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. o If you don't buy as much as you planned within the period, you must pay the difference between the charges you've paid and the charges that actually apply to the shares you've bought. 17 o Your first purchase must be at least 5% of the minimum amount for the sales charge level that applies to the total amount you plan to buy. o If the purchase you've made later qualifies for a reduced sales charge through the 90-day backdating provisions, we'll make an adjustment for the lower charge when the letter of intent expires. Any adjustment will be used to buy additional shares at the reduced sales charge. o Combine purchases with family members You can receive a quantity discount by combining purchases of Investor A Shares that you, your spouse and children under age 21 make on the same day. Some distributions or payments from the dissolution of certain qualified plans also qualify for the quantity discount. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: o full-time employees and retired employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries and the immediate families of these people o banks, trust companies and thrift institutions, acting as fiduciaries o individuals receiving a distribution from a Bank of America trust or other fiduciary account may use the proceeds of that distribution to buy Investor A Shares without paying a front-end sales charge, as long as the proceeds are invested in the Fund within 90 days of the date of distribution. o Nations Funds' Trustees, Directors and employees of its investment sub-advisers o registered broker/dealers that have entered into a Nations Funds dealer agreement with Stephens may buy Investor A Shares without paying a front-end sales charge for their investment account only o registered personnel and employees of these broker/dealers and their family members may buy Investor A Shares without paying a front-end sales charge according to the internal policies and procedures of the employing broker/dealer as long as these purchases are made for their own investment purposes o employees or partners of any service provider to the Fund o investors who buy through accounts established with certain fee-based investment advisers or financial planners, wrap fee accounts and other managed agency/asset allocation accounts o shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at net asset value 18 The following plans can buy Investor A Shares without paying a front-end sales charge: o pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the Internal Revenue Code of 1986, as amended (the tax code) o employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must: o have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or o sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or o be an employer-sponsored plan with at least 100 eligible participants, or o be a participant in an alliance program that has signed an agreement with the Fund or a selling agent o certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors You can also buy Investor A Shares without paying a sales charge if you buy the shares within 120 days of selling the same Fund. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. Contingent deferred sales charges (Investor A, Investor B and Investor C Shares) You won't pay a CDSC on the following transactions: o shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner o distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors o the following retirement plan distributions: o lump-sum or other distributions from a qualified corporate or self-employed retirement plan following the retirement (or following attainment of age 59 1/2 in the case of a "key employee" of a "top heavy" plan) o distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 o a tax-free return of an excess contribution to an IRA o distributions from a qualified retirement plan that aren't subject to the 10% additional federal withdrawal tax under Section 72(t)(2) of the tax code 19 o payments made to pay medical expenses which exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least 12 weeks o shares sold under our right to liquidate a shareholder's account, including instances where the aggregate net asset value of Investor A, Investor B or Investor C Shares held in the account is less than the minimum account size o if you exchange Investor B or Investor C Shares of a Nations Fund that were bought through a Bank of America employee benefit plan for Investor A Shares of a Nations Fund o withdrawals made under the Automatic Withdrawal Plan described in Buying, selling and exchanging shares, if the total withdrawals of Investor A, Investor B or Investor C Shares made in a year are less than 12% of the total value of those shares in your account. A CDSC may only apply to Investor A Shares if you bought more than $1,000,000 We'll also waive the CDSC on the sale of Investor A or Investor C Shares bought before September 30, 1994 by current or retired employees of Bank of America Corporation (and its predecessors) and its affiliates, or by current or former trustees or directors of the Nations Funds or other management companies managed by Bank of America. You won't pay a CDSC on the sale of Investor B or Investor C Shares if you reinvest any of the proceeds in the same Fund within 120 days of the sale. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. 20 [GRAPHIC] Buying, selling and exchanging shares [GRAPHIC] When you sell shares of a mutual fund, the fund is effectively "buying" them back from you. This is called a redemption. You can invest in the Fund through your selling agent or directly from Nations Funds. We encourage you to consult with an investment professional who can open an account for you with a selling agent and help you with your investment decisions. Once you have an account, you can buy, sell and exchange shares by contacting your investment professional or selling agent. They will look after any paperwork that's needed to complete a transaction and send your order to us. You should also ask your selling agent about its limits, fees and policies for buying, selling and exchanging shares, which may be different from those described here, and about its related programs and services. The table on the next page summarizes some key information about buying, selling and exchanging shares. You'll find sales charges and other fees that apply to these transactions in Choosing a share class. The Fund also offers other classes of shares, with different features and expense levels, which you may be eligible to buy. Please contact your investment professional, or call us at 1.800.321.7854 if you have any questions or you need help placing an order. 21
Ways to buy, sell or How much you can buy, exchange sell or exchange Other things to know -------------------- ---------------------------------------- ----------------------------------------------- Buying shares In a lump sum minimum initial investment: There is no limit to the amount you can o $1,000 for regular accounts invest in Investor A and C Shares. You can o $500 for traditional and Roth IRA invest up to $250,000 in Investor B Shares. accounts o $250 for certain fee-based accounts o no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: o $100 for all accounts Using our minimum initial investment: You can buy shares twice a month, monthly Systematic o $100 or quarterly, using automatic transfers from Investment Plan minimum additional investment: your bank account. o $50 - ------------------------------------------------------------------------------------------------------------------------------------ Selling shares In a lump sum o you can sell up to $50,000 of your We'll deduct any CDSC from the amount shares by telephone, otherwise there you're selling and send you or your selling are no limits to the amount you can agent the balance, usually within three sell business days of receiving your order. o other restrictions may apply to If you paid for your shares with a check that withdrawals from retirement plan wasn't certified, we'll hold the sale proceeds accounts when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared. Using our Automatic o minimum $25 per withdrawal Your account balance must be at least Withdrawal Plan $10,000 to set up the plan. You can make withdrawals twice a month, monthly, quarterly, bi-annually or annually. We'll send your money by check or deposit it directly to your bank account. No CDSC is deducted if you withdraw 12% or less of the value of your shares in a class. - ------------------------------------------------------------------------------------------------------------------------------------ Exchanging shares In a lump sum o minimum $1,000 per exchange You can exchange your Investor A Shares for Investor A shares of any other Nations Fund, except Index Funds. You won't pay a front-end sales charge, CDSC or redemption fee on the shares you're exchanging. You can exchange your Investor B Shares for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You can exchange your Investor C Shares for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of a Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Using our Automatic o minimum $25 per exchange You must already have an investment in the Exchange Feature Funds into which you want to exchange. You can make exchanges monthly or quarterly.
22 [GRAPHIC] A business day is any day that the New York Stock Exchange (NYSE) is open. A business day ends at the close of regular trading on the NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes early, the business day ends as of the time the NYSE closes. The NYSE is closed on weekends and on the following national holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. How shares are priced All transactions are based on the price of the Fund's shares -- or its net asset value per share. We calculate net asset value per share for each class of the Fund at the end of each business day. First, we calculate the net asset value for each class of the Fund by determining the value of the Fund's assets in the class and then subtracting its liabilities. Next, we divide this amount by the number of shares that investors are holding in the class. Valuing securities in the Fund The value of the Fund's assets is based on the total market value of all of the securities it holds. The prices reported on stock exchanges and securities markets around the world are usually used to value securities in the Master Portfolio. If prices aren't readily available, or the value of a security has been materially affected by events occurring after a foreign exchange closes, we'll base the price of a security on its fair value. When the Master Portfolio uses fair value to price securities it may value those securities higher or lower than another fund that uses market quotations to price the same securities. We use the amortized cost method, which approximates market value, to value short-term investments maturing in 60 days or less. International markets may be open on days when U.S. markets are closed. The value of foreign securities owned by the Master Portfolio could change on days when Fund shares may not be bought or sold. How orders are processed Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents before the end of a business day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive that day's net asset value per share. Orders received after the end of a business day will receive the next business day's net asset value per share. The business day that applies to your order is also called the trade date. We may refuse any order to buy or exchange shares. If this happens, we'll return any money we've received to your selling agent. 23 Telephone orders You can place orders to buy, sell or exchange by telephone if you complete the telephone authorization section of our account application and send it to us. Here's how telephone orders work: o If you sign up for telephone orders after you open your account, you must have your signature guaranteed. o Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. o We'll take reasonable steps to confirm that telephone instructions are genuine. For example, we require proof of your identification before we will act on instructions received by telephone and may record telephone conversations. If we and our service providers don't take these steps, we may be liable for any losses from unauthorized or fraudulent instructions. o Telephone orders may be difficult to complete during periods of significant economic or market change. [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by the Fund every business day. [GRAPHIC] Buying shares Here are some general rules for buying shares: o You buy Investor A Shares at the offering price per share. You buy Investor B and Investor C Shares at net asset value per share. o If we don't receive your money within three business days of receiving your order, we'll refuse the order. o Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. o Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. Minimum initial investment The minimum initial amount you can buy is usually $1,000. If you're buying shares through one of the following accounts or plans, the minimum initial amount you can buy is: o $500 for traditional and Roth individual retirement accounts (IRAs) o $250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts o $100 using our Systematic Investment Plan 24 o There is no minimum for 401(k) plans, simplified employee pension plans (SEPs), salary reduction-simplified employee pension plans (SAR-SEPs), Savings Incentives Match Plans for Employees (SIMPLE IRAs), salary reduction-IRAs (SAR-IRAs) or other similar kinds of accounts. However, if the value of your account falls below $1,000 for 401(k) plans or $500 for the other plans within one year after you open your account, we may sell your shares. We'll give you 60 days notice in writing if we're going to do this Minimum additional investment You can make additional purchases of $100, or $50 if you use our Systematic Investment Plan. Systematic Investment Plan You can make regular purchases of $50 or more using automatic transfers from your bank account to the Funds you choose. You can contact your investment professional or us to set up the plan. Here's how the plan works: o You can buy shares twice a month, monthly or quarterly. o You can choose to have us transfer your money on or about the 15th or the last day of the month. o Some exceptions may apply to employees of Bank of America and its affiliates, and to plans set up before August 1, 1997. For details, please contact your investment professional. 25 [GRAPHIC] For more information about telephone orders, see How orders are processed. [GRAPHIC] Selling shares Here are some general rules for selling shares: o We'll deduct any CDSC from the amount you're selling and send you the balance. o If you're selling your shares through a selling agent, we'll normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. Your selling agent is responsible for depositing the sale proceeds to your account on time. o If you're selling your shares directly through us, we'll normally send the sale proceeds by mail or electronic transfer them to your bank account within three business days after the Fund receives your order. o You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. o If you paid for your shares with a check that wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared, whichever is later. o If you hold any shares in certificate form, you must sign the certificates (or send a signed stock power with them) and send them to PFPC. Your signature must be guaranteed unless you've made other arrangements with us. We may ask for any other information we need to prove that the order is properly authorized. o Under certain circumstances allowed under the Investment Company Act of 1940 (1940 Act), we can pay you in securities or other property when you sell your shares. o We can delay payment of the sale proceeds for up to seven days. o Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. We may sell your shares: o if the value of your account falls below $500. We'll give you 60 days notice in writing if we're going to do this o if your selling agent tells us to sell your shares under arrangements made between the selling agent and you o under certain other circumstances allowed under the 1940 Act 26 Automatic Withdrawal Plan The Automatic Withdrawal Plan lets you withdraw $25 or more twice a month, monthly, quarterly, bi-annually or annually. You can contact your investment professional or us to set up the plan. Here's how the plan works: o Your account balance must be at least $10,000 to set up the plan. o If you set up the plan after you've opened your account, your signature must be guaranteed. o You can choose to have us transfer your money on or about the 10th or 25th of the month. o You won't pay a CDSC on Investor A, Investor B or Investor C Shares if you withdraw 12% or less of the value of those shares in a year. Otherwise, we'll deduct any CDSC from the withdrawals. o We'll send you a check or deposit the money directly to your bank account. o You can cancel the plan by giving your selling agent or us 30 days notice in writing. It's important to remember that if you withdraw more than your investment in the Fund is earning, you'll eventually use up your original investment. [GRAPHIC] You should make sure you understand the investment objective and principal investment strategies of the Fund you're exchanging into. Please read its prospectus carefully. [GRAPHIC] Exchanging shares You can sell shares of the Fund to buy shares of another Nations Fund. This is called an exchange. You might want to do this if your investment goals or tolerance for risk changes. Here's how exchanges work: o You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. o The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. o You may only make exchanges into a Fund that is legally sold in your state of residence. o You generally may only make an exchange into a Fund that is accepting investments. o We may limit the number of exchanges you can make within a specified period of time. o We may change or cancel your right to make an exchange by giving the amount of notice required by regulatory authorities (generally 60 days for a material change or cancellation). o You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. 27 Exchanging Investor A Shares You can exchange Investor A Shares of the Fund for Investor A Shares of any other Nations Fund except Index Funds. Here are some rules for exchanging Investor A Shares: o You won't pay a front-end sales charge on the shares of the Fund you're exchanging. o You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC at that time will be based on the period from when you bought the original shares until when you sold the shares you received from the exchange. o You won't pay a redemption fee on the shares you're exchanging. Any redemption fee will be deducted when you sell the shares you received from the exchange. Any redemption fee will be paid to the original Fund. Exchanging Investor B Shares You can exchange Investor B Shares of the Fund for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Investor C Shares of a Nations Money Market Fund through an exchange of Investor B Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Investor C Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. 28 Exchanging Investor C Shares You can exchange Investor C Shares of the Fund for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of the Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Daily Shares of a Nations Money Market Fund through an exchange of Investor C Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Daily Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. Automatic Exchange Feature The Automatic Exchange Feature lets you exchange $25 or more of Investor A, Investor B or Investor C Shares every month or every quarter. You can contact your investment professional or us to set up the plan. Here's how automatic exchanges work: o Send your request to PFPC in writing or call 1.800.321.7854. o If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. o You must already have an investment in the Fund you want to exchange. o You can choose to have us transfer your money on or about the 1st or the 15th day of the month. o The rules for making exchanges apply to automatic exchanges. 29 [GRAPHIC] How selling and servicing agents are paid Selling and servicing agents usually receive compensation based on your investment in the Fund. The kind and amount of the compensation depends on the share class in which you invest. Selling agents typically pay a portion of the compensation they receive to their investment professionals. Commissions Your selling agent may receive an up-front commission (reallowance) when you buy shares of the Fund. The amount of this commission depends on which share class you choose: o up to 5.00% of the offering price per share of Investor A Shares. The commission is paid from the sales charge we deduct when you buy your shares o up to 4.00% of the net asset value per share of Investor B Shares. The commission is not deducted from your purchase -- we pay your selling agent directly o up to 1.00% of the net asset value per share of Investor C Shares. The commission is not deducted from your purchase -- we pay your selling agent directly If you buy Investor B or Investor C Shares you will be subject to higher distribution (12b-1) and shareholder servicing fees and may be subject to a CDSC when you sell your shares. [GRAPHIC] The financial institution or intermediary that buys shares for you is also sometimes referred to as a selling agent. The distribution fee is often referred to as a "12b-1" fee because it's paid through a plan approved under Rule 12b-1 under the 1940 Act. Your selling agent may charge other fees for services provided to your account. Distribution (12b-1) and shareholder servicing fees Stephens and selling and servicing agents may be compensated for selling shares and providing services to investors under distribution and shareholder servicing plans. The amount of the fee depends on the class of shares you own:
Maximum annual distribution (12b-1) and shareholder servicing fees (as an annual % of average daily net assets) Investor A Shares 0.25% combined distribution (12b-1) and shareholder servicing fee Investor B Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee Investor C Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee
Fees are calculated daily and paid monthly. Because these fees are paid out of the Fund's assets on an ongoing basis, they will increase the cost of your investment over time, and may cost you more than any sales charges you may pay. The Fund pays these fees to Stephens and/or to eligible selling and servicing agents and financial institutions, including BA Advisors or its affiliates, for as long as the plans continue. We may reduce or discontinue payments at any time. 30 Other compensation Selling and servicing agents may also receive: o a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Fund o additional amounts on all sales of shares: o up to 1.00% of the offering price per share of Investor A Shares o up to 1.00% of the net asset value per share of Investor B Shares o up to 1.00% of the net asset value per share of Investor C Shares o non-cash compensation like trips to sales seminars, tickets to sporting events, theater or other entertainment, opportunities to participate in golf or other outings and gift certificates for meals or merchandise This compensation, which is not paid by the Fund, is discretionary and may be available only to selected selling and servicing agents. For example, Stephens sometimes sponsors promotions involving Banc of America Investment Services, Inc., an affiliate of BA Advisors, and certain other selling or servicing agents. Selected selling or servicing agents also may receive compensation for opening or servicing a minimum number of accounts. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Fund for services they provide. 31 [GRAPHIC] Distributions and taxes [GRAPHIC] The power of compounding Reinvesting your distributions buys you more shares of the Fund -- which lets you take advantage of the potential for compound growth. Putting the money you earn back into your investment means it, in turn, may earn even more money. Over time, the power of compounding has the potential to significantly increase the value of your investment. There is no assurance, however, that you'll earn more money if you reinvest your distributions. About distributions A mutual fund can make money two ways: o It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. o A fund can also have capital gain if the value of its investments increases. If a fund sells an investment at a gain, the gain is realized. If a fund continues to hold the investment, any gain is unrealized. A mutual fund is not subject to federal income tax as long as it distributes its net investment income and realized capital gain to its shareholders. The Fund intends to pay out a sufficient amount of its income and capital gain to its shareholders so the Fund won't have to pay any federal income tax. When the Fund makes this kind of a payment, it's split among all shares, and is called a distribution. The Fund distributes any net realized capital gain at least once a year. The Fund distributes net investment income annually. Any distribution you receive is based on the number of shares you hold on the record date, which is usually the day the distribution is declared (daily dividend Funds) or the day before the distribution is declared (all other Funds). Shares are eligible to receive net investment income distributions from the settlement date (daily dividend Funds), trade date (all other Funds) or realized capital gain from the trade date of the purchase up to and including the day before the shares are sold. Different share classes of the Fund usually pay different net investment income distribution amounts, because each class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. We'll automatically reinvest distributions in additional shares of the same Fund unless you tell us you want to receive your distributions in cash. You can do this by writing to us at the address on the back cover or by calling us at 1.800.321.7854. We generally pay cash distributions within five business days after the end of the month, quarter or year in which the distribution was made. If you sell all of your shares, we'll normally pay any distribution that applies to those shares in cash within five business days after the sale was made. 32 If you buy shares of the Fund shortly before it makes a distribution, you will, in effect, receive part of your purchase back in the distribution, which is subject to tax. Similarly, if you buy shares of the Fund when it holds securities with unrealized capital gain, you will, in effect, receive part of your purchase back if and when the Fund sells those securities and distributes the gain. This distribution is also subject to tax. The Fund has built up, or has the potential to build up, high levels of unrealized capital gain. [GRAPHIC] This information is a summary of how federal income taxes may affect your investment in the Fund. It is not intended as a substitute for careful tax planning. You should consult with your own tax adviser about your situation, including any foreign, state and local taxes that may apply. [GRAPHIC] For more information about taxes, please see the SAI. How taxes affect your investment Distributions that come from net investment income, net short-term capital gain and certain other items generally are taxable to you as ordinary income. Distributions that come from net long-term capital gain generally are taxable to you as long-term capital gain. Corporate shareholders generally won't be able to deduct any Fund distributions when determining their total income. In general, all distributions are taxable to you when paid, whether they are paid in cash or automatically reinvested in additional shares of the Fund. However, any distributions declared to shareholders of record in October, November or December of one year and distributed in January of the following year will be taxable as if they had been paid to you on December 31 of the first year. We'll send you a notice every year that tells you how much you've received in distributions during the year and their federal tax status. Foreign, state and local taxes may also apply to these distributions. Foreign taxes Mutual funds that maintain most of their portfolio in foreign securities -- like Nations International Value Fund -- have special tax considerations. You'll generally be required to: o include in your gross income your proportional amount of foreign taxes paid by the Fund o treat this amount as foreign taxes you paid directly o either deduct this amount when calculating your income, or subject to certain conditions and limitations, claim this amount as a foreign tax credit against your federal income tax liability In general, if you are an individual, each year you can claim up to $300 ($600 if you're filing jointly) of foreign taxes paid (or deemed paid) by you as a foreign tax credit against your federal income tax liability. 33 Withholding tax We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts to be paid for in securities or other property and exchanges) if: o you haven't given us a correct Taxpayer Identification Number (TIN) and haven't certified that the TIN is correct and withholding doesn't apply o the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records o the IRS informs us that you're otherwise subject to backup withholding The IRS may also impose penalties against you if you don't give us a correct TIN. Amounts we withhold are applied to your federal income tax liability. You may receive a refund from the IRS if the withholding tax results in an overpayment of taxes. We're also normally required by federal law to withhold tax on distributions (other than capital gain distributions) paid to foreign shareholders. Taxation of redemptions and exchanges Your redemptions (including redemptions paid in securities) and exchanges of Fund shares will usually result in a taxable capital gain or loss, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. 34 [GRAPHIC] Financial highlights The financial highlights table is designed to help you understand how the Fund has performed for the past five years or, if shorter, the period of the Fund's operations. Certain information reflects financial results for a single Fund share. The total investment return line indicates how much an investment in the Fund would have earned, assuming all dividends and distributions had been reinvested. This information, except as noted below, has been audited by PricewaterhouseCoopers LLP. The financial highlights of Nations International Value Fund for the period ended May 15, 1998 and for the year ended November 30, 1997 were audited by other independent accountants. The independent accountants' report and Nations Funds financial statements are incorporated by reference into the SAI. Please see the back cover to find out how you can get a copy. 35 Nations International Value Fund For a Share outstanding throughout each period
Year ended Year ended Investor A Shares* 03/31/01 03/31/00# Operating performance: Net asset value, beginning of period $ 18.77 $ 14.43 Net investment income 0.27 0.36 Net realized and unrealized gain/(loss) on investments (0.39) 4.72 Net increase/(decrease) in net asset value from operations (0.12) 5.08 Distributions: Dividends from net investment income (0.19) (0.25) Dividends in excess of net investment income -- -- Distributions from net realized capital gains (1.20) (0.49) Total dividends and distributions (1.39) (0.74) Net asset value, end of period $17.26 $18.77 Total return++ (0.72)% 35.86% ======================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $353,646 $186,649 Ratio of operating expenses to average net assets 1.38% 1.49%(a) Ratio of net investment income to average net assets 1.64% 1.86% Portfolio turnover rate -- 12%(b) Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.48% 1.59%(a) Period ended Period ended Year ended Period ended Investor A Shares* 03/31/99# 05/15/98 11/30/97 11/30/96** Operating performance: Net asset value, beginning of period $15.44 $13.13 $11.29 $10.00 Net investment income 0.14 0.08 0.01 0.04 Net realized and unrealized gain/(loss) on investments 0.36 2.52 1.91 1.31 Net increase/(decrease) in net asset value from operations 0.50 2.60 1.92 1.35 Distributions: Dividends from net investment income (0.17) -- (0.01) (0.04) Dividends in excess of net investment income -- -- (0.05) -- Distributions from net realized capital gains (1.34) (0.29) (0.02) (0.02) Total dividends and distributions (1.51) (0.29) (0.08) (0.06) Net asset value, end of period $ 14.43 $ 15.44 $ 13.13 $ 11.29 Total return++ 1.75% 20.22% 17.11% 13.54% ====================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $5,960 $5,128 $4,259 $ 115 Ratio of operating expenses to average net assets 1.55%+ 1.81%+ 1.73% 0.00%+ Ratio of net investment income to average net assets 1.11%+ 1.21%+ 0.26% 1.83%+ Portfolio turnover rate 44% 88% 29% 50% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.64%+ 1.82%+ 1.93% 57.40%+
* The financial information for the fiscal periods through May 22, 1998 reflect the financial information for the Emerald International Equity Fund's Retail Shares, which were reorganized into the International Value Fund Investor A Shares as of May 22, 1998. ** International Value Fund Investor A Shares commenced operations on December 27, 1995. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure. 36 Nations International Value Fund For a Share outstanding throughout each period
Year ended Year ended Period ended Investor B Shares 03/31/01 03/31/00# 03/31/99*# Operating performance: Net asset value, beginning of period $18.64 $14.40 $14.33 Net investment income 0.16 0.22 0.06 Net realized and unrealized gain/(loss) on investments (0.40) 4.66 0.76 Net increase/(decrease) in net asset value from operations (0.24) 4.88 0.82 Distributions: Dividends from net investment income (0.13) (0.15) (0.13) Distributions in excess of net investment income -- -- -- Distributions from net realized capital gains (1.20) (0.49) (0.62) Total dividends and distributions (1.33) (0.64) (0.75) Net asset value, end of period $ 17.07 $ 18.64 $ 14.40 Total return++ (1.42)% 34.51% 1.25% =================================================== ======= ======= ======= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $80,655 $50,999 $4,296 Ratio of operating expenses to average net assets 2.13% 2.24%(a) 2.30%+ Ratio of net investment income to average net assets 0.89% 1.11% 0.36%+ Portfolio turnover rate -- 12%(b) 44% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.23% 2.34%(a) 2.39%+
* International Value Fund Investor B Shares commenced operations on May 22, 1998. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure. 37
Nations International Value Fund For a Share outstanding throughout each period Year ended Year ended Period ended Investor C Shares 03/31/01 03/31/00# 03/31/99*# Operating performance: Net asset value, beginning of period $18.65 $14.41 $13.33 Net investment income 0.16 0.21 0.06 Net realized and unrealized gain/(loss) on investments (0.41) 4.69 1.77 Net increase/(decrease) in net asset value from operations (0.25) 4.90 1.83 Distributions: Dividends from net investment income (0.13) (0.17) (0.13) Distributions in excess of net investment income -- -- -- Distributions from net realized capital gains (1.20) (0.49) (0.62) Total dividends and distributions (1.33) (0.66) (0.75) Net asset value, end of period $ 17.07 $ 18.65 $ 14.41 Total return++ (1.45)% 34.64% 3.98% ================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $48,784 $13,725 $ 182 Ratio of operating expenses to average net assets 2.13% 2.24%(a) 2.30%+ Ratio of net investment income to average net assets 0.89% 1.11% 0.36%+ Portfolio turnover rate -- 12%(b) 44% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 2.23% 2.34%(a) 2.39%+
* International Value Fund Investor C Shares commenced operations on June 15, 1998. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%. (b) Amount represents results prior to conversion to a master-feeder structure. 38 [GRAPHIC] This glossary includes explanations of the important terms that may be used in this prospectus. Some of the terms explained may apply to Nations Funds not included in this prospectus. [GRAPHIC] Terms used in this prospectus Amortized cost method - under Rule 2a-7 of the 1940 Act, the method of calculating an investment company's net asset value whereby portfolio securities are valued at the Fund's acquisition cost as adjusted for amortization of premium or accretion of discount rather than at their current market value. Asset-backed security - a debt security that gives an investor an interest in a pool of assets that is collateralized or "backed" by one or more kinds of assets, including automobile loans or credit card receivables, generally issued by banks, credit card companies or other lenders. Asset-backed securities typically make periodic payments, which may be interest or a combination of interest and a portion of the principal of the underlying assets. Average dollar-weighted maturity - the average length of time until the debt securities held by a Fund reach maturity. In general, the longer the average dollar-weighted maturity, the more a Fund's share price will fluctuate in response to changes in interest rates. Bank obligation - a money market instrument issued by a domestic or U.S. branch of a foreign bank, including certificates of deposit, time deposits and bankers' acceptances. Capital gain or loss - the difference between the purchase price of a security and its selling price. An investor realizes a capital gain when it sells a security for more than it paid for it. An investor realizes a capital loss when it sells a security for less than it paid for it. Cash equivalents - short-term, interest-bearing instruments which can easily be converted into cash, including U.S. government obligations, bank obligations, and certain asset-backed securities, foreign government securities and commercial paper issued by U.S. and foreign issuers which, at the time of investment, is rated at least Prime-2 by Moody's Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch). Collateralized mortgage obligation (CMO) - a type of mortgage-backed security. CMO payment obligations are covered by interest and/or principal payments from a pool of mortgages. In addition, the underlying assets of a CMO are typically separated into classes, called tranches, based on maturity. Each tranche pays a different rate of interest. CMOs are not generally issued by the U.S. government, its agencies or instrumentalities. Commercial paper - a short-term corporate obligation. Commercial paper is typically considered a money market instrument. Common stock - a security that represents part equity ownership in a company. Common stock typically allows an investor to vote at shareholder meetings and to share in the company's profits by receiving dividends. 39 Convertible debt - a debt security that can be exchanged for common stock (or another type of security) on a specified basis and date. Convertible security - a security that can be exchanged for common stock (or another type of security) at a specified rate. Convertible securities include convertible debt, rights and warrants. Crossing networks - an electronic system where anonymous parties can match buy and sell transactions. These transactions don't affect the market, and transaction costs are extremely low. CSFB Convertible Securities Index - 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. Debt security - a security issued by a governmental body or company (the issuer) to help fund their operations or major projects. The issuer pays interest at a specified rate on a specified date or dates, and repays the principal when the security matures. Short-term debt securities include money market instruments such as treasury bills. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Depositary receipts - evidence of the deposit of a security with a custodian bank. American Depositary Receipts (ADRs), for example, are certificates traded in U.S. markets representing an interest of a foreign company. They were created to make it possible for foreign issuers to meet U.S. security registration requirements. Other examples include ADSs, GDRs and EDRs. Derivatives - A derivative is a financial contract whose value is based upon, or "derived" from, an underlying financial asset (such as a stock or a bond), a commodity (such as gold), a market index (such as the S&P 500) or a reference rate (such as the prime lending interest rate). Examples of derivative instruments include futures, options, index-, equity-, commodity- and currency-linked securities, warrants and swap contracts. For a detailed description of the derivatives described here, see the SAI. Diversified - A diversified fund, as defined by the 1940 Act, must have at least 75% of its total assets in cash and cash equivalents, government securities, securities of other investment companies, or other securities. For purposes of this calculation, the fund may not count securities of a single issuer that comprise more than 5% of the fund's assets. Dividend yield - rate of return of dividends paid on a common or preferred stock. It equals the amount of the annual dividend on a stock expressed as a percentage of the stock's current market value. Duration - a security's or portfolio's sensitivity to changes in interest rates. For example, if interest rates rise by one percentage point, the share price of a fund with a duration of five years would decline by about 5%. If interest rates fall by one percentage point, the fund's share price would rise by about 5%. 40 Equity security - an investment that gives an investor an equity ownership right in a company. Equity securities (or "equities") include common and preferred stock, rights and warrants. First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds and has the highest short-term rating from a nationally recognized statistical rating organization (NRSRO), or if unrated, is determined by the Fund's portfolio management team to be of comparable quality, or is a money market fund or a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Foreign security - a debt or equity security determined by a Fund's portfolio management team to be foreign based on an issuer's domicile, its principle place of business, the source of its revenues or other factors. Forward foreign currency contracts - a forward foreign currency contract includes an obligation to purchase or sell a foreign currency at a specified future date. Forward purchase agreement - a contract obligating one party to buy and another party to sell an equity security, commodity, currency or other financial instrument at a specific future date. Fundamental analysis - a method of securities analysis that tries to evaluate the intrinsic, or "true," value of a particular stock. It includes a study of the overall economy, industry conditions and the financial condition and management of a company. Futures contract - a contract to buy or sell underlying instruments at a specified price on a specified future date. The price is typically set through a futures exchange. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to NRSROs such as S&P and Moody's. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by a Fund's Board. Please see the SAI for more information about credit ratings. High yield debt security - debt securities that, at the time of purchase, are rated "BB" or below by S&P or "Ba" or below by Moody's, or that are unrated and determined by the portfolio management team to be of comparable quality. Interest rate swap - an agreement between two parties to exchange periodic interest payments based on a predetermined principal amount. 41 Investment grade - a debt security that has been given a medium to high credit rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating by other NRSROs) based on the issuer's ability to pay interest and repay principal on time. The portfolio management team may consider an unrated debt security to be investment grade if the team believes it is of comparable quality. Please see the SAI for more information about credit ratings. Lehman Aggregate Bond Index - an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government/Corporate Bond Index - an unmanaged index of U.S. government, U.S. Treasury and agency securities, and corporate and Yankee bonds. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Liquidity - a measurement of how easily a security can be bought or sold at a price that is close to its market value. Money market instrument - a short-term debt security that is considered to mature in 13 months or less. Money market instruments include U.S. Treasury obligations, U.S. government obligations, certificates of deposit, bankers' acceptances, commercial paper, repurchase agreements and certain municipal securities. Mortgage-backed security or Mortgage-related security - a debt security that gives you an interest in, and is backed by, a pool of residential mortgages issued by the U.S. government or by financial institutions. The underlying mortgages may be guaranteed by the U.S. government or one of its agencies, authorities or instrumentalities. Mortgage-backed securities typically make monthly payments, which are a combination of interest and a portion of the principal of the underlying mortgages. MSCI EAFE Index - Morgan Stanley Capital International Europe, Australasia and Far East Index is an unmanaged, capitalization-weighted index. The index reflects the relative size of each market consisting of securities listed on exchanges in European, Australasian and Far Eastern markets and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investment. It is not available for investment. MSCI World Index - Morgan Stanley Capital International World Index is an unmanaged index consisting of securities listed on exchanges in the major European and Asian countries, Australia and the U.S. and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investing. It is not available for investment. 42 Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public or private projects and services. "General obligations" are typically backed by the issuer's full taxing and revenue-raising powers. "Revenue securities" depend on the income earned by a specific project or authority, like road or bridge tolls, user fees for water or revenues from a utility. Interest income from municipal securities that pay for "public" projects and services is exempt from federal income taxes and is generally exempt from state taxes if an investor lives in the state that issued the security. If an investor lives in the municipality that issued the security, interest income may also be exempt from local taxes. Non-diversified - a fund that holds securities of fewer issuers than other kinds of funds. Non-diversified funds tend to have greater price swings than more diversified funds because events affecting one or more of its securities may have a disproportionately large effect on the fund. NRSRO - A nationally recognized statistical rating organization, such as S&P or Moody's. Options - An option is the right to buy or sell a security based on an agreed upon price at a specified time. For example, an option may give the holder of a stock the right to sell the stock to another party, allowing the seller to profit if the price has fallen below the agreed price. Options may also be based on the movement of an index such as the S&P 500. Over-the-counter market - a market where dealers trade securities through a telephone or computer network rather than through a public stock exchange. Preferred stock - a type of equity security that gives you a limited ownership right in a company, with certain preferences or priority over common stock. Preferred stock generally pays a fixed annual dividend. If the company goes bankrupt, preferred shareholders generally receive their share of the company's remaining assets before common shareholders and after bondholders and other creditors. Ownership of preferred stock typically does not come with certain voting rights that come with common stock. Pre-refunded bond - a bond that is repaid before its maturity date. The repayment is generally financed by a new issue. Issuers generally pre-refund bonds during periods of lower interest rates to reduce their interest costs. Price-to-earnings ratio (P/E ratio) - the current price of a share divided by its actual or estimated earnings per share. The P/E ratio is one measure of the value of a company. Private placement - a private placement is the sale of stocks, bonds or other investments directly to a qualified investor without having to register the offering with the SEC or other comparable foreign regulatory authorities. Qualified investors are typically large institutional investors or high net worth individuals. Securities acquired through private placements generally may not be resold. 43 Quantitative analysis - an analysis of financial information about a company or security to identify securities that have the potential for growth or are otherwise suitable for a fund to buy. Real Estate Investment Trust (REIT) - a portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls, and real-estate-related loans or interests. Repurchase agreement - a short-term (often overnight) investment arrangement. The investor agrees to buy certain securities from the borrower and the borrower promises to buy them back at a specified date and price. The difference between the purchase price paid by the investor and the repurchase price paid by the borrower represents the investor's return. Repurchase agreements are popular because they provide low-risk returns and can allow a fund to remain fully invested. Reverse repurchase agreement - a repurchase agreement in which an investor sells a security to another party, like a bank or dealer, in return for cash, and agrees to buy the security back at a specified date and price. Reverse repurchase agreements are, in effect, loans to a fund. Right - a temporary privilege allowing investors who already own a common stock to buy additional shares directly from the company at a specified price or formula. Russell 1000 Index - 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. The Russell 3000 Index is a listing of 3000 corporations by the Frank Russell Company that is intended to be representative of the U.S. economy. The Russell 1000 is considered a "large cap" index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 2000 Index - 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. 44 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. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 3000 Growth Index - an unmanaged index comprised of securities in the Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies based on total market capitalization, with a greater than average growth orientation. Companies in the Russell 3000 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. S&P 500(1) - Standard & Poor's 500 Composite Stock Price Index, an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P/BARRA Value Index(1) - an unmanaged index of a subset of stocks from the S&P 500 that have low price-to-book ratios relative to the S&P 500 as a whole. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P/IFC Investables Index - an unmanaged index that tracks more than 1,400 stocks in 25 emerging markets in Asia, Latin America, Eastern Europe, Africa and the Middle East. The index is weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P MidCap 400(1) - an unmanaged index of 400 domestic stocks chosen for market size, liquidity and industry representation. The index is weighted by market value, and is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SmallCap 600(1) - Standard & Poor's SmallCap 600 Index, an unmanaged index of 600 common stocks, weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SuperComposite 1500(1) - an unmanaged index created by Standard & Poors combining the companies represented in three other indices -- the S&P 500, MidCap 400, and SmallCap 600. The index represents 87% of the total capitalization of U.S. equity markets. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds, but is not a first-tier security. 45 Senior security - a debt security that allows holders to receive their share of a company's remaining assets in a bankruptcy before other bondholders, creditors, and common and preferred shareholders. Settlement date - the date on which an order is settled either by payment or delivery of securities. Total return swap - an agreement between two parties to exchange periodic interest payments for the total return of an equity or fixed income instrument. Trade date - the effective date of a purchase, sale or exchange transaction, or other instructions sent to us. The trade date is determined by the day and time we receive the order or instructions in a form that's acceptable to us. U.S. government obligations - a wide range of debt securities issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities. U.S. Treasury obligation - a debt security issued by the U.S. Treasury. Warrant - a certificate that gives you the right to buy common shares at a specified price within a specified period of time. Zero-coupon bond - a bond that makes no periodic interest payments. Zero coupon bonds are sold at a deep discount to their face value and mature at face value. The difference between the face value at maturity and the purchase price represents the return. (1)S&P and BARRA have not reviewed any stock included in the S&P SuperComposite 1500, S&P 500, S&P SmallCap 600, S&P MidCap 400 Index or BARRA Value Index for its investment merit. S&P and BARRA determine and calculate their indices independently of the Funds and are not a sponsor or affiliate of the Funds. S&P and BARRA give no information and make no statements about the suitability of investing in the Funds or the ability of their indices to track stock market performance. S&P and BARRA make no guarantees about the indices, any data included in them and the suitability of the indices or their data for any purpose. "Standard and Poor's," "S&P 500" and "S&P 600" are trademarks of The McGraw-Hill Companies, Inc. 46 (THIS PAGE INTENTIONALLLY LEFT BLANK) [GRAPHIC] Where to find more information You'll find more information about Nations International Value Fund in the following documents: Annual and semi-annual reports The annual and semi-annual reports contain information about Fund investments and performance, the financial statements and the independent accountants' reports. The annual report also includes a discussion about the market conditions and investment strategies that had a significant effect on the Fund's performance during the period covered. [GRAPHIC] Statement of Additional Information The SAI contains additional information about the Fund and its policies. The SAI is legally part of this prospectus (it's incorporated by reference). A copy has been filed with the SEC. You can obtain a free copy of these documents, request other information about the Fund and make shareholder inquiries by contacting Nations Funds: By telephone: 1.800.321.7854 By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nations-funds.com Information about the Fund can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1.202.942.8090. The reports and other information about the Fund are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. SEC file number: Nations Reserves, 811-6030 INTVALPROIX-8/01 [NATIONS FUNDS] [GRAPHIC] Nations Financial Services Fund Prospectus -- Investor A, B and C Shares August 1, 2001 The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. - ----------------- Not FDIC Insured - ----------------- May Lose Value - ----------------- No Bank Guarantee - ----------------- [NATIONS FUNDS LOGO] An overview of the Fund - -------------------------------------------------------------------------------- [GRAPHIC] Terms used in this prospectus In this prospectus, we, us and our refer to the Nations Funds family (Nations Funds or Nations Funds Family). Some other important terms we've used may be new to you. These are printed in italics where they first appear in a section and are described in Terms used in this prospectus. [GRAPHIC] You'll find Terms used in this prospectus on page 32. Your investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, N.A. (Bank of America), the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Your investment may lose money. Affiliates of Bank of America are paid for the services they provide to the Fund. This booklet, which is called a prospectus, tells you about one Nations Funds Stock Fund -- Nations Financial Services Fund. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. About the Fund Nations Financial Services Fund invests primarily in equity securities. Equity securities have the potential to provide you with higher returns than many other kinds of investments, but they also tend to have higher risk. In every case, there's a risk that you'll lose money or you may not earn as much as you expect. Is this Fund right for you? Not every fund is right for every investor. When you're choosing a fund to invest in, you should consider things like your investment goals, how much risk you can accept and how long you're planning to hold your investment. Nations Financial Services Fund focuses on long-term growth. It may be suitable for you if: o you have longer-term investment goals o it's part of a balanced portfolio o you want to try to protect your portfolio against a loss of buying power that inflation can cause over time It may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with equity securities o you have short-term investment goals o you're looking for a regular stream of income You'll find a discussion of the Fund's principal investments, strategies and risks in the Fund description that starts on page 4. For more information If you have any questions about the Fund, please call us at 1.800.321.7854 or contact your investment professional. You'll find more information about the Fund in the Statement of Additional Information (SAI). The SAI includes more detailed information about the Fund's investments, policies, performance and management, among other things. Please turn to the back cover to find out how you can get a copy. 2 What's inside - -------------------------------------------------------------------------------- [GRAPHIC] Banc of America Advisors, LLC Banc of America Advisors, LLC (BA Advisors) is the investment adviser to the Fund. BA Advisors is responsible for the overall management and supervision of the investment management of the Fund. BA Advisors and Nations Funds have engaged a sub-adviser -- Banc of America Capital Management, LLC, (BACAP), which is responsible for the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BA Advisors and BACAP starting on page 10. [GRAPHIC] About the Fund Nations Financial Services Fund 4 Sub-adviser: BACAP - ----------------------------------------------------------------- Other important information 8 - ----------------------------------------------------------------- How the Fund is managed 10 [GRAPHIC] About your investment Information for investors Choosing a share class 12 About Investor A Shares 13 Front-end sales charges 13 Contingent deferred sales charge 14 About Investor B Shares 14 Contingent deferred sales charge 14 About Investor C Shares 16 Contingent deferred sales charge 16 When you might not have to pay a sales charge 16 Buying, selling and exchanging shares 20 How orders are processed 22 How selling and servicing agents are paid 28 Distributions and taxes 30 - ----------------------------------------------------------------- Terms used in this prospectus 32 - ----------------------------------------------------------------- Where to find more information back cover 3 [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Growth Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 11. [GRAPHIC] What does a financial services fund invest in? The financial services industry includes banks, brokerage firms, asset management firms, insurance companies and transaction processing companies, among others. Nations Financial Services Fund [GRAPHIC] Investment objective The Fund seeks growth of capital. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in equity securities of companies that are principally engaged in the financial services industry. The Fund, which is non-diversified, generally holds 40 to 60 securities. It may invest without limitation in foreign securities. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The team identifies stocks using a disciplined analytical process. Starting with a universe of companies across the entire financial sector, the team assesses the investment potential of these companies by evaluating each company's relative competitive position in the industry. The team believes that this analysis identifies companies with favorable long-term growth potential, competitive advantages and sensible business strategies. The team then uses quantitative analysis to decide when to invest, evaluating each company's earnings trends and stock valuations, among other things, to try to determine when it's reasonably valued. In managing the portfolio, the team places an emphasis on companies believed to exhibit certain characteristics, such as companies that: o are increasing their revenues along with their earnings o can grow their revenues and earnings in a variety of interest rate environments o have both marketing expertise and superior technology The team may sell a security when it believes there is a deterioration in the company's financial situation, the security is overvalued, when there is a negative development in the company's competitive, regulatory or economic environment, and for other reasons. 4 [GRAPHIC] You'll find more about other risks of investing in the Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Financial Services Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have the potential for long-term growth. There is a risk that the value of the Fund's investments will not rise as high as the team expects, or will fall. o Holding fewer investments - The Fund is considered to be non-diversified because it may hold fewer investments than other kinds of equity funds. This increases the risk that its value could go down significantly if even only one of its investments performs poorly. The value of the Fund will tend to have greater price swings than the value of more diversified equity funds. The Fund may become a diversified fund by limiting the investments in which more than 5% of its total assets are invested. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Concentration risk - The Fund concentrates its investments in financial services companies and will be subject to the risks affecting the financial services industry generally. Legislative and regulatory developments may significantly affect this industry and consequently may subject the Fund's investments to greater market fluctuations. In addition, the Federal Reserve may adjust interest rates which can have a significant impact upon the profitability of financial services companies, and a corresponding impact upon the value of the Fund's investment. o Foreign investment risk - Because the Fund may invest without limitation in foreign securities, it can be affected by the risks of foreign investing. Funds that invest in foreign securities may be affected by changes in currency exchange rates and the costs of converting currencies; foreign government controls on foreign investment, repatriation of captial; and currency and exchange; excessive foreign taxes; inadequate supervision and regulation of some foreign markets; difficulty selling some investments, which may increase volatility; different settlement practices or delayed settlements in some markets; difficulty getting complete or accurate information about foreign companies; less strict accounting, auditing and financial reporting standards than those in the U.S.; political, economic or social instability; and difficulty enforcing legal rights outside the U.S. Significant levels of foreign taxes (including withholding taxes) also may apply to some foreign investments. 5 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses (Expenses that are deducted from the Fund's assets) Management fees 0.75% 0.75% 0.75% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses(4) 0.55% 0.55% 0.55% ----- -------- -------- Total annual Fund operating expenses(5) 1.55% 2.30% 2.30% ===== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4)Other expenses are based on estimates for the current fiscal year. (5)The Fund's investment adviser and/or some of its other service providers have agreed to limit total annual operating expenses to the levels shown above until July 31, 2002. There is no guarantee that these limitations will continue after this date. The investment adviser is entitled to reimbursement from the Fund of any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this agreement if such reimbursements do not cause the Fund's expenses to exceed the existing expense limitations. 6 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years Investor A Shares $724 $1,037 Investor B Shares $733 $1,018 Investor C Shares $333 $ 718 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years Investor B Shares $233 $718 Investor C Shares $233 $718 7 [GRAPHIC] Other important information You'll find specific information about the Fund's principal investments, strategies and risks in the description starting on page 4. The following are some other risks and information you should consider before you invest: o Changing investment objective and policies - The investment objective and certain investment policies of the Fund can be changed without shareholder approval. Other investment policies may be changed only with shareholder approval. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. The Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. o Holding other kinds of investments - The Fund may hold investments that aren't part of its principal investment strategies. Please refer to the SAI for more information. The management team can also choose not to invest in specific securities described in this prospectus and in the SAI. o Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Fund may invest up to 25% of its assets in Nations Money Market Funds. BA Advisors and its affiliates are entitled to receive fees from the Nations Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Fund for services provided directly. BA Advisors may waive fees which it is entitled to receive from either the Nations Money Market Funds or the Fund. o Investing defensively - The Fund may temporarily hold investments that are not part of its investment objective or its principal investment strategies to try to protect it during a market or economic downturn or because of political or other conditions. The Fund may not achieve its investment objective while it is investing defensively. o Securities lending program - The Fund may lend portfolio securities to approved broker-dealers or other financial institutions on a fully collateralized basis in order to earn additional income. There may be delays in receiving additional collateral after the loan is made or in recovering the securities loaned. 8 o Bank of America and its affiliates - Bank of America and its affiliates currently provide services to the Fund, including investment advisory, investment sub-advisory, co-administration and brokerage services, and are paid for providing these services. Bank of America and its affiliates also may, at times, provide other services and be compensated for them, including transfer agency, interfund lending and securities lending services, or make loans to the Fund. Finally, Bank of America or its affiliates may serve as counterparties in transactions with Nations Funds where permitted by law or regulation, and may receive compensation in that capacity. o Portfolio turnover - A fund that replaces -- or turns over -- more than 100% of its investments in a year is considered to trade frequently. Frequent trading can result in larger distributions of short-term capital gains to shareholders. These gains are taxable at higher rates than long-term capital gains. Frequent trading can also mean higher brokerage and other transaction costs, which could reduce the fund's returns. The Fund generally buys securities for capital appreciation, investment income, or both, and doesn't engage in short-term trading. The annual portfolio turnover rate for Nations Financial Services Fund is expected to be no more than 100%. 9 [GRAPHIC] How the Fund is managed [GRAPHIC] Banc of America Advisors, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Investment adviser BA Advisors is the investment adviser to over 75 mutual fund portfolios in the Nations Funds Family, including the Fund described in this prospectus. BA Advisors is a registered investment adviser. It's a wholly-owned subsidiary of Bank of America, which is owned by Bank of America Corporation. Nations Funds pays BA Advisors an annual fee for its investment advisory services. The fee is calculated as a percentage of the average daily net assets of the Fund and is paid monthly. BA Advisors uses part of this money to pay the investment sub-adviser for the services it provides to the Fund. BA Advisors has agreed to waive fees and/or reimburse expenses for this Fund until July 31, 2002. You'll find a discussion of any waiver and/or reimbursement in the Fund description. There is no assurance that BA Advisors will continue to waive and/or reimburse any fees and/or expenses after this date. The following chart shows the maximum advisory fees BA Advisors can receive: Annual investment advisory fee, as a % of average daily net assets Maximum advisory fee Nations Financial Services Fund 0.75% Investment sub-adviser Nations Funds and BA Advisors engage one or more investment sub-advisers for the Fund to make day-to-day investment decisions for the Fund. BA Advisors retains ultimate responsibility (subject to Board oversight) for overseeing the sub-advisers and evaluates the Fund's needs and available sub-advisers' skills and abilities on an ongoing basis. Based on its evaluations, BA Advisors may at times recommend to the Fund's Board that the Fund: o change, add or terminate one or more sub-advisers; o continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or o materially change a sub-advisory agreement with a sub-adviser. Applicable law requires the Fund to obtain shareholder approval in order to act on most of these types of recommendations, even if the Fund's Board has approved the proposed action and believes that the action is in shareholders' best interests. BA Advisors and Nations Funds have applied for relief from the SEC to permit the Fund to act on many of BA Advisors' recommendations with approval only by the Fund's Board and not by Fund shareholders. BA Advisors or the Fund will inform the Fund's shareholders of any actions taken in reliance on this relief. Until BA Advisors and the Fund obtain the relief, the Fund will continue to submit these matters to shareholders for their approval to the extent required by applicable law. 10 [GRAPHIC] Banc of America Capital Management, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Banc of America Capital Management, LLC BACAP is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Its management expertise covers all major domestic asset classes, including equity and fixed income securities, and money market instruments. Currently managing more than $125 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 60 funds in the Nations Funds Family. BACAP takes a team approach to investment management. Each team has access to the latest technology and analytical resources. BACAP is the investment sub-adviser to Nations Financial Services Fund. BACAP's Growth Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 Other service providers The Fund is distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. Stephens may pay commissions, distribution (12b-1) and shareholder servicing fees, and/or other compensation to companies for selling shares and providing services to investors. BA Advisors is also co-administrator of the Fund, and assists in overseeing the administrative operations of the Fund. The Fund pays BA Advisors and Stephens a combined fee of 0.23% for their services, plus certain out-of-pocket expenses. The fee is calculated as an annual percentage of the average daily net assets of the Fund, and is paid monthly. [GRAPHIC] PFPC Inc. 400 Bellevue Parkway Wilmington, Delaware 19809 PFPC Inc. (PFPC) is the transfer agent for the Fund's shares. Its responsibilities include processing purchases, sales and exchanges, calculating and paying distributions, keeping shareholder records, preparing account statements and providing customer service. 11 About your investment - -------------------------------------------------------------------------------- [GRAPHIC] We've used the term, investment professional, to refer to the person who has assisted you with buying Nations Funds. Selling agent or servicing agent (sometimes referred to as a selling agent) means the company that employs your investment professional. Selling and servicing agents include banks, brokerage firms, mutual fund dealers and other financial institutions, including affiliates of Bank of America. [GRAPHIC] For more information about how to choose a share class, contact your investment professional or call us at 1.800.321.7854. [GRAPHIC] Before you invest, please note that, over time, distribution (12b-1) and shareholder servicing fees will increase the cost of your investment, and may cost you more than any sales charges you may pay. For more information, see How selling and servicing agents are paid. [GRAPHIC] Choosing a share class Before you can invest in the Fund, you'll need to choose a share class. There are three classes of shares of the Fund offered by this prospectus. Each class has its own sales charges and fees. The table below compares the charges and fees and other features of the share classes.
Investor A Investor B Investor C Shares Shares Shares Maximum amount no limit $250,000 no limit you can buy Maximum front-end 5.75% none none sales charge Maximum deferred none(1) 5.00%(2) 1.00%(3) sales charge Maximum annual 0.25% distribution 0.75% distribution 0.75% distribution distribution (12b-1)/service (12b-1) fee and (12b-1) fee and and shareholder fee 0.25% service fee 0.25% service fee servicing fees Conversion feature none yes none
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. The share class you choose will depend on how much you're investing, how long you're planning to stay invested, and how you prefer to pay the sales charge. The total cost of your investment over the time you expect to hold your shares will be affected by the distribution (12b-1) and shareholder servicing fees, as well as by the amount of any front-end sales charge or contingent deferred sales charge (CDSC) that applies, and when you're required to pay the charge. You should think about these things carefully before you invest. Investor A Shares have a front-end sales charge, which is deducted when you buy your shares. This means that a smaller amount is invested in the Fund, unless you qualify for a waiver or reduction of the sales charge. However, Investor A Shares have lower ongoing distribution (12b-1) and/or shareholder servicing fees than Investor B and Investor C Shares. This means that Investor A Shares can be expected to pay relatively higher dividends per share. 12 Investor B Shares have limits on how much you can invest. When you buy Investor B or Investor C Shares, the full amount is invested in the Fund. However, you may pay a CDSC when you sell your shares. Over time, Investor B and Investor C Shares can incur distribution (12b-1) and shareholder servicing fees that are equal to or more than the front-end sales charge, and the distribution (12b-1) and shareholder servicing fees you would pay for Investor A Shares. Although the full amount of your purchase is invested in the Fund, any positive investment return on this money may be partially or fully offset by the expected higher annual expenses of Investor B and Investor C Shares. You should also consider the conversion feature for Investor B Shares, which is described in About Investor B Shares. [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by the Fund every business day. [GRAPHIC] About Investor A Shares There is no limit to the amount you can invest in Investor A Shares. You generally will pay a front-end sales charge when you buy your shares, or in some cases, a CDSC when you sell your shares. Front-end sales charge You'll pay a front-end sales charge when you buy Investor A Shares, unless: o you qualify for a waiver of the sales charge. You can find out if you qualify for a waiver in the section, When you might not have to pay a sales charge - Front end sales charges o you're reinvesting distributions The sales charge you'll pay depends on the amount you're investing -- generally, the larger the investment, the smaller the percentage sales charge.
Amount retained Sales charge Sales charge by selling agents as a % of the as a % of the as a % of the offering price net asset value offering price Amount you bought per share per share per share $0-$49,999 5.75% 6.10% 5.00% $50,000-$99,999 4.50% 4.71% 3.75% $100,000-$249,999 3.50% 3.63% 2.75% $250,000-$499,999 2.50% 2.56% 2.00% $500,000-$999,999 2.00% 2.04% 1.75% $1,000,000 or more 0.00% 0.00% 1.00%(1)
(1)1.00% on the first $3,000,000, 0.50% on the next $47,000,000, 0.25% on amounts over $50,000,000. Stephens pays the amount retained by selling agents on investments of $1,000,000 or more, but may be reimbursed when a CDSC is deducted if the shares are sold within eighteen months from the time they were bought. Please see How selling and servicing agents are paid for more information. 13 Contingent deferred sales charge If you own or buy $1,000,000 or more of Investor A Shares, there is one situation when you'll pay a CDSC: o If you buy your shares on or after August 1, 1999 and sell them within 18 months of buying them, you'll pay a CDSC of 1.00%. The CDSC is calculated from the day your purchase is accepted (the trade date). We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. You won't pay a CDSC on any increase in net asset value since you bought your shares, or on any shares you receive from reinvested distributions. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. [GRAPHIC] About Investor B Shares You can buy up to $250,000 of Investor B Shares. You don't pay a sales charge when you buy Investor B Shares, but you may have to pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC when you sell your Investor B Shares, unless: o you bought the shares on or after January 1, 1996 and before August 1, 1997 o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver on in the section When you might not have to pay a sales charge - Contingent deferred sales charges The CDSC you pay depends on when you bought your shares, how much you bought in some cases, and how long you held them.
If you sell your shares during the following year: You'll pay a CDSC of: - ---------------------------- ------------------------------------------------------------------------- Shares you bought Shares Shares on or after you you bought Shares you bought between 1/1/1996 bought after 8/1/1997 and 11/15/1998 and before before 11/15/1998 in the following amounts: 8/1/1997 1/1/1996 ------------ ------------------------------------ ------------- --------- $250,000- $500,000- $0-$249,999 $499,999 $999,999 the first year you own them 5.0% 5.0% 3.0% 2.0% none 5.0% the second year you own them 4.0% 4.0% 2.0% 1.0% none 4.0% the third year you own them 3.0% 3.0% 1.0% none none 3.0% the fourth year you own them 3.0% 3.0% none none none 2.0% the fifth year you own them 2.0% 2.0% none none none 2.0% the sixth year you own them 1.0% 1.0% none none none 1.0% after six years of owning them none none none none none none
14 The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor B Shares. Please see How selling and servicing agents are paid for more information. About the conversion feature Investor B Shares generally convert automatically to Investor A Shares according to the following schedule: Will convert to Investor A Shares Investor B Shares you bought after you've owned them for after November 15, 1998 eight years between August 1, 1997 and November 15, 1998 $0-$249,000 nine years $250,000-$499,999 six years $500,000-$999,999 five years before August 1, 1997 nine years The conversion feature allows you to benefit from the lower operating costs of Investor A Shares, which can help increase total returns. Here's how the conversion works: o We won't convert your shares if you tell your investment professional, selling agent or the transfer agent within 90 days before the conversion date that you don't want your shares to be converted. Remember, it's in your best interest to convert your shares because Investor A Shares have lower expenses. o Shares are converted at the end of the month in which they become eligible for conversion. Any shares you received from reinvested distributions on these shares will convert to Investor A Shares at the same time. o You'll receive the same dollar value of Investor A Shares as the Investor B Shares that were converted. No sales charge or other charges apply. o Investor B Shares that you received from an exchange of Investor B Shares of another Nations Fund will convert based on the day you bought the original shares. Your conversion date may be later if you exchanged to or from a Nations Money Market Fund. o Conversions are free from federal tax. 15 [GRAPHIC] About Investor C Shares There is no limit to the amount you can invest in Investor C Shares. You don't pay a sales charge when you buy Investor C Shares, but you may pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC of 1.00% when you sell Investor C Shares within one year of buying them, unless: o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge -- Contingent deferred sales charges The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor C Shares. Please see How selling and servicing agents are paid for more information. [GRAPHIC] Please contact your investment professional for more information about reductions and waivers of sales charges. You should tell your investment professional that you may qualify for a reduction or a waiver before buying shares. We can change or cancel these terms at any time. Any change or cancellation applies only to future purchases. When you might not have to pay a sales charge Front-end sales charges (Investor A Shares) There are three ways you can lower the front-end sales charge you pay on Investor A Shares: o Combine purchases you've already made Rights of accumulation allow you to combine the value of Investor A, Investor B and Investor C Shares you already own with Investor A Shares you're buying to calculate the sales charge. The sales charge is based on the total value of the shares you already own, or the original purchase cost, whichever is higher, plus the value of the shares you're buying. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify for rights of accumulation. o Combine purchases you plan to make By signing a letter of intent, you can combine the value of shares you already own with the value of shares you plan to buy over a 13-month period to calculate the sales charge. o You can choose to start the 13-month period up to 90 days before you sign the letter of intent. o Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. o If you don't buy as much as you planned within the period, you must pay the difference between the charges you've paid and the charges that actually apply to the shares you've bought. 16 o Your first purchase must be at least 5% of the minimum amount for the sales charge level that applies to the total amount you plan to buy. o If the purchase you've made later qualifies for a reduced sales charge through the 90-day backdating provisions, we'll make an adjustment for the lower charge when the letter of intent expires. Any adjustment will be used to buy additional shares at the reduced sales charge. o Combine purchases with family members You can receive a quantity discount by combining purchases of Investor A Shares that you, your spouse and children under age 21 make on the same day. Some distributions or payments from the dissolution of certain qualified plans also qualify for the quantity discount. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: o full-time employees and retired employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries and the immediate families of these people o banks, trust companies and thrift institutions acting as fiduciaries o individuals receiving a distribution from a Bank of America trust or other fiduciary account may use the proceeds of that distribution to buy Investor A Shares without paying a front-end sales charge, as long as the proceeds are invested in the Funds within 90 days of the date of distribution o Nations Funds' Trustees, Directors and employees of its investment sub-advisers o registered broker/dealers that have entered into a Nations Funds dealer agreement with Stephens may buy Investor A Shares without paying a front-end sales charge for their investment account only o registered personnel and employees of these broker/dealers and their family members may buy Investor A Shares without paying a front-end sales charge according to the internal policies and procedures of the employing broker/dealer as long as these purchases are made for their own investment purposes o employees or partners of any service provider to the Fund o investors who buy through accounts established with certain fee-based investment advisers or financial planners, wrap fee accounts and other managed agency/asset allocation accounts o shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at net asset value 17 The following plans can buy Investor A Shares without paying a front-end sales charge: o pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the Internal Revenue Code of 1986, as amended (the tax code) o employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must: o have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or o sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or o be an employer-sponsored plan with at least 100 eligible participants, or o be a participant in an alliance program that has signed an agreement with the Fund or a selling agent o certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors You can also buy Investor A Shares without paying a sales charge if you buy the shares within 120 days of selling the same Fund. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. Contingent deferred sales charges (Investor A, Investor B and Investor C Shares) You won't pay a CDSC on the following transactions: o shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner o distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors o the following retirement plan distributions: o lump-sum or other distributions from a qualified corporate or self-employed retirement plan following the retirement (or following attainment of age 59 1/2 in the case of a "key employee" of a "top heavy" plan) o distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 o a tax-free return of an excess contribution to an IRA o distributions from a qualified retirement plan that aren't subject to the 10% additional federal withdrawal tax under Section 72(t)(2) of the tax code 18 o payments made to pay medical expenses which exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least 12 weeks o shares sold under our right to liquidate a shareholder's account, including instances where the aggregate net asset value of Investor A, Investor B or Investor C Shares held in the account is less than the minimum account size o if you exchange Investor B or Investor C Shares of a Nations Fund that were bought through a Bank of America employee benefit plan for Investor A Shares of a Nations Fund o withdrawals made under the Automatic Withdrawal Plan described in Buying, selling and exchanging shares, if the total withdrawals of Investor A, Investor B or Investor C Shares made in a year are less than 12% of the total value of those shares in your account. A CDSC may only apply to Investor A Shares if you bought more than $1,000,000 We'll also waive the CDSC on the sale of Investor A or Investor C Shares bought before September 30, 1994 by current or retired employees of Bank of America Corporation (and its predecessors) and its affiliates, or by current or former trustees or directors of the Nations Funds or other management companies managed by Bank of America. You won't pay a CDSC on the sale of Investor B or Investor C Shares if you reinvest any of the proceeds in the same Fund within 120 days of the sale. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. 19 [GRAPHIC] Buying, selling and exchanging shares [GRAPHIC] When you sell shares of a mutual fund, the fund is effectively "buying" them back from you. This is called a redemption. You can invest in the Fund through your selling agent or directly from Nations Funds. We encourage you to consult with an investment professional who can open an account for you with a selling agent and help you with your investment decisions. Once you have an account, you can buy, sell and exchange shares by contacting your investment professional or selling agent. They will look after any paperwork that's needed to complete a transaction and send your order to us. You should also ask your selling agent about its limits, fees and policies for buying, selling and exchanging shares, which may be different from those described here, and about its related programs or services. The table on the next page summarizes some key information about buying, selling and exchanging shares. You'll find sales charges and other fees that apply to these transactions in Choosing a share class. The Fund also offers other classes of shares, with different features and expense levels, which you may be eligible to buy. Please contact your investment professional, or call us at 1.800.321.7854 if you have questions or you need help placing an order. 20
Ways to buy, sell or How much you can buy, exchange sell or exchange Other things to know ---------------------- ---------------------------------------- ----------------------------------------------- Buying shares In a lump sum minimum initial investment: There is no limit to the amount you can o $1,000 for regular accounts invest in Investor A and C Shares. You can o $500 for traditional and Roth IRA invest up to $250,000 in Investor B Shares. accounts o $250 for certain fee-based accounts o no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: o $100 for all accounts Using our minimum initial investment: You can buy shares twice a month, monthly Systematic o $100 or quarterly, using automatic transfers from Investment Plan minimum additional investment: your bank account. o $50 - -------------------- ---------------------- ---------------------------------------- ----------------------------------------------- Selling shares In a lump sum o you can sell up to $50,000 of your We'll deduct any CDSC from the amount shares by telephone, otherwise there you're selling and send you or your selling are no limits to the amount you can agent the balance, usually within three sell business days of receiving your order. o other restrictions may apply to If you paid for your shares with a check that withdrawals from retirement plan wasn't certified, we'll hold the sale proceeds accounts when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared. Using our Automatic o minimum $25 per withdrawal Your account balance must be at least Withdrawal Plan $10,000 to set up the plan. You can make withdrawals twice a month, monthly, quarterly, bi-annually or annually. We'll send your money by check or deposit it directly to your bank account. No CDSC is deducted if you withdraw 12% or less of the value of your shares in a class. - -------------------- ---------------------- ---------------------------------------- ----------------------------------------------- Exchanging shares In a lump sum o minimum $1,000 per exchange You can exchange your Investor A Shares for Investor A shares of any other Nations Fund, except Index Funds. You won't pay a front-end sales charge, CDSC or redemption fee on the shares you're exchanging. You can exchange your Investor B Shares for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You can exchange your Investor C Shares for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of a Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Using our Automatic o minimum $25 per exchange You must already have an investment in the Exchange Feature Funds into which you want to exchange. You can make exchanges monthly or quarterly.
21 [GRAPHIC] A business day is any day that the New York Stock Exchange (NYSE) is open. A business day ends at the close of regular trading on the NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes early, the business day ends as of the time the NYSE closes. The NYSE is closed on weekends and on the following national holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. How shares are priced All transactions are based on the price of the Fund's shares -- or its net asset value per share. We calculate net asset value per share for each class of the Fund at the end of each business day. First, we calculate the net asset value for each class of the Fund by determining the value of the Fund's assets in the class and then subtracting its liabilities. Next, we divide this amount by the number of shares that investors are holding in the class. Valuing securities in the Fund The value of the Fund's assets is based on the total market value of all of the securities it holds. The prices reported on stock exchanges and securities markets around the world are usually used to value securities in the Fund. If prices aren't readily available, or the value of a security has been materially affected by events occurring after a foreign exchange closes, we'll base the price of a security on its fair value. When the Fund uses fair value to price securities it may value those securities higher or lower than another fund that uses market quotations to price the same securities. We use the amortized cost method, which approximates market value, to value short-term investments maturing in 60 days or less. International markets may be open on days when U.S. markets are closed. The value of foreign securities owned by the Fund could change on days when Fund shares may not be bought or sold. How orders are processed Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents before the end of a business day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive that day's net asset value per share. Orders received after the end of a business day will receive the next business day's net asset value per share. The business day that applies to your order is also called the trade date. We may refuse any order to buy or exchange shares. If this happens, we'll return any money we've received to your selling agent. Telephone orders You can place orders to buy, sell or exchange by telephone if you complete the telephone authorization section of our account application and send it to us. Here's how telephone orders work: o If you sign up for telephone orders after you open your account, you must have your signature guaranteed. o Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. o We'll take reasonable steps to confirm that telephone instructions are genuine. For example, we require proof of your identification before we will act on instructions received by telephone and may record telephone conversations. If we and our service providers don't take these steps, we may be liable for any losses from unauthorized or fraudulent instructions. o Telephone orders may be difficult to complete during periods of significant economic or market change. 22 [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by the Fund every business day. [GRAPHIC] Buying shares Here are some general rules for buying shares: o You buy Investor A Shares at the offering price per share. You buy Investor B and Investor C Shares at net asset value per share. o If we don't receive your money within three business days of receiving your order, we'll refuse the order. o Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. o Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. Minimum initial investment The minimum initial amount you can buy is usually $1,000. If you're buying shares through one of the following accounts or plans, the minimum initial amount you can buy is: o $500 for traditional and Roth individual retirement accounts (IRAs) o $250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts o $100 using our Systematic Investment Plan o There is no minimum for 401(k) plans, simplified employee pension plans (SEPs), salary reduction-simplified employee pension plans (SAR-SEPs), Savings Incentives Match Plans for Employees (SIMPLE IRAs), salary reduction-IRAs (SAR-IRAs) or other similar kinds of accounts. However, if the value of your account falls below $1,000 for 401(k) plans or $500 for the other plans within one year after you open your account, we may sell your shares. We'll give you 60 days' notice in writing if we're going to do this Minimum additional investment You can make additional purchases of $100, or $50 if you use our Systematic Investment Plan. 23 [GRAPHIC] For more information about telephone orders, see How orders are processed. Systematic Investment Plan You can make regular purchases of $50 or more using automatic transfers from your bank account to the Funds you choose. You can contact your investment professional or us to set up the plan. Here's how the plan works: o You can buy shares twice a month, monthly or quarterly. o You can choose to have us transfer your money on or about the 15th or the last day of the month. o Some exceptions may apply to employees of Bank of America and its affiliates, and to plans set up before August 1, 1997. For details, please contact your investment professional. [GRAPHIC] Selling shares Here are some general rules for selling shares: o We'll deduct any CDSC from the amount you're selling and send you the balance. o If you're selling your shares through a selling agent, we'll normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. Your selling agent is responsible for depositing the sale proceeds to your account on time. o If you're selling your shares directly through us, we'll normally send the sale proceeds by mail or electronic transfer them to your bank account within three business days after the Fund receives your order. o You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. o If you paid for your shares with a check that wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared, whichever is later. o If you hold any shares in certificate form, you must sign the certificates (or send a signed stock power with them) and send them to PFPC. Your signature must be guaranteed unless you've made other arrangements with us. We may ask for any other information we need to prove that the order is properly authorized. o Under certain circumstances allowed under the Investment Company Act of 1940 (1940 Act), we can pay you in securities or other property when you sell your shares. o We can delay payment of the sale proceeds for up to seven days. o Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. 24 We may sell your shares: o if the value of your account falls below $500. We'll give you 60 days' notice in writing if we're going to do this o if your selling agent tells us to sell your shares under arrangements made between the selling agent and you o under certain other circumstances allowed under the 1940 Act Automatic Withdrawal Plan The Automatic Withdrawal Plan lets you withdraw $25 or more twice a month, monthly, quarterly, bi-annually or annually. You can contact your investment professional or us to set up the plan. Here's how the plan works: o Your account balance must be at least $10,000 to set up the plan. o If you set up the plan after you've opened your account, your signature must be guaranteed. o You can choose to have us transfer your money on or about the 10th or the 25th of the month. o You won't pay a CDSC on Investor A, Investor B or Investor C Shares if you withdraw 12% or less of the value of those shares in a year. Otherwise, we'll deduct any CDSC from the withdrawals. o We'll send you a check or deposit the money directly to your bank account. o You can cancel the plan by giving your selling agent or us 30 days' notice in writing. It's important to remember that if you withdraw more than your investment in the Fund is earning, you'll eventually use up your original investment. [GRAPHIC] You should make sure you understand the investment objective and principal investment strategies of the Fund you're exchanging into. Please read its prospectus carefully. [GRAPHIC] Exchanging shares You can sell shares of the Fund to buy shares of another Nations Fund. This is called an exchange. You might want to do this if your investment goals or tolerance for risk changes. Here's how exchanges work: o You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. o The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. o You may only make exchanges into a Fund that is legally sold in your state of residence. o You generally may only make an exchange into a Fund that is accepting investments. 25 o We may limit the number of exchanges you can make within a specified period of time. o We may change or cancel your right to make an exchange by giving the amount of notice required by regulatory authorities (generally 60 days for a material change or cancellation). o You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. Exchanging Investor A Shares You can exchange Investor A Shares of the Fund for Investor A Shares of any other Nations Fund, except Index Funds. Here are some rules for exchanging Investor A Shares: o You won't pay a front-end sales charge on the shares of the Fund you're exchanging. o You won't pay a CDSC, if applicable, on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC at that time will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. o You won't pay a redemption fee on the shares you're exchanging. Any redemption fee will be deducted when you sell the shares you received from the exchange. Any redemption fee will be paid to the original Fund. Exchanging Investor B Shares You can exchange Investor B Shares of the Fund for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Investor C Shares of a Nations Money Market Fund through an exchange of Investor B Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Investor C Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. 26 Exchanging Investor C Shares You can exchange Investor C Shares of the Fund for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of the Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Daily Shares of a Nations Money Market Fund through an exchange of Investor C Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Daily Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. Automatic Exchange Feature The Automatic Exchange Feature lets you exchange $25 or more of Investor A, Investor B or Investor C Shares every month or every quarter. You can contact your investment professional or us to set up the plan. Here's how automatic exchanges work: o Send your request to PFPC in writing or call 1.800.321.7854. o If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. o You must already have an investment in the Fund you want to exchange. o You can choose to have us transfer your money on or about the 1st or the 15th day of the month. o The rules for making exchanges apply to automatic exchanges. 27 [GRAPHIC] How selling and servicing agents are paid Selling and servicing agents usually receive compensation based on your investment in the Fund. The kind and amount of the compensation depends on the share class in which you invest. Selling agents typically pay a portion of the compensation they receive to their investment professionals. Commissions Your selling agent may receive an up-front commission (reallowance) when you buy shares of the Fund. The amount of this commission depends on which share class you choose: o up to 5.00% of the offering price per share of Investor A Shares. The commission is paid from the sales charge we deduct when you buy your shares o up to 4.00% of the net asset value per share of Investor B Shares. The commission is not deducted from your purchase -- we pay your selling agent directly o up to 1.00% of the net asset value per share of Investor C Shares. The commission is not deducted from your purchase -- we pay your selling agent directly If you buy Investor B or Investor C Shares you will be subject to higher distribution (12b-1) and shareholder servicing fees and may be subject to a CDSC when you sell your shares. [GRAPHIC] The financial institution or intermediary that buys shares for you is also sometimes referred to as a selling agent. The distribution fee is often referred to as a "12b-1" fee because it's paid through a plan approved under Rule 12b-1 under the 1940 Act. Your selling agent may charge other fees for services provided to your account. Distribution (12b-1) and shareholder servicing fees Stephens and selling and servicing agents may be compensated for selling shares and providing services to investors under distribution and shareholder servicing plans. The amount of the fee depends on the class of shares you own:
Maximum annual distribution (12b-1) and shareholder servicing fees (as an annual % of average daily net assets) Investor A Shares 0.25% combined distribution (12b-1) and shareholder servicing fee Investor B Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee Investor C Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee
Fees are calculated daily and paid monthly. Because these fees are paid out of the Fund's assets on an ongoing basis, they will increase the cost of your investment over time, and may cost you more than any sales charges you may pay. The Fund pays these fees to Stephens and/or to eligible selling and servicing agents and financial institutions, including BA Advisors or its affiliates, for as long as the plans continue. We may reduce or discontinue payments at any time. 28 Other compensation Selling and servicing agents may also receive: o a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Fund o additional amounts on all sales of shares: o up to 1.00% of the offering price per share of Investor A Shares o up to 1.00% of the net asset value per share of Investor B Shares o up to 1.00% of the net asset value per share of Investor C Shares o non-cash compensation like trips to sales seminars, tickets to sporting events, theater or other entertainment, opportunities to participate in golf or other outings and gift certificates for meals or merchandise This compensation, which is not paid by the Fund, is discretionary and may be available only to selected selling and servicing agents. For example, Stephens sometimes sponsors promotions involving Banc of America Investment Services, Inc., an affiliate of BA Advisors, and certain other selling or servicing agents. Selected selling and servicing agents also may receive compensation for opening a minimum number of accounts. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Fund for services they provide. 29 [GRAPHIC] Distributions and taxes [GRAPHIC] The power of compounding Reinvesting your distributions buys you more shares of the Fund -- which lets you take advantage of the potential for compound growth. Putting the money you earn back into your investment means it, in turn, may earn even more money. Over time, the power of compounding has the potential to significantly increase the value of your investment. There is no assurance, however, that you'll earn more money if you reinvest your distributions. About distributions A mutual fund can make money two ways: o It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. o A fund can also have capital gain if the value of its investments increases. If a fund sells an investment at a gain, the gain is realized. If a fund continues to hold the investment, any gain is unrealized. A mutual fund is not subject to federal income tax as long as it distributes its net investment income and realized capital gain to its shareholders. The Fund intends to pay out a sufficient amount of its income and capital gain to its shareholders so the Fund won't have to pay any federal income tax. When the Fund makes this kind of a payment, it's split among all shares, and is called a distribution. The Fund distributes any net realized capital gain, at least once a year. The Fund declares and pays distributions of net investment income annually. Any distribution you receive is based on the number of shares you hold on the record date, which is usually the day the distribution is declared (daily dividend Funds) or the day before the distribution is declared (all other Funds). Shares are eligible to receive net investment income distributions from the settlement date (daily dividend Funds), trade date (all other Funds) or realized capital gain from the trade date of the purchase up to and including the day before the shares are sold. Different share classes of the Fund usually pay different net investment income distribution amounts, because each class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. We'll automatically reinvest distributions in additional shares of the same Fund unless you tell us you want to receive your distributions in cash. You can do this by writing to us at the address on the back cover, or by calling us at 1.800.321.7854. We generally pay cash distributions within five business days after the end of the month, quarter or year in which the distribution was made. If you sell all of your shares, we'll normally pay any distribution that applies to those shares in cash within five business days after the sale was made. If you buy shares of the Fund shortly before it makes a distribution, you will, in effect, receive part of your purchase back in the distribution, which is subject to tax. Similarly, if you buy shares of the Fund when it holds securities with unrealized capital gain, you will, in effect, receive part of your purchase back if and when the Fund sells those securities and distributes the gain. This distribution is also subject to tax. The Fund has built up, or has the potential to build up, high levels of unrealized capital gain. 30 [GRAPHIC] This information is a summary of how federal income taxes may affect your investment in the Fund. It is not intended as a substitute for careful tax planning. You should consult with your own tax adviser about your situation, including any foreign, state and local taxes that may apply. [GRAPHIC] For more information about taxes, please see the SAI. How taxes affect your investment Distributions that come from net investment income, net short-term capital gain and certain other items generally are taxable to you as ordinary income. A portion of such distributions to corporate shareholders may qualify for the dividends-received deduction. Distributions that come from net long-term capital gain generally are taxable to you as long-term capital gain. In general, all distributions are taxable to you when paid, whether they are paid in cash or automatically reinvested in additional shares of the Fund. However, any distributions declared to shareholders of record in October, November or December of one year and distributed in January of the following year will be taxable as if they had been paid to you on December 31 of the first year. We'll send you a notice every year that tells you how much you've received in distributions during the year and their federal tax status. Foreign, state and local taxes may also apply to these distributions. Withholding tax We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts to be paid for in securities or other property and exchanges) if: o you haven't given us a correct Taxpayer Identification Number (TIN) and haven't certified that the TIN is correct and withholding doesn't apply o the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records o the IRS informs us that you're otherwise subject to backup withholding The IRS may also impose penalties against you if you don't give us a correct TIN. Amounts we withhold are applied to your federal income tax liability. You may receive a refund from the IRS if the withholding tax results in an overpayment of taxes. We're also normally required by federal law to withhold tax on distributions (other than capital gain distributions) paid to foreign shareholders. Taxation of redemptions and exchanges Your redemptions (including redemptions paid in securities) and exchanges of Fund shares will usually result in a taxable capital gain or loss, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. 31 [GRAPHIC] This glossary includes explanations of the important terms that may be used in this prospectus. Some of the terms explained may apply to Nations Funds not included in this prospectus. [GRAPHIC] Terms used in this prospectus Amortized cost method - under Rule 2a-7 of the 1940 Act, the method of calculating an investment company's net asset value whereby portfolio securities are valued at the Fund's acquisition cost as adjusted for amortization of premium or accretion of discount rather than at their current market value. Asset-backed security - a debt security that gives an investor an interest in a pool of assets that is collateralized or "backed" by one or more kinds of assets, including automobile loans or credit card receivables, generally issued by banks, credit card companies or other lenders. Asset-backed securities typically make periodic payments, which may be interest or a combination of interest and a portion of the principal of the underlying assets. Average dollar-weighted maturity - the average length of time until the debt securities held by a Fund reach maturity. In general, the longer the average dollar-weighted maturity, the more a Fund's share price will fluctuate in response to changes in interest rates. Bank obligation - a money market instrument issued by a domestic or U.S. branch of a foreign bank, including certificates of deposit, time deposits and bankers' acceptances. Capital gain or loss - the difference between the purchase price of a security and its selling price. An investor realizes a capital gain when it sells a security for more than it paid for it. An investor realizes a capital loss when it sells a security for less than it paid for it. Cash equivalents - short-term, interest-bearing instruments which can easily be converted into cash, including U.S. government obligations, bank obligations, and certain asset-backed securities, foreign government securities and commercial paper issued by U.S. and foreign issuers which, at the time of investment, is rated at least Prime-2 by Moody's Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch). Collateralized mortgage obligation (CMO) - a type of mortgage-backed security. CMO payment obligations are covered by interest and/or principal payments from a pool of mortgages. In addition, the underlying assets of a CMO are typically separated into classes, called tranches, based on maturity. Each tranche pays a different rate of interest. CMOs are not generally issued by the U.S. government, its agencies or instrumentalities. Commercial paper - a short-term corporate obligation. Commercial paper is typically considered a money market instrument. Common stock - a security that represents part equity ownership in a company. Common stock typically allows an investor to vote at shareholder meetings and to share in the company's profits by receiving dividends. 32 Convertible debt - a debt security that can be exchanged for common stock (or another type of security) on a specified basis and date. Convertible security - a security that can be exchanged for common stock (or another type of security) at a specified rate. Convertible securities include convertible debt, rights and warrants. Crossing networks - an electronic system where anonymous parties can match buy and sell transactions. These transactions don't affect the market, and transaction costs are extremely low. CSFB Convertible Securities Index - 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. Debt security - a security issued by a governmental body or company (the issuer) to help fund their operations or major projects. The issuer pays interest at a specified rate on a specified date or dates, and repays the principal when the security matures. Short-term debt securities include money market instruments such as treasury bills. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Depositary receipts - evidence of the deposit of a security with a custodian bank. American Depositary Receipts (ADRs), for example, are certificates traded in U.S. markets representing an interest of a foreign company. They were created to make it possible for foreign issuers to meet U.S. security registration requirements. Other examples include ADSs, GDRs and EDRs. Derivatives - A derivative is a financial contract whose value is based upon, or "derived" from, an underlying financial asset (such as a stock or a bond), a commodity (such as gold), a market index (such as the S&P 500) or a reference rate (such as the prime lending interest rate). Examples of derivative instruments include futures, options, index-, equity-, commodity- and currency-linked securities, warrants and swap contracts. For a detailed description of the derivatives described here, see the SAI. Diversified - A diversified fund, as defined by the 1940 Act, must have at least 75% of its total assets in cash and cash equivalents, government securities, securities of other investment companies, or other securities. For purposes of this calculation, the fund may not count securities of a single issuer that comprise more than 5% of the fund's assets. Dividend yield - rate of return of dividends paid on a common or preferred stock. It equals the amount of the annual dividend on a stock expressed as a percentage of the stock's current market value. Duration - a security's or portfolio's sensitivity to changes in interest rates. For example, if interest rates rise by one percentage point, the share price of a fund with a duration of five years would decline by about 5%. If interest rates fall by one percentage point, the fund's share price would rise by about 5%. 33 Equity security - an investment that gives an investor an equity ownership right in a company. Equity securities (or "equities") include common and preferred stock, rights and warrants. First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds and has the highest short-term rating from a nationally recognized statistical rating organization (NRSRO), or if unrated, is determined by the Fund's portfolio management team to be of comparable quality, or is a money market fund or a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Foreign security - a debt or equity security determined by a Fund's portfolio management team to be foreign based on an issuer's domicile, its principle place of business, the source of its revenues or other factors. Forward foreign currency contracts - a forward foreign currency contract includes an obligation to purchase or sell a foreign currency at a specified future date. Forward purchase agreement - a contract obligating one party to buy and another party to sell an equity security, commodity, currency or other financial instrument at a specific future date. Fundamental analysis - a method of securities analysis that tries to evaluate the intrinsic, or "true," value of a particular stock. It includes a study of the overall economy, industry conditions and the financial condition and management of a company. Futures contract - a contract to buy or sell underlying instruments at a specified price on a specified future date. The price is typically set through a futures exchange. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to NRSROs such as S&P and Moody's. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by a Fund's Board. Please see the SAI for more information about credit ratings. High yield debt security - debt securities that, at the time of purchase, are rated "BB" or below by S&P or "Ba" or below by Moody's, or that are unrated and determined by the portfolio management team to be of comparable quality. Interest rate swap - an agreement between two parties to exchange periodic interest payments based on a predetermined principal amount. 34 Investment grade - a debt security that has been given a medium to high credit rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating by other NRSROs) based on the issuer's ability to pay interest and repay principal on time. The portfolio management team may consider an unrated debt security to be investment grade if the team believes it is of comparable quality. Please see the SAI for more information about credit ratings. Lehman Aggregate Bond Index - an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government/Corporate Bond Index - an unmanaged index of U.S. government, U.S. Treasury and agency securities, and corporate and Yankee bonds. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Liquidity - a measurement of how easily a security can be bought or sold at a price that is close to its market value. Money market instrument - a short-term debt security that is considered to mature in 13 months or less. Money market instruments include U.S. Treasury obligations, U.S. government obligations, certificates of deposit, bankers' acceptances, commercial paper, repurchase agreements and certain municipal securities. Mortgage-backed security or Mortgage-related security - a debt security that gives you an interest in, and is backed by, a pool of residential mortgages issued by the U.S. government or by financial institutions. The underlying mortgages may be guaranteed by the U.S. government or one of its agencies, authorities or instrumentalities. Mortgage-backed securities typically make monthly payments, which are a combination of interest and a portion of the principal of the underlying mortgages. MSCI EAFE Index - Morgan Stanley Capital International Europe, Australasia and Far East Index is an unmanaged, capitalization-weighted index. The index reflects the relative size of each market consisting of securities listed on exchanges in European, Australasian and Far Eastern markets and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investment. It is not available for investment. MSCI World Index - Morgan Stanley Capital International World Index is an unmanaged index consisting of securities listed on exchanges in the major European and Asian countries, Australia and the U.S. and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investing. It is not available for investment. 35 Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public or private projects and services. "General obligations" are typically backed by the issuer's full taxing and revenue-raising powers. "Revenue securities" depend on the income earned by a specific project or authority, like road or bridge tolls, user fees for water or revenues from a utility. Interest income from municipal securities that pay for "public" projects and services is exempt from federal income taxes and is generally exempt from state taxes if an investor lives in the state that issued the security. If an investor lives in the municipality that issued the security, interest income may also be exempt from local taxes. Non-diversified - a fund that holds securities of fewer issuers than other kinds of funds. Non-diversified funds tend to have greater price swings than more diversified funds because events affecting one or more of its securities may have a disproportionately large effect on the fund. NRSRO - A nationally recognized statistical rating organization, such as S&P or Moody's. Options - An option is the right to buy or sell a security based on an agreed upon price at a specified time. For example, an option may give the holder of a stock the right to sell the stock to another party, allowing the seller to profit if the price has fallen below the agreed price. Options may also be based on the movement of an index such as the S&P 500. Over-the-counter market - a market where dealers trade securities through a telephone or computer network rather than through a public stock exchange. Preferred stock - a type of equity security that gives you a limited ownership right in a company, with certain preferences or priority over common stock. Preferred stock generally pays a fixed annual dividend. If the company goes bankrupt, preferred shareholders generally receive their share of the company's remaining assets before common shareholders and after bondholders and other creditors. Ownership of preferred stock typically does not come with certain voting rights that come with common stock. Pre-refunded bond - a bond that is repaid before its maturity date. The repayment is generally financed by a new issue. Issuers generally pre-refund bonds during periods of lower interest rates to reduce their interest costs. Price-to-earnings ratio (P/E ratio) - the current price of a share divided by its actual or estimated earnings per share. The P/E ratio is one measure of the value of a company. Private placement - a private placement is the sale of stocks, bonds or other investments directly to a qualified investor without having to register the offering with the SEC or other comparable foreign regulatory authorities. Qualified investors are typically large institutional investors or high net worth individuals. Securities acquired through private placements generally may not be resold. 36 Quantitative analysis - an analysis of financial information about a company or security to identify securities that have the potential for growth or are otherwise suitable for a fund to buy. Real Estate Investment Trust (REIT) - a portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls, and real-estate-related loans or interests. Repurchase agreement - a short-term (often overnight) investment arrangement. The investor agrees to buy certain securities from the borrower and the borrower promises to buy them back at a specified date and price. The difference between the purchase price paid by the investor and the repurchase price paid by the borrower represents the investor's return. Repurchase agreements are popular because they provide low-risk returns and can allow a fund to remain fully invested. Reverse repurchase agreement - a repurchase agreement in which an investor sells a security to another party, like a bank or dealer, in return for cash, and agrees to buy the security back at a specified date and price. Reverse repurchase agreements are, in effect, loans to a fund. Right - a temporary privilege allowing investors who already own a common stock to buy additional shares directly from the company at a specified price or formula. Russell 1000 Index - 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. The Russell 3000 Index is a listing of 3000 corporations by the Frank Russell Company that is intended to be representative of the U.S. economy. The Russell 1000 is considered a "large cap" index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 2000 Index - 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. 37 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. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 3000 Growth Index - an unmanaged index comprised of securities in the Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies based on total market capitalization, with a greater than average growth orientation. Companies in the Russell 3000 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. S&P 500(1) - Standard & Poor's 500 Composite Stock Price Index, an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P/BARRA Value Index(1) - an unmanaged index of a subset of stocks from the S&P 500 that have low price-to-book ratios relative to the S&P 500 as a whole. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P/IFC Investables Index - an unmanaged index that tracks more than 1,400 stocks in 25 emerging markets in Asia, Latin America, Eastern Europe, Africa and the Middle East. The index is weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P MidCap 400(1) - an unmanaged index of 400 domestic stocks chosen for market size, liquidity and industry representation. The index is weighted by market value, and is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SmallCap 600(1) - Standard & Poor's SmallCap 600 Index, an unmanaged index of 600 common stocks, weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SuperComposite 1500(1) - an unmanaged index created by Standard & Poors combining the companies represented in three other indices -- the S&P 500, MidCap 400, and SmallCap 600. The index represents 87% of the total capitalization of U.S. equity markets. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds, but is not a first-tier security. 38 Senior security - a debt security that allows holders to receive their share of a company's remaining assets in a bankruptcy before other bondholders, creditors, and common and preferred shareholders. Settlement date - the date on which an order is settled either by payment or delivery of securities. Total return swap - an agreement between two parties to exchange periodic interest payments for the total return of an equity or fixed income instrument. Trade date - the effective date of a purchase, sale or exchange transaction, or other instructions sent to us. The trade date is determined by the day and time we receive the order or instructions in a form that's acceptable to us. U.S. government obligations - a wide range of debt securities issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities. U.S. Treasury obligation - a debt security issued by the U.S. Treasury. Warrant - a certificate that gives you the right to buy common shares at a specified price within a specified period of time. Zero-coupon bond - a bond that makes no periodic interest payments. Zero coupon bonds are sold at a deep discount to their face value and mature at face value. The difference between the face value at maturity and the purchase price represents the return. (1)S&P and BARRA have not reviewed any stock included in the S&P SuperComposite 1500, S&P 500, S&P SmallCap 600, S&P MidCap 400 Index or BARRA Value Index for its investment merit. S&P and BARRA determine and calculate their indices independently of the Funds and are not a sponsor or affiliate of the Funds. S&P and BARRA give no information and make no statements about the suitability of investing in the Funds or the ability of their indices to track stock market performance. S&P and BARRA make no guarantees about the indices, any data included in them and the suitability of the indices or their data for any purpose. "Standard and Poor's," "S&P 500" and "S&P 600" are trademarks of The McGraw-Hill Companies, Inc. 39 [GRAPHIC] Where to find more information You'll find more information about Nations Financial Services Fund in the following documents: Annual and semi-annual reports The annual and semi-annual reports contain information about Fund investments and performance, the financial statements and the independent accountants' reports. The annual report also includes a discussion about the market conditions and investment strategies that had a significant effect on the Fund's performance during the period covered. [GRAPHIC] Statement of Additional Information The SAI contains additional information about the Funds and its policies. The SAI is legally part of this prospectus (it's incorporated by reference). A copy has been filed with the SEC. You can obtain a free copy of these documents, request other information about the Fund and make shareholder inquiries by contacting Nations Funds: By telephone: 1.800.321.7854 By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nations-funds.com Information about the Fund can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. The reports and other information about the Funds are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. SEC file number: Nations Funds Trust, 811-09645 FINSRVPROIX-8/01 [NATIONS FUNDS LOGO] [GRAPHIC] Nations Classic Value Fund Prospectus -- Investor A, B and C Shares August 1, 2001 The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Not FDIC Insured - ------------------ May Lose Value - ------------------ No Bank Guarantee [Nations Funds logo appears here] An overview of the Fund - -------------------------------------------------------------------------------- [GRAPHIC] Terms used in this prospectus In this prospectus, we, us and our refer to the Nations Funds family (Nations Funds or Nations Funds Family). Some other important terms we've used may be new to you. These are printed in italics where they first appear in a section and are described in Terms used in this prospectus. [GRAPHIC] You'll find Terms used in this prospectus on page 34. Your investment in this Fund is not a bank deposit and is not insured or guaranteed by Bank of America, N. A. (Bank of America), the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Your investment may lose money. Affiliates of Bank of America are paid for the services they provide to the Fund. This booklet, which is called a prospectus, tells you about one Nations Funds Stock Fund -- Nations Classic Value Fund. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. About the Fund Nations Classic Value Fund invests primarily in equity securities of U.S. companies. Equity securities have the potential to provide you with higher returns than many other kinds of investments, but they also tend to have higher risk. There's always the risk that you'll lose money or you may not earn as much as you expect. Is this Fund right for you? Not every fund is right for every investor. When you're choosing a fund to invest in, you should consider things like your investment goals, how much risk you can accept and how long you're planning to hold your investment. Nations Classic Value Fund may be suitable for you if: o you have longer-term investment goals o it's part of a balanced portfolio o you want to try to protect your portfolio against a loss of buying power that inflation can cause over time It may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with foreign securities o you have short-term investment goals o you're looking for a regular stream of income You'll find a discussion of the Fund's principal investments, strategies and risks in the Fund description that starts on page 4. For more information If you have any questions about the Fund, please call us at 1.800.321.7854 or contact your investment professional. You'll find more information about the Fund in the Statement of Additional Information (SAI). The SAI includes more detailed information about the Fund's investments, policies, performance and management, among other things. Please turn to the back cover to find out how you can get a copy. 2 What's inside - -------------------------------------------------------------------------------- [GRAPHIC] Banc of America Advisors, LLC Banc of America Advisors, LLC (BA Advisors) is the investment adviser to the Fund. BA Advisors is responsible for the overall management and supervision of the investment management of the Fund. BA Advisors and Nations Funds have engaged a sub-adviser, which is responsible for the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BA Advisors and the sub-adviser starting on page 10. [GRAPHIC] About the Fund Nations Classic Value Fund 4 Sub-adviser: Brandes Investment Partners, L.P. - ------------------------------------------------------------------ Other important information 8 - ------------------------------------------------------------------ How the Fund is managed 10 [GRAPHIC] About your investment Information for investors Choosing a share class 14 About Investor A Shares 15 Front-end sales charge 15 Contingent deferred sales charge 16 About Investor B Shares 16 Contingent deferred sales charge 16 About Investor C Shares 18 Contingent deferred sales charge 18 When you might not have to pay a sales charge 19 Buying, selling and exchanging shares 22 How orders are processed 24 How selling and servicing agents are paid 30 Distributions and taxes 32 - ------------------------------------------------------------------ Terms used in this prospectus 34 - ------------------------------------------------------------------ Where to find more information back cover 3 Nations Classic Value Fund [GRAPHIC] About the sub-adviser Brandes Investment Partners, L.P. (Brandes) is this Fund's sub-adviser. Brandes' Large Cap Investment Committee makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about Brandes on page 11. [GRAPHIC] What is the Graham and Dodd approach to investing? Benjamin Graham is widely regarded as the founder of this classic value approach to investing and a pioneer in modern security analysis. In his 1934 book, Security Analysis, co-written by David Dodd, Graham introduced the idea that stocks should be chosen by identifying the "true" long-term -- or intrinsic -- value of a company based on measurable data. Benjamin Graham and David Dodd have never had any affiliation with the Fund. The management team follows this approach, looking at each stock as though it's a business that's for sale. By buying stocks at what it believes are favorable prices, the team looks for the potential for appreciation over the business cycle, and for a margin of safety against price declines. [GRAPHIC] Investment objective The Fund seeks growth of capital by investing in companies believed to be undervalued. [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in equity securities of U.S. companies that are believed to be undervalued. The Fund focuses its investments in large and medium-sized companies. The Fund generally holds 40 to 75 equity securities. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. The management team uses the "Graham and Dodd" value approach to selecting securities and managing the Fund. The team invests in a company when its current price appears to be below its "true" long-term -- or intrinsic -- value. The team uses fundamental analysis to determine intrinsic value, and will look at a company's earnings, book value, cash flow, capital structure, and management record, as well as its industry and its position in the industry. This analysis includes a review of company reports, filings with the SEC, computer databases, industry publications, general and business publications, brokerage firm research reports and other information sources, as well as interviews with company management. The team may sell a security when its price reaches the target set by the team, when there is a deterioration in the company's financial situation, when the team believes other investments are more attractive, and for other reasons. 4 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Limits on investments To help manage risk, the Fund has certain limits on its investments. These limits apply at the time an investment is made: o The Fund will normally invest no more than 5% of its assets in a single security. o It may not invest more than the greater of: o 20% of its assets in a single industry, or o 150% of the weighting of a single industry in the S&P 500 ( limited to less than 25% of its assets in a single industry, other than U.S. government securities). [GRAPHIC] Risks and other things to consider Nations Classic Value Fund has the following risks: o Investment strategy risk - The team chooses stocks it believes are undervalued or out of favor with the expectation that these stocks will eventually rise in value. There is a risk that the value of these investments will not rise as high or as quickly as the team expects, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. [GRAPHIC] For information about the performance of other stock accounts managed by Brandes, see How the Fund is managed. [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. 5 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses (Expenses that are deducted from the Fund's assets) Management fees 0.65% 0.65% 0.65% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% Other expenses(4) 0.48% 0.48% 0.48% ----- -------- -------- Total annual Fund operating expenses(5) 1.38% 2.13% 2.13% ===== ======== ========
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. (4)Other expenses are based on estimates for the current fiscal year. (5)The Fund's investment adviser and/or some of its other service providers have agreed to limit total annual operating expenses to the levels shown above until July 31, 2002. There is no guarantee that these limitations will continue after this date. The investment adviser is entitled to reimbursement from the Fund of any fees waived or expenses reimbursed for a three year period following the date of such waiver or reimbursement under this agreement if such reimbursements do not cause the Fund's expenses to exceed the existing expense limitations. 6 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above Although your actual costs may be higher or lower, based on these assumptions your costs would be: 1 year 3 years Investor A Shares $708 $988 Investor B Shares $716 $967 Investor C Shares $316 $667 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years Investor B Shares $216 $667 Investor C Shares $216 $667 7 [GRAPHIC] Other important information You'll find specific information about the Fund's principal investments, strategies and risks in the description starting on page 4. The following are some other risks and information you should consider before you invest: o Changing investment objective and policies - The investment objective and certain investment policies of the Fund can be changed without shareholder approval. Other investment policies may be changed only with shareholder approval. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. o Holding other kinds of investments - The Fund may hold investments that aren't part of its principal investment strategies. Please refer to the SAI for more information. The management team can also choose not to invest in specific securities described in this prospectus and in the SAI. o Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Fund may invest up to 25% of its assets in Nations Money Market Funds. BA Advisors and its affiliates are entitled to receive fees from the Nations Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Fund for services provided directly. BA Advisors may waive fees which it is entitled to receive from either the Nations Money Market Funds or the Fund. o Investing defensively - The Fund may temporarily hold investments that are not part of its investment objective or its principal investment strategies to try to protect it during a market or economic downturn or because of political or other conditions. The Master Portfolio may not achieve its investment objective while it is investing defensively. o Securities lending program - The Fund may lend portfolio securities to approved broker-dealers or other financial institutions on a fully collateralized basis in order to earn additional income. There may be delays in receiving additional collateral after the loan is made or in recovering the securities loaned. 8 o Bank of America and its affiliates - Bank of America and its affiliates currently provide services to the Fund, including investment advisory, investment sub-advisory, co-administration and brokerage services, and are paid for providing these services. Bank of America and its affiliates also may, at times, provide other services and be compensated for them, including transfer agency, interfund lending and securities lending services, or make loans to the Fund. Finally, Bank of America or its affiliates may serve as counterparties in transactions with Nations Funds where permitted by law or regulation, and may receive compensation in that capacity. o Portfolio turnover - A fund that replaces -- or turns over -- more than 100% of its investments in a year is considered to trade frequently. Frequent trading can result in larger distributions of short-term capital gains to shareholders. These gains are taxable at higher rates than long-term capital gains. Frequent trading can also mean higher brokerage and other transaction costs, which could reduce the Fund's returns. The Fund generally buys securities for capital appreciation, investment income, or both, and doesn't engage in short-term trading. The annual portfolio turnover rate for Nations Classic Value Fund is expected to be no more than 50%. 9 [GRAPHIC] How the Fund is managed [GRAPHIC] Banc of America Advisors, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Investment adviser BA Advisors is the investment adviser to over 75 mutual fund portfolios in the Nations Funds Family, including the Fund described in this prospectus. BA Advisors is a registered investment adviser. It's a wholly-owned subsidiary of Bank of America, which is owned by Bank of America Corporation. Nations Funds pays BA Advisors an annual fee for its investment advisory services. The fee is calculated as a percentage of the average daily net assets of the Fund and is paid monthly. BA Advisors uses part of this money to pay the investment sub-adviser for the services it provides to the Fund. BA Advisors has agreed to waive fees and/or reimburse expenses for this Fund until July 31, 2002. You'll find a discussion of any waiver and/or reimbursement in the Fund description. There is no assurance that BA Advisors will continue to waive and/or reimburse any fees and/or expenses after this date. The following chart shows the maximum advisory fees BA Advisors can receive: Annual investment advisory fee, as a % of average daily net assets Maximum advisory fee Nations Classic Value Fund 0.65% 10 Investment sub-adviser Nations Funds and BA Advisors engage one or more investment sub-advisers for the Fund to make day-to-day investment decisions for the Fund. BA Advisors retains ultimate responsibility (subject to Board oversight) for overseeing the sub-advisers and evaluates the Fund's needs and available sub-advisers' skills and abilities on an ongoing basis. Based on its evaluations, BA Advisors may at times recommend to the Fund's Board that the Fund: o change, add or terminate one or more sub-advisers; o continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or o materially change a sub-advisory agreement with a sub-adviser. Applicable law requires the Fund to obtain shareholder approval in order to act on most of these types of recommendations, even if the Fund's Board has approved the proposed action and believes that the action is in shareholder's best interests. BA Advisors and the Fund have applied for relief from the SEC to permit the Fund to act on many of BA Advisors' recommendations with approval only by the Fund's Board and not by Fund shareholders. BA Advisors or the Fund would inform the Fund's shareholders of any actions taken in reliance on this relief. Until BA Advisors and the Fund obtain the relief, the Fund will continue to submit these matters to shareholders for their approval to the extent required by applicable law. [GRAPHIC] Brandes Investment Partners, L.P. 11988 El Camino Real Suite 500 San Diego, California 92130 Brandes Investment Partners, L.P. Founded in 1974, Brandes is an investment advisory firm with 56 investment professionals who manage more than $50 billion in assets. Brandes uses a value-oriented approach to managing international investments, seeking to build wealth by buying high quality, undervalued stocks. Brandes is the investment sub-adviser to Nations Classic Value Fund. Brandes' Large Cap Investment Committee is responsible for making the day-to-day investment decisions for the Fund. Performance of other stock accounts managed by Brandes Nations Classic Value Fund commenced its operations on April 16, 2001. The tables below are designed to show you how a composite of similar stock accounts managed by Brandes performed over various periods in the past. The accounts comprising the Brandes U.S. Value Equity composite have investment objectives, policies and strategies that are substantially similar to Nations Classic Value Fund. The Brandes U.S. Value Equity composite includes all accounts managed by Brandes that are substantially similar to Nations Classic Value Fund. 11 The table below shows the returns for the Brandes U.S. Value Equity composite compared with the Russell 1000 Value Index for the periods ending March 31, 2001 and December 31 of prior years. The returns of the Brandes U.S. Value Equity composite reflect deductions of account fees and expenses, and assume all dividends and distributions have been reinvested. The returns of the Russell 1000 Value Index assume all dividends and distributions have been reinvested. Average annual total returns as of March 31, 2001 Brandes U.S. Value Equity Russell 1000 Composite (%) Value Index (%) one year 47.98% 0.27% three years 4.09% 3.85% five years 14.52% 14.24% since inception (6/30/91) 15.27% 15.65% Annual total returns as of December 31 Brandes U.S. Value Equity Russell 1000 Composite (%) Value Index (%) 2000 34.46% 7.02% 1999 (12.45)% 7.35% 1998 1.69% 15.63% 1997 32.99% 35.18% 1996 29.47% 21.64% 1995 20.98% 38.36% 1994 (3.54)% (1.98)% 1993 24.00% 18.07% 1992 23.40% 13.58% This information is designed to demonstrate the historical track record of Brandes. It does not indicate how the Fund has performed or will perform in the future. Performance will vary based on many factors, including market conditions, the composition of the Fund's holdings and the Fund's expenses. The performance reflected in the composite has been calculated in compliance with the AIMR Performance Presentation Standards which differ from the method used by the SEC. The Brandes composite includes U.S. equity accounts managed by Brandes. The accounts don't pay the same expenses that mutual funds pay and aren't subject to the diversification rules, tax restrictions and investment limits under the 1940 Act or Subchapter M of the Internal Revenue Code. Returns could have been lower if the composite had been subject to these expenses and regulations. The aggregate returns of the accounts in the composite may not reflect the returns of any particular account of Brandes. 12 [GRAPHIC] Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 Other service providers The Fund is distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. Stephens may pay commissions, distribution (12b-1) and shareholder servicing fees, and/or other compensation to companies for selling shares and providing services to investors. BA Advisors is also co-administrator of the Fund, and assists in overseeing the administrative operations of the Fund. The Fund pays BA Advisors and Stephens a combined fee of 0.23% for their services, plus certain out-of-pocket expenses. The fee is calculated as an annual percentage of the average daily net assets of the Fund, and is paid monthly. [GRAPHIC] PFPC Inc. 400 Bellevue Parkway Wilmington, Delaware 19809 PFPC Inc. (PFPC) is the transfer agent for the Fund's shares. Its responsibilities include processing purchases, sales and exchanges, calculating and paying distributions, keeping shareholder records, preparing account statements and providing customer service. 13 About your investment - -------------------------------------------------------------------------------- [GRAPHIC] We've used the term, investment professional, to refer to the person who has assisted you with buying Nations Funds. Selling agent or servicing agent (sometimes referred to as a selling agent) means the company that employs your investment professional. Selling and servicing agents include banks, brokerage firms, mutual fund dealers and other financial institutions, including affiliates of Bank of America. [GRAPHIC] For more information about how to choose a share class, contact your investment professional or call us at 1.800.321.7854. [GRAPHIC] Before you invest, please note that over time, distribution (12b-1) and shareholder servicing fees will increase the cost of your investment, and may cost you more than any sales charges you may pay. For more information, see How selling and servicing agents are paid. [GRAPHIC] Choosing a share class Before you can invest in the Fund, you'll need to choose a share class. There are three classes of shares of the Fund offered by this prospectus. Each class has its own sales charges and fees. The table below compares the charges and fees and other features of the share classes.
Investor A Investor B Investor C Shares Shares Shares Maximum amount no limit $250,000 no limit you can buy Maximum front-end 5.75% none none sales charge Maximum deferred none(1) 5.00%(2) 1.00%(3) sales charge Maximum annual 0.25% 0.75% 0.75% distribution distribution distribution distribution and shareholder (12b-1)/service fee (12b-1) fee and (12b-1) fee and servicing fees 0.25% service fee 0.25% service fee Conversion feature none yes none
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. The share class you choose will depend on how much you're investing, how long you're planning to stay invested, and how you prefer to pay the sales charge. The total cost of your investment over the time you expect to hold your shares will be affected by the distribution (12b-1) and shareholder servicing fees, as well as by the amount of any front-end sales charge or contingent deferred sales charge (CDSC) that applies and when you're required to pay the charge. You should think about these things carefully before you invest. Investor A Shares have a front-end sales charge, which is deducted when you buy your shares. This means that a smaller amount is invested in the Fund, unless you qualify for a waiver or reduction of the sales charge. However, Investor A Shares have lower ongoing distribution (12b-1) and/or shareholder servicing fees than Investor B and Investor C Shares. This means that Investor A Shares can be expected to pay relatively higher dividends per share. 14 Investor B Shares have limits on how much you can invest. When you buy Investor B or Investor C Shares, the full amount is invested in the Fund. However, you may pay a CDSC when you sell your shares. Over time, Investor B and Investor C Shares can incur distribution (12b-1) and shareholder servicing fees that are equal to or more than the front-end sales charge, and the distribution (12b-1) and shareholder servicing fees you would pay for Investor A Shares. Although the full amount of your purchase is invested in the Fund, any positive investment return on this money may be partially or fully offset by the expected higher annual expenses of Investor B and Investor C Shares. You should also consider the conversion feature for Investor B Shares, which is described in About Investor B Shares. [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by the Fund every business day. [GRAPHIC] About Investor A Shares There is no limit to the amount you can invest in Investor A Shares. You generally will pay a front-end sales charge when you buy your shares, or in some cases, a CDSC when you sell your shares. Front-end sales charge You'll pay a front-end sales charge when you buy Investor A Shares, unless: o you qualify for a waiver of the sales charge. You can find out if you qualify for a waiver in the section, When you might not have to pay a sales charge - Front end sales charges o you're reinvesting distributions The sales charge you'll pay depends on the amount you're investing -- generally, the larger the investment, the smaller the percentage sales charge.
Amount retained by selling Sales charge Sales charge agents as a % of the as a % of the as a % of the offering price net asset value offering price Amount you bought per share per share per share $0-$49,999 5.75% 6.10% 5.00% $50,000- $99,999 4.50% 4.71% 3.75% $100,000-$249,999 3.50% 3.63% 2.75% $250,000-$499,999 2.50% 2.56% 2.00% $500,000-$999,999 2.00% 2.04% 1.75% $1,000,000 or more 0.00% 0.00% 1.00%(1)
(1)1.00% on the first $3,000,000, 0.50% on the next $47,000,000, 0.25% on amounts over $50,000,000. Stephens pays the amount retained by selling agents on investments of $1,000,000 or more, but may be reimbursed when a CDSC is deducted if the shares are sold within eighteen months from the time they were bought. Please see How selling and servicing agents are paid for more information. 15 Contingent deferred sales charge If you own or buy $1,000,000 or more of Investor A Shares, there is one situation when you'll pay a CDSC: o If you buy your shares on or after August 1, 1999 and sell them within 18 months of buying them, you'll pay a CDSC of 1.00%. The CDSC is calculated from the day your purchase is accepted (the trade date). We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. You won't pay a CDSC on any increase in net asset value since you bought your shares, or on any shares you receive from reinvested distributions. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. [GRAPHIC] About Investor B Shares You can buy up to $250,000 of Investor B Shares. You don't pay a sales charge when you buy Investor B Shares, but you may have to pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC when you sell your Investor B Shares, unless: o you bought the shares on or after January 1, 1996 and before August 1, 1997 o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge - Contingent deferred sales charges 16 The CDSC you pay depends on when you bought your shares, how much you bought in some cases, and how long you held them.
If you sell your shares during the following year: You'll pay a CDSC of: - ---------------------------- ------------------------------------------------------------------------- Shares you bought Shares Shares on or after you you bought Shares you bought between 1/1/1996 bought after 8/1/1997 and 11/15/1998 and before before 11/15/1998 in the following amounts: 8/1/1997 1/1/1996 ------------ ------------------------------------ ------------- --------- $250,000- $500,000- $0-$249,999 $499,999 $999,999 the first year you own them 5.0% 5.0% 3.0% 2.0% none 5.0% the second year you own them 4.0% 4.0% 2.0% 1.0% none 4.0% the third year you own them 3.0% 3.0% 1.0% none none 3.0% the fourth year you own them 3.0% 3.0% none none none 2.0% the fifth year you own them 2.0% 2.0% none none none 2.0% the sixth year you own them 1.0% 1.0% none none none 1.0% after six years of owning them none none none none none none
The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor B Shares. Please see How selling and servicing agents are paid for more information. About the conversion feature Investor B Shares generally convert automatically to Investor A Shares according to the following schedule:
Will convert to Investor A Shares Investor B Shares you bought after you've owned them for after November 15, 1998 eight years between August 1, 1997 and November 15, 1998 $0-$249,000 nine years $250,000-$499,999 six years $500,000-$999,999 five years before August 1, 1997 nine years
The conversion feature allows you to benefit from the lower operating costs of Investor A Shares, which can help increase total returns. 17 Here's how the conversion works: o We won't convert your shares if you tell your investment professional, selling agent or the transfer agent within 90 days before the conversion date that you don't want your shares to be converted. Remember, it's in your best interest to convert your shares because Investor A Shares have lower expenses. o Shares are converted at the end of the month in which they become eligible for conversion. Any shares you received from reinvested distributions on those shares will convert to Investor A Shares at the same time. o You'll receive the same dollar value of Investor A Shares as the Investor B Shares that were converted. No sales charge or other charges apply. o Investor B Shares that you received from an exchange of Investor B Shares of another Nations Fund will convert based on the day you bought the original shares. Your conversion date may be later if you exchanged to or from a Nations Money Market Fund. o Conversions are free from federal tax. [GRAPHIC] About Investor C Shares There is no limit to the amount you can invest in Investor C Shares. You don't pay a sales charge when you buy Investor C Shares, but you may pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC of 1.00% when you sell Investor C Shares within one year of buying them, unless: o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge - Contingent deferred sales charges The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor C Shares. Please see How selling and servicing agents are paid for more information. 18 [GRAPHIC] Please contact your investment professional for more information about reductions and waivers of sales charges. You should tell your investment professional that you may qualify for a reduction or a waiver before buying shares. We can change or cancel these terms at any time. Any change or cancellation applies only to future purchases. When you might not have to pay a sales charge Front-end sales charges (Investor A Shares) There are three ways you can lower the front-end sales charge you pay on Investor A Shares: o Combine purchases you've already made Rights of accumulation allow you to combine the value of Investor A, Investor B and Investor C Shares you already own with Investor A Shares you're buying to calculate the sales charge. The sales charge is based on the total value of the shares you already own, or the original purchase cost, whichever is higher, plus the value of the shares you're buying. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify for rights of accumulation. o Combine purchases you plan to make By signing a letter of intent, you can combine the value of shares you already own with the value of shares you plan to buy over a 13-month period to calculate the sales charge. o You can choose to start the 13-month period up to 90 days before you sign the letter of intent. o Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. o If you don't buy as much as you planned within the period, you must pay the difference between the charges you've paid and the charges that actually apply to the shares you've bought. o Your first purchase must be at least 5% of the minimum amount for the sales charge level that applies to the total amount you plan to buy. o If the purchase you've made later qualifies for a reduced sales charge through the 90-day backdating provisions, we'll make an adjustment for the lower charge when the letter of intent expires. Any adjustment will be used to buy additional shares at the reduced sales charge. o Combine purchases with family members You can receive a quantity discount by combining purchases of Investor A Shares that you, your spouse and children under age 21 make on the same day. Some distributions or payments from the dissolution of certain qualified plans also qualify for the quantity discount. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: o full-time employees and retired employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries and the immediate families of these people 19 o banks, trust companies and thrift institutions, acting as fiduciaries o individuals receiving a distribution from a Bank of America trust or other fiduciary account may use the proceeds of that distribution to buy Investor A Shares without paying a front-end sales charge, as long as the proceeds are invested in the Fund within 90 days of the date of distribution. o Nations Funds' Trustees, Directors and employees of its investment sub-advisers o registered broker/dealers that have entered into a Nations Funds dealer agreement with Stephens may buy Investor A Shares without paying a front-end sales charge for their investment account only o registered personnel and employees of these broker/dealers and their family members may buy Investor A Shares without paying a front-end sales charge according to the internal policies and procedures of the employing broker/dealer as long as these purchases are made for their own investment purposes o employees or partners of any service provider to the Fund o investors who buy through accounts established with certain fee-based investment advisers or financial planners, wrap fee accounts and other managed agency/asset allocation accounts o shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at net asset value The following plans can buy Investor A Shares without paying a front-end sales charge: o pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the Internal Revenue Code of 1986, as amended (the tax code) o employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must: o have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or o sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or o be an employer-sponsored plan with at least 100 eligible participants, or o be a participant in an alliance program that has signed an agreement with the Fund or a selling agent o certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors You can also buy Investor A Shares without paying a sales charge if you buy the shares within 120 days of selling the same Fund. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. 20 Contingent deferred sales charges (Investor A, Investor B and Investor C Shares) You won't pay a CDSC on the following transactions: o shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner o distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors o the following retirement plan distributions: o lump-sum or other distributions from a qualified corporate or self-employed retirement plan following the retirement (or following attainment of age 59 1/2 in the case of a "key employee" of a "top heavy" plan) o distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 o a tax-free return of an excess contribution to an IRA o distributions from a qualified retirement plan that aren't subject to the 10% additional federal withdrawal tax under Section 72(t)(2) of the tax code o payments made to pay medical expenses which exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least 12 weeks o shares sold under our right to liquidate a shareholder's account, including instances where the aggregate net asset value of Investor A, Investor B or Investor C Shares held in the account is less than the minimum account size o if you exchange Investor B or Investor C Shares of a Nations Fund that were bought through a Bank of America employee benefit plan for Investor A Shares of a Nations Fund o withdrawals made under the Automatic Withdrawal Plan described in Buying, selling and exchanging shares, if the total withdrawals of Investor A, Investor B or Investor C Shares made in a year are less than 12% of the total value of those shares in your account. A CDSC may only apply to Investor A Shares if you bought more than $1,000,000 We'll also waive the CDSC on the sale of Investor A or Investor C Shares bought before September 30, 1994 by current or retired employees of Bank of America Corporation (and its predecessors) and its affiliates, or by current or former trustees or directors of the Nations Funds or other management companies managed by Bank of America. You won't pay a CDSC on the sale of Investor B or Investor C Shares if you reinvest any of the proceeds in the same Fund within 120 days of the sale. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. 21 [GRAPHIC] Buying, selling and exchanging shares [GRAPHIC] When you sell shares of a mutual fund, the fund is effectively "buying" them back from you. This is called a redemption. You can invest in the Fund through your selling agent or directly from Nations Funds. We encourage you to consult with an investment professional who can open an account for you with a selling agent and help you with your investment decisions. Once you have an account, you can buy, sell and exchange shares by contacting your investment professional or selling agent. They will look after any paperwork that's needed to complete a transaction and send your order to us. You should also ask your selling agent about its limits, fees and policies for buying, selling and exchanging shares, which may be different from those described here, and about its related programs and services. The table on the next page summarizes some key information about buying, selling and exchanging shares. You'll find sales charges and other fees that apply to these transactions in Choosing a share class. The Fund also offers other classes of shares, with different features and expense levels, which you may be eligible to buy. Please contact your investment professional, or call us at 1.800.321.7854 if you have any questions or you need help placing an order. 22
Ways to buy, sell or How much you can buy, exchange sell or exchange Other things to know ---------------- ---------------------------------------- --------------------------------------------- Buying shares In a lump sum minimum initial investment: There is no limit to the amount you can o $1,000 for regular accounts invest in Investor A and C Shares. You can o $500 for traditional and Roth IRA invest up to $250,000 in Investor B Shares. accounts o $250 for certain fee-based accounts o no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: o $100 for all accounts Using our minimum initial investment: You can buy shares twice a month, monthly Systematic o $100 or quarterly, using automatic transfers from Investment Plan minimum additional investment: your bank account. o $50 - ---------------------------------------------------------------------------------------------------------------------------------- Selling shares In a lump sum o you can sell up to $50,000 of your We'll deduct any CDSC from the amount shares by telephone, otherwise there you're selling and send you or your selling are no limits to the amount you can agent the balance, usually within three sell business days of receiving your order. o other restrictions may apply to If you paid for your shares with a check that withdrawals from retirement plan wasn't certified, we'll hold the sale proceeds accounts when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared. Using our Automatic o minimum $25 per withdrawal Your account balance must be at least Withdrawal Plan $10,000 to set up the plan. You can make withdrawals twice a month, monthly, quarterly, bi-annually or annually. We'll send your money by check or deposit it directly to your bank account. No CDSC is deducted if you withdraw 12% or less of the value of your shares in a class. - ----------------------------------------------------------------------------------------------------------------------------------- Exchanging shares In a lump sum o minimum $1,000 per exchange You can exchange your Investor A Shares for Investor A shares of any other Nations Fund, except Index Funds. You won't pay a front-end sales charge, CDSC or redemption fee on the shares you're exchanging. You can exchange your Investor B Shares for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You can exchange your Investor C Shares for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of a Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Using our Automatic o minimum $25 per exchange You must already have an investment in the Exchange Feature Funds into which you want to exchange. You can make exchanges monthly or quarterly.
23 [GRAPHIC] A business day is any day that the New York Stock Exchange (NYSE) is open. A business day ends at the close of regular trading on the NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes early, the business day ends as of the time the NYSE closes. The NYSE is closed on weekends and on the following national holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. How shares are priced All transactions are based on the price of the Fund's shares -- or its net asset value per share. We calculate net asset value per share for each class of the Fund at the end of each business day. First, we calculate the net asset value for each class of the Fund by determining the value of the Fund's assets in the class and then subtracting its liabilities. Next, we divide this amount by the number of shares that investors are holding in the class. Valuing securities in the Fund The value of the Fund's assets is based on the total market value of all of the securities it holds. The prices reported on stock exchanges and securities markets around the world are usually used to value securities in the Fund. If prices aren't readily available, or the value of a security has been materially affected by events occurring after a foreign exchange closes, we'll base the price of a security on its fair value. When the Fund uses fair value to price securities it may value those securities higher or lower than another fund that uses market quotations to price the same securities. We use the amortized cost method, which approximates market value, to value short-term investments maturing in 60 days or less. International markets may be open on days when U.S. markets are closed. The value of foreign securities owned by the Fund could change on days when Fund shares may not be bought or sold. How orders are processed Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents before the end of a business day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive that day's net asset value per share. Orders received after the end of a business day will receive the next business day's net asset value per share. The business day that applies to your order is also called the trade date. We may refuse any order to buy or exchange shares. If this happens, we'll return any money we've received to your selling agent. 24 Telephone orders You can place orders to buy, sell or exchange by telephone if you complete the telephone authorization section of our account application and send it to us. Here's how telephone orders work: o If you sign up for telephone orders after you open your account, you must have your signature guaranteed. o Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. o We'll take reasonable steps to confirm that telephone instructions are genuine. For example, we require proof of your identification before we will act on instructions received by telephone and may record telephone conversations. If we and our service providers don't take these steps, we may be liable for any losses from unauthorized or fraudulent instructions. o Telephone orders may be difficult to complete during periods of significant economic or market change. [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by the Fund every business day. [GRAPHIC] Buying shares Here are some general rules for buying shares: o You buy Investor A Shares at the offering price per share. You buy Investor B and Investor C Shares at net asset value per share. o If we don't receive your money within three business days of receiving your order, we'll refuse the order. o Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. o Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. Minimum initial investment The minimum initial amount you can buy is usually $1,000. If you're buying shares through one of the following accounts or plans, the minimum initial amount you can buy is: o $500 for traditional and Roth individual retirement accounts (IRAs) o $250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts o $100 using our Systematic Investment Plan 25 o There is no minimum for 401(k) plans, simplified employee pension plans (SEPs), salary reduction-simplified employee pension plans (SAR-SEPs), Savings Incentives Match Plans for Employees (SIMPLE IRAs), salary reduction-IRAs (SAR-IRAs) or other similar kinds of accounts. However, if the value of your account falls below $1,000 for 401(k) plans or $500 for the other plans within one year after you open your account, we may sell your shares. We'll give you 60 days notice in writing if we're going to do this Minimum additional investment You can make additional purchases of $100, or $50 if you use our Systematic Investment Plan. Systematic Investment Plan You can make regular purchases of $50 or more using automatic transfers from your bank account to the Funds you choose. You can contact your investment professional or us to set up the plan. Here's how the plan works: o You can buy shares twice a month, monthly or quarterly. o You can choose to have us transfer your money on or about the 15th or the last day of the month. o Some exceptions may apply to employees of Bank of America and its affiliates, and to plans set up before August 1, 1997. For details, please contact your investment professional. [GRAPHIC] For more information about telephone orders, see How orders are processed. [GRAPHIC] Selling shares Here are some general rules for selling shares: o We'll deduct any CDSC from the amount you're selling and send you the balance. o If you're selling your shares through a selling agent, we'll normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. Your selling agent is responsible for depositing the sale proceeds to your account on time. o If you're selling your shares directly through us, we'll normally send the sale proceeds by mail or electronic transfer them to your bank account within three business days after the Fund receives your order. o You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. o If you paid for your shares with a check that wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared, whichever is later. 26 o If you hold any shares in certificate form, you must sign the certificates (or send a signed stock power with them) and send them to PFPC. Your signature must be guaranteed unless you've made other arrangements with us. We may ask for any other information we need to prove that the order is properly authorized. o Under certain circumstances allowed under the Investment Company Act of 1940 (1940 Act), we can pay you in securities or other property when you sell your shares. o We can delay payment of the sale proceeds for up to seven days. o Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. We may sell your shares: o if the value of your account falls below $500. We'll give you 60 days notice in writing if we're going to do this o if your selling agent tells us to sell your shares under arrangements made between the selling agent and you o under certain other circumstances allowed under the 1940 Act Automatic Withdrawal Plan The Automatic Withdrawal Plan lets you withdraw $25 or more twice a month, monthly, quarterly, bi-annually or annually. You can contact your investment professional or us to set up the plan. Here's how the plan works: o Your account balance must be at least $10,000 to set up the plan. o If you set up the plan after you've opened your account, your signature must be guaranteed. o You can choose to have us transfer your money on or about the 10th or 25th of the month. o You won't pay a CDSC on Investor A, Investor B or Investor C Shares if you withdraw 12% or less of the value of those shares in a year. Otherwise, we'll deduct any CDSC from the withdrawals. o We'll send you a check or deposit the money directly to your bank account. o You can cancel the plan by giving your selling agent or us 30 days notice in writing. It's important to remember that if you withdraw more than your investment in the Fund is earning, you'll eventually use up your original investment. 27 [GRAPHIC] You should make sure you understand the investment objective and principal investment strategies of the Fund you're exchanging into. Please read its prospectus carefully. [GRAPHIC] Exchanging shares You can sell shares of the Fund to buy shares of another Nations Fund. This is called an exchange. You might want to do this if your investment goals or tolerance for risk changes. Here's how exchanges work: o You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. o The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. o You may only make exchanges into a Fund that is legally sold in your state of residence. o You generally may only make an exchange into a Fund that is accepting investments. o We may limit the number of exchanges you can make within a specified period of time. o We may change or cancel your right to make an exchange by giving the amount of notice required by regulatory authorities (generally 60 days for a material change or cancellation). o You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. Exchanging Investor A Shares You can exchange Investor A Shares of the Fund for Investor A Shares of any other Nations Fund except Index Funds. Here are some rules for exchanging Investor A Shares: o You won't pay a front-end sales charge on the shares of the Fund you're exchanging. o You won't pay a CDSC, if applicable, on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC at that time will be based on the period from when you bought the original shares until when you sold the shares you received from the exchange. o You won't pay a redemption fee on the shares you're exchanging. Any redemption fee will be deducted when you sell the shares you received from the exchange. Any redemption fee will be paid to the original Fund. 28 Exchanging Investor B Shares You can exchange Investor B Shares of the Fund for: o Investor B Shares of any other Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted later on when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Investor C Shares of a Nations Money Market Fund from an exchange of Investor B Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Investor C Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. Exchanging Investor C Shares You can exchange Investor C Shares of the Fund for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of the Fund from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Daily Shares of a Nations Money Market Fund through an exchange of Investor C Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Daily Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. Automatic Exchange Feature The Automatic Exchange Feature lets you exchange $25 or more of Investor A, Investor B or Investor C Shares every month or every quarter. You can contact your investment professional or us to set up the plan. Here's how automatic exchanges work: o Send your request to PFPC in writing or call 1.800.321.7854. o If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. o You must already have an investment in the Fund you want to exchange. o You can choose to have us transfer your money on or about the 1st or the 15th day of the month. o The rules for making exchanges apply to automatic exchanges. 29 [GRAPHIC] How selling and servicing agents are paid Selling and servicing agents usually receive compensation based on your investment in the Fund. The kind and amount of the compensation depends on the share class in which you invest. Selling agents typically pay a portion of the compensation they receive to their investment professionals. Commissions Your selling agent may receive an up-front commission (reallowance) when you buy shares of the Fund. The amount of this commission depends on which share class you choose: o up to 5.00% of the offering price per share of Investor A Shares. The commission is paid from the sales charge we deduct when you buy your shares o up to 4.00% of the net asset value per share of Investor B Shares. The commission is not deducted from your purchase -- we pay your selling agent directly o up to 1.00% of the net asset value per share of Investor C Shares. The commission is not deducted from your purchase -- we pay your selling agent directly If you buy Investor B or Investor C Shares you will be subject to higher distribution (12b-1) and shareholder servicing fees and may be subject to a CDSC when you sell your shares. [GRAPHIC] The financial institution or intermediary that buys shares for you is also sometimes referred to as a selling agent. The distribution fee is often referred to as a "12b-1" fee because it's paid through a plan approved under Rule 12b-1 under the 1940 Act. Your selling agent may charge other fees for services provided to your account. Distribution (12b-1) and shareholder servicing fees Stephens and selling and servicing agents may be compensated for selling shares and providing services to investors under distribution and shareholder servicing plans. The amount of the fee depends on the class of shares you own:
Maximum annual distribution (12b-1) and shareholder servicing fees (as an annual % of average daily net assets) Investor A Shares 0.25% combined distribution (12b-1) and shareholder servicing fee Investor B Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee Investor C Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee
Fees are calculated daily and paid monthly. Because these fees are paid out of the Fund's assets on an ongoing basis, they will increase the cost of your investment over time, and may cost you more than any sales charges you may pay. The Fund pays these fees to Stephens and/or to eligible selling and servicing agents and financial institutions, including BA Advisors or its affiliates, for as long as the plans continue. We may reduce or discontinue payments at any time. 30 Other compensation Selling and servicing agents may also receive: o a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Fund o additional amounts on all sales of shares: o up to 1.00% of the offering price per share of Investor A Shares o up to 1.00% of the net asset value per share of Investor B Shares o up to 1.00% of the net asset value per share of Investor C Shares o non-cash compensation like trips to sales seminars, tickets to sporting events, theater or other entertainment, opportunities to participate in golf or other outings and gift certificates for meals or merchandise This compensation, which is not paid by the Fund, is discretionary and may be available only to selected selling and servicing agents. For example, Stephens sometimes sponsors promotions involving Banc of America Investment Services, Inc., an affiliate of BA Advisors, and certain other selling or servicing agents. Selected selling or servicing agents also may receive compensation for opening or servicing a minimum number of accounts. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Fund for services they provide. 31 [GRAPHIC] Distributions and taxes [GRAPHIC] The power of compounding Reinvesting your distributions buys you more shares of the Fund -- which lets you take advantage of the potential for compound growth. Putting the money you earn back into your investment means it, in turn, may earn even more money. Over time, the power of compounding has the potential to significantly increase the value of your investment. There is no assurance, however, that you'll earn more money if you reinvest your distributions. About distributions A mutual fund can make money two ways: o It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. o A fund can also have capital gain if the value of its investments increases. If a fund sells an investment at a gain, the gain is realized. If a fund continues to hold the investment, any gain is unrealized. A mutual fund is not subject to federal income tax as long as it distributes its net investment income and realized capital gain to its shareholders. The Fund intends to pay out a sufficient amount of its income and capital gain to its shareholders so the Fund won't have to pay any federal income tax. When a Fund makes this kind of a payment, it's split among all shares, and is called a distribution. The Fund distributes any net realized capital gain at least once a year. The Fund distributes net investment income annually. Any distribution you receive is based on the number of shares you hold on the record date, which is usually the day the distribution is declared (daily dividend Funds) or the day before the distribution is declared (all other Funds). Shares are eligible to receive net investment income distributions from the settlement date (daily dividend Funds), trade date (all other Funds) or realized capital gain from the trade date of the purchase up to and including the day before the shares are sold. Different share classes of a Fund usually pay different net investment income distribution amounts, because each class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. We'll automatically reinvest distributions in additional shares of the same Fund unless you tell us you want to receive your distributions in cash. You can do this by writing to us at the address on the back cover or by calling us at 1.800.321.7854. We generally pay cash distributions within five business days after the end of the month, quarter or year in which the distribution was made. If you sell all of your shares, we'll normally pay any distribution that applies to those shares in cash within five business days after the sale was made. 32 If you buy shares of the Fund shortly before it makes a distribution, you will, in effect, receive part of your purchase back in the distribution, which is subject to tax. Similarly, if you buy shares of the Fund when it holds securities with unrealized capital gain, you will, in effect, receive part of your purchase back if and when the Fund sells those securities and distributes the gain. This distribution is also subject to tax. The Fund has built up, or has the potential to build up, high levels of unrealized capital gain. [GRAPHIC] This information is a summary of how federal income taxes may affect your investment in the Fund. It is not intended as a substitute for careful tax planning. You should consult with your own tax adviser about your situation, including any foreign, state and local taxes that may apply. [GRAPHIC] For more information about taxes, please see the SAI. How taxes affect your investment Distributions that come from net investment income, net short-term capital gain and certain other items generally are taxable to you as ordinary income. A portion of such distributions to corporate shareholders may qualify for the dividends-received deduction. Distributions that come from net long-term capital gain generally are taxable to you as long-term capital gain. In general, all distributions are taxable to you when paid, whether they are paid in cash or automatically reinvested in additional shares of the Fund. However, any distributions declare to shareholders of record in October, November or December of one year and distributed in January of the following year will be taxable as if they had been paid to you on December 31 of the first year. We'll send you a notice every year that tells you how much you've received in distributions during the year and their federal tax status. Foreign, state and local taxes may also apply to these distributions. Withholding tax We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts to be paid for in securities or other property and exchanges) if: o you haven't given us a correct Taxpayer Identification Number (TIN) and haven't certified that the TIN is correct and withholding doesn't apply o the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records o the IRS informs us that you're otherwise subject to backup withholding The IRS may also impose penalties against you if you don't give us a correct TIN. Amounts we withhold are applied to your federal income tax liability. You may receive a refund from the IRS if the withholding tax results in an overpayment of taxes. We're also normally required by federal law to withhold tax on distributions (other than capital gain distributions) paid to foreign shareholders. Taxation of redemptions and exchanges Your redemptions (including redemptions paid in securities) and exchanges of Fund shares will usually result in a taxable capital gain or loss, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. 33 [GRAPHIC] This glossary includes explanations of the important terms that may be used in this prospectus. Some of the terms explained may apply to Nations Funds not included in this prospectus. [GRAPHIC] Terms used in this prospectus Amortized cost method - under Rule 2a-7 of the 1940 Act, the method of calculating an investment company's net asset value whereby portfolio securities are valued at the Fund's acquisition cost as adjusted for amortization of premium or accretion of discount rather than at their current market value. Asset-backed security - a debt security that gives an investor an interest in a pool of assets that is collateralized or "backed" by one or more kinds of assets, including automobile loans or credit card receivables, generally issued by banks, credit card companies or other lenders. Asset-backed securities typically make periodic payments, which may be interest or a combination of interest and a portion of the principal of the underlying assets. Average dollar-weighted maturity - the average length of time until the debt securities held by a Fund reach maturity. In general, the longer the average dollar-weighted maturity, the more a Fund's share price will fluctuate in response to changes in interest rates. Bank obligation - a money market instrument issued by a domestic or U.S. branch of a foreign bank, including certificates of deposit, time deposits and bankers' acceptances. Capital gain or loss - the difference between the purchase price of a security and its selling price. An investor realizes a capital gain when it sells a security for more than it paid for it. An investor realizes a capital loss when it sells a security for less than it paid for it. Cash equivalents - short-term, interest-bearing instruments which can easily be converted into cash, including U.S. government obligations, bank obligations, and certain asset-backed securities, foreign government securities and commercial paper issued by U.S. and foreign issuers which, at the time of investment, is rated at least Prime-2 by Moody's Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch). Collateralized mortgage obligation (CMO) - a type of mortgage-backed security. CMO payment obligations are covered by interest and/or principal payments from a pool of mortgages. In addition, the underlying assets of a CMO are typically separated into classes, called tranches, based on maturity. Each tranche pays a different rate of interest. CMOs are not generally issued by the U.S. government, its agencies or instrumentalities. Commercial paper - a short-term corporate obligation. Commercial paper is typically considered a money market instrument. Common stock - a security that represents part equity ownership in a company. Common stock typically allows an investor to vote at shareholder meetings and to share in the company's profits by receiving dividends. 34 Convertible debt - a debt security that can be exchanged for common stock (or another type of security) on a specified basis and date. Convertible security - a security that can be exchanged for common stock (or another type of security) at a specified rate. Convertible securities include convertible debt, rights and warrants. Crossing networks - an electronic system where anonymous parties can match buy and sell transactions. These transactions don't affect the market, and transaction costs are extremely low. CSFB Convertible Securities Index - 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. Debt security - a security issued by a governmental body or company (the issuer) to help fund their operations or major projects. The issuer pays interest at a specified rate on a specified date or dates, and repays the principal when the security matures. Short-term debt securities include money market instruments such as treasury bills. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Depositary receipts - evidence of the deposit of a security with a custodian bank. American Depositary Receipts (ADRs), for example, are certificates traded in U.S. markets representing an interest of a foreign company. They were created to make it possible for foreign issuers to meet U.S. security registration requirements. Other examples include ADSs, GDRs and EDRs. Derivatives - A derivative is a financial contract whose value is based upon, or "derived" from, an underlying financial asset (such as a stock or a bond), a commodity (such as gold), a market index (such as the S&P 500) or a reference rate (such as the prime lending interest rate). Examples of derivative instruments include futures, options, index-, equity-, commodity- and currency-linked securities, warrants and swap contracts. For a detailed description of the derivatives described here, see the SAI. Diversified - A diversified fund, as defined by the 1940 Act, must have at least 75% of its total assets in cash and cash equivalents, government securities, securities of other investment companies, or other securities. For purposes of this calculation, the fund may not count securities of a single issuer that comprise more than 5% of the fund's assets. Dividend yield - rate of return of dividends paid on a common or preferred stock. It equals the amount of the annual dividend on a stock expressed as a percentage of the stock's current market value. Duration - a security's or portfolio's sensitivity to changes in interest rates. For example, if interest rates rise by one percentage point, the share price of a fund with a duration of five years would decline by about 5%. If interest rates fall by one percentage point, the fund's share price would rise by about 5%. 35 Equity security - an investment that gives an investor an equity ownership right in a company. Equity securities (or "equities") include common and preferred stock, rights and warrants. First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds and has the highest short-term rating from a nationally recognized statistical rating organization (NRSRO), or if unrated, is determined by the Fund's portfolio management team to be of comparable quality, or is a money market fund or a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Foreign security - a debt or equity security determined by a Fund's portfolio management team to be foreign based on an issuer's domicile, its principle place of business, the source of its revenues or other factors. Forward foreign currency contracts - a forward foreign currency contract includes an obligation to purchase or sell a foreign currency at a specified future date. Forward purchase agreement - a contract obligating one party to buy and another party to sell an equity security, commodity, currency or other financial instrument at a specific future date. Fundamental analysis - a method of securities analysis that tries to evaluate the intrinsic, or "true," value of a particular stock. It includes a study of the overall economy, industry conditions and the financial condition and management of a company. Futures contract - a contract to buy or sell underlying instruments at a specified price on a specified future date. The price is typically set through a futures exchange. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to NRSROs such as S&P and Moody's. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by a Fund's Board. Please see the SAI for more information about credit ratings. High yield debt security - debt securities that, at the time of purchase, are rated "BB" or below by S&P or "Ba" or below by Moody's, or that are unrated and determined by the portfolio management team to be of comparable quality. Interest rate swap - an agreement between two parties to exchange periodic interest payments based on a predetermined principal amount. 36 Investment grade - a debt security that has been given a medium to high credit rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating by other NRSROs) based on the issuer's ability to pay interest and repay principal on time. The portfolio management team may consider an unrated debt security to be investment grade if the team believes it is of comparable quality. Please see the SAI for more information about credit ratings. Lehman Aggregate Bond Index - an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government/Corporate Bond Index - an unmanaged index of U.S. government, U.S. Treasury and agency securities, and corporate and Yankee bonds. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Liquidity - a measurement of how easily a security can be bought or sold at a price that is close to its market value. Money market instrument - a short-term debt security that is considered to mature in 13 months or less. Money market instruments include U.S. Treasury obligations, U.S. government obligations, certificates of deposit, bankers' acceptances, commercial paper, repurchase agreements and certain municipal securities. Mortgage-backed security or Mortgage-related security - a debt security that gives you an interest in, and is backed by, a pool of residential mortgages issued by the U.S. government or by financial institutions. The underlying mortgages may be guaranteed by the U.S. government or one of its agencies, authorities or instrumentalities. Mortgage-backed securities typically make monthly payments, which are a combination of interest and a portion of the principal of the underlying mortgages. MSCI EAFE Index - Morgan Stanley Capital International Europe, Australasia and Far East Index is an unmanaged, capitalization-weighted index. The index reflects the relative size of each market consisting of securities listed on exchanges in European, Australasian and Far Eastern markets and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investment. It is not available for investment. MSCI World Index - Morgan Stanley Capital International World Index is an unmanaged index consisting of securities listed on exchanges in the major European and Asian countries, Australia and the U.S. and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investing. It is not available for investment. 37 Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public or private projects and services. "General obligations" are typically backed by the issuer's full taxing and revenue-raising powers. "Revenue securities" depend on the income earned by a specific project or authority, like road or bridge tolls, user fees for water or revenues from a utility. Interest income from municipal securities that pay for "public" projects and services is exempt from federal income taxes and is generally exempt from state taxes if an investor lives in the state that issued the security. If an investor lives in the municipality that issued the security, interest income may also be exempt from local taxes. Non-diversified - a fund that holds securities of fewer issuers than other kinds of funds. Non-diversified funds tend to have greater price swings than more diversified funds because events affecting one or more of its securities may have a disproportionately large effect on the fund. NRSRO - A nationally recognized statistical rating organization, such as S&P or Moody's. Options - An option is the right to buy or sell a security based on an agreed upon price at a specified time. For example, an option may give the holder of a stock the right to sell the stock to another party, allowing the seller to profit if the price has fallen below the agreed price. Options may also be based on the movement of an index such as the S&P 500. Over-the-counter market - a market where dealers trade securities through a telephone or computer network rather than through a public stock exchange. Preferred stock - a type of equity security that gives you a limited ownership right in a company, with certain preferences or priority over common stock. Preferred stock generally pays a fixed annual dividend. If the company goes bankrupt, preferred shareholders generally receive their share of the company's remaining assets before common shareholders and after bondholders and other creditors. Ownership of preferred stock typically does not come with certain voting rights that come with common stock. Pre-refunded bond - a bond that is repaid before its maturity date. The repayment is generally financed by a new issue. Issuers generally pre-refund bonds during periods of lower interest rates to reduce their interest costs. Price-to-earnings ratio (P/E ratio) - the current price of a share divided by its actual or estimated earnings per share. The P/E ratio is one measure of the value of a company. Private placement - a private placement is the sale of stocks, bonds or other investments directly to a qualified investor without having to register the offering with the SEC or other comparable foreign regulatory authorities. Qualified investors are typically large institutional investors or high net worth individuals. Securities acquired through private placements generally may not be resold. 38 Quantitative analysis - an analysis of financial information about a company or security to identify securities that have the potential for growth or are otherwise suitable for a fund to buy. Real Estate Investment Trust (REIT) - a portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls, and real-estate-related loans or interests. Repurchase agreement - a short-term (often overnight) investment arrangement. The investor agrees to buy certain securities from the borrower and the borrower promises to buy them back at a specified date and price. The difference between the purchase price paid by the investor and the repurchase price paid by the borrower represents the investor's return. Repurchase agreements are popular because they provide low-risk returns and can allow a fund to remain fully invested. Reverse repurchase agreement - a repurchase agreement in which an investor sells a security to another party, like a bank or dealer, in return for cash, and agrees to buy the security back at a specified date and price. Reverse repurchase agreements are, in effect, loans to a fund. Right - a temporary privilege allowing investors who already own a common stock to buy additional shares directly from the company at a specified price or formula. Russell 1000 Index - 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. The Russell 3000 Index is a listing of 3000 corporations by the Frank Russell Company that is intended to be representative of the U.S. economy. The Russell 1000 is considered a "large cap" index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 2000 Index - 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. 39 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. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 3000 Growth Index - an unmanaged index comprised of securities in the Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies based on total market capitalization, with a greater than average growth orientation. Companies in the Russell 3000 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. S&P 500(1) - Standard & Poor's 500 Composite Stock Price Index, an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P/BARRA Value Index(1) - an unmanaged index of a subset of stocks from the S&P 500 that have low price-to-book ratios relative to the S&P 500 as a whole. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P/IFC Investables Index - an unmanaged index that tracks more than 1,400 stocks in 25 emerging markets in Asia, Latin America, Eastern Europe, Africa and the Middle East. The index is weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P MidCap 400(1) - an unmanaged index of 400 domestic stocks chosen for market size, liquidity and industry representation. The index is weighted by market value, and is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SmallCap 600(1) - Standard & Poor's SmallCap 600 Index, an unmanaged index of 600 common stocks, weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SuperComposite 1500(1) - an unmanaged index created by Standard & Poors combining the companies represented in three other indices -- the S&P 500, MidCap 400, and SmallCap 600. The index represents 87% of the total capitalization of U.S. equity markets. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds, but is not a first-tier security. Senior security - a debt security that allows holders to receive their share of a company's remaining assets in a bankruptcy before other bondholders, creditors, and common and preferred shareholders. 40 Settlement date - the date on which an order is settled either by payment or delivery of securities. Total return swap - an agreement between two parties to exchange periodic interest payments for the total return of an equity or fixed income instrument. Trade date - the effective date of a purchase, sale or exchange transaction, or other instructions sent to us. The trade date is determined by the day and time we receive the order or instructions in a form that's acceptable to us. U.S. government obligations - a wide range of debt securities issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities. U.S. Treasury obligation - a debt security issued by the U.S. Treasury. Warrant - a certificate that gives you the right to buy common shares at a specified price within a specified period of time. Zero-coupon bond - a bond that makes no periodic interest payments. Zero coupon bonds are sold at a deep discount to their face value and mature at face value. The difference between the face value at maturity and the purchase price represents the return. (1)S&P and BARRA have not reviewed any stock included in the S&P SuperComposite 1500, S&P 500, S&P SmallCap 600, S&P MidCap 400 Index or BARRA Value Index for its investment merit. S&P and BARRA determine and calculate their indices independently of the Funds and are not a sponsor or affiliate of the Funds. S&P and BARRA give no information and make no statements about the suitability of investing in the Funds or the ability of their indices to track stock market performance. S&P and BARRA make no guarantees about the indices, any data included in them and the suitability of the indices or their data for any purpose. "Standard and Poor's," "S&P 500" and "S&P 600" are trademarks of The McGraw-Hill Companies, Inc. 41 (THIS PAGE INTENTIONALLY LEFT BLANK) (THIS PAGE INTENTIONALLY LEFT BLANK) [GRAPHIC] Where to find more information You'll find more information about Nations Classic Value Fund in the following documents: Annual and semi-annual reports The annual and semi-annual reports contain information about Fund investments and performance, the financial statements and the independent accountants' reports. The annual report also includes a discussion about the market conditions and investment strategies that had a significant effect on the Fund's performance during the period covered. [GRAPHIC] Statement of Additional Information The SAI contains additional information about the Fund and its policies. The SAI is legally part of this prospectus (it's incorporated by reference). A copy has been filed with the SEC. You can obtain a free copy of these documents, request other information about the Fund and make shareholder inquiries by contacting Nations Funds: By telephone: 1.800.321.7854 By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nations-funds.com Information about the Fund can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1.202.942.8090. The reports and other information about the Fund are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. SEC file number: Nations Funds Trust, 811-09645 [Nations Funds logo appears here] CVPROIX-8/01 [GRAPHIC] Nations LifeGoal Portfolios Prospectus -- Investor A, B and C Shares August 1, 2001 Nations LifeGoal Growth Portfolio Nations LifeGoal Balanced Growth Portfolio Nations LifeGoal Income and Growth Portfolio The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. - ------------------ Not FDIC Insured - ------------------ May Lose Value - ------------------ No Bank Guarantee - ------------------ [Nations Funds Logo] An overview of the Portfolios - -------------------------------------------------------------------------------- [GRAPHIC] Terms used in this prospectus In this prospectus, we, us and our refer to the Nations Funds family (Nations Funds or Nations Funds Family). Some other important terms we've used may be new to you. These are printed in italics where they first appear in a section and are described in Terms used in this prospectus. [GRAPHIC] You'll find Terms used in this prospectus on page 57. Your investment in a Portfolio is not a bank deposit and is not insured or guaranteed by Bank of America, N. A. (Bank of America), the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Your investment may lose money. Affiliates of Bank of America are paid for the services they provide to the Portfolios and the underlying Funds. This booklet, which is called a prospectus, tells you about Nations LifeGoal Portfolios. Please read it carefully because it contains information that's designed to help you make informed investment decisions. Unlike traditional mutual funds, which invest in individual securities, the Portfolios invest in a mix of Nations Funds Stock, International/Global Stock, Government & Corporate Bond and Money Market Funds using an asset allocation approach. These kinds of mutual funds are sometimes called "funds of funds." About asset allocation Asset allocation is the process of creating a diversified portfolio by investing in different asset classes -- for example, equity securities, fixed income securities and money market instruments -- in varying proportions. The mix of asset classes and how much is invested in each may be the most important factor in how a Portfolio performs and the amount of risk involved. Each asset class, and market segments within a class, like large, mid- and small capitalization stocks, has different return and risk characteristics, and reacts in different ways to changes in the economy. An investment approach that combines asset classes and market segments may help to reduce overall Portfolio volatility. About the Portfolios Each Portfolio has its own asset allocation strategy, which gives it distinctive risk/return characteristics. The performance of each Portfolio depends on many factors, including its allocation strategy and the performance of the Nations Funds it invests in. In general, the more a Nations LifeGoal Portfolio allocates to Stock and International/Global Stock Funds, the greater the potential return and the greater the risk of a decline in share price. The more a Nations LifeGoal Portfolio allocates to Government & Corporate Bond Funds, the greater the potential for price stability and the lower the potential return. There's always a risk, however, that you'll lose money or you may not earn as much as you expect. Nations LifeGoal Growth Portfolio focuses on long-term growth by normally allocating all of its assets to a mix of Funds that invest primarily in equity securities. Equities have the potential to provide higher returns than many other kinds of investments, but they also tend to have the highest risk. Nations LifeGoal Balanced Growth Portfolio focuses on long-term growth by normally allocating its assets to a balanced mix of Funds that invest in equity and fixed income securities. Fixed income securities have the potential to increase in value, because, when interest rates fall, the value of these securities tends to rise. When interest rates rise, however, the value of these securities tends to fall. Other things can also affect the value of fixed income securities. 2 Nations LifeGoal Income and Growth Portfolio focuses on current income and modest growth. It normally allocates most of its assets to Funds that invest in fixed income securities, but may also allocate some assets to Funds that invest in equity securities. Over time, the return on this Portfolio may be lower than the return on the other Portfolios. Is LifeGoal right for you? When you're choosing a Portfolio to invest in, you should consider things like your investment goals, how much risk you can accept and how long you're planning to hold your investment. Nations LifeGoal Portfolios may be suitable for you if: o you have longer-term investment goals o they're part of a balanced portfolio They may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with equity and fixed income securities o you have short-term investment goals o you're looking for a regular stream of income You'll find a discussion of each Portfolio's principal investments, strategies and risks in the Portfolio descriptions that start on page 5. For more information If you have any questions about the Portfolios, please call us at 1.800.321.7854 or contact your investment professional. You'll find more information about the Portfolios in the Statement of Additional Information (SAI). The SAI includes more detailed information about each Portfolio's investments, policies, performance and management, among other things. Please turn to the back cover to find out how you can get a copy. 3 What's inside - -------------------------------------------------------------------------------- [GRAPHIC] Banc of America Advisors, LLC Banc of America Advisors, LLC (BA Advisors) is the investment adviser to each of the Portfolios. BA Advisors is responsible for the overall management and supervision of the investment management of each Portfolio. BA Advisors and Nations Funds have engaged a sub-adviser -- Banc of America Capital Management, LLC (BACAP), which is responsible for the day-to-day investment decisions for each of the Portfolios. [GRAPHIC] You'll find more about BA Advisors and BACAP starting on page 27. [GRAPHIC] About the Portfolios Nations LifeGoal Growth Portfolio 5 Sub-adviser: BACAP - ----------------------------------------------------------------- Nations LifeGoal Balanced Growth Portfolio 10 Sub-adviser: BACAP - ----------------------------------------------------------------- Nations LifeGoal Income and Growth Portfolio 16 Sub-adviser: BACAP - ----------------------------------------------------------------- About the Nations Funds 22 - ----------------------------------------------------------------- Other important information 25 - ----------------------------------------------------------------- How the Portfolios are managed 27 [GRAPHIC] About your investment Information for investors Choosing a share class 32 About Investor A Shares 33 Front-end sales charge 33 Contingent deferred sales charge 34 About Investor B Shares 34 Contingent deferred sales charge 34 About Investor C Shares 36 Contingent deferred sales charge 36 When you might not have to pay a sales charge 36 Buying, selling and exchanging shares 40 How orders are processed 42 How selling and servicing agents are paid 47 Distributions and taxes 49 - ----------------------------------------------------------------- Financial highlights 51 - ----------------------------------------------------------------- Terms used in this prospectus 57 - ----------------------------------------------------------------- Where to find more information back cover 4 [GRAPHIC] About the sub-adviser BACAP is this Portfolio's sub-adviser. BACAP's Investment Strategies Team makes the day-to-day investment decisions for the Portfolio. [GRAPHIC] You'll find more about BACAP on page 28. [GRAPHIC] About the underlying Nations Funds You'll find more information about the Funds in which the Portfolio invests, including their objectives and strategies, in About the Nations Funds and in the SAI. Nations LifeGoal Growth Portfolio [GRAPHIC] Investment objective The Portfolio seeks capital appreciation through exposure to a variety of equity market segments. [GRAPHIC] Investment strategies The Portfolio normally invests most of its assets in Primary A Shares of Nations Funds Stock and International/Global Stock Funds. The team uses asset allocation as its principal investment approach. It: o allocates assets among Fund categories, within the target allocations set for the Portfolio. It bases its allocations on the Portfolio's investment objective, historical returns for each asset class and on its outlook for the economy o chooses individual Funds within each category and the amount it will allocate to each, looking at each Fund's historical returns, as well as the expected performance of the mix of Funds o reviews the allocations to Fund categories and individual Funds at least monthly, and may change these allocations when it believes it's appropriate to do so The actual amount in each Fund or category of Funds may vary from the allocations set by the team, depending on how the Funds perform, and for other reasons. The team may use various strategies to try to manage how much the actual amount varies, and for how long. For example: o if there are more assets in a Fund category than in the target allocation, the team may allocate money coming into the Portfolio to the other Fund categories o if there are fewer assets in a Fund category than in the target allocation, it may allocate money coming into the Portfolio to that Fund category The Portfolio normally sells a proportionate amount of the shares it owns in each Nations Fund to meet its redemption requests. Nations LifeGoal Growth Portfolio Target allocation for each can invest in: Fund category: Large-capitalization stock funds 30-70% Nations Value Fund Nations Blue Chip Fund Nations Strategic Growth Fund Nations Marsico Focused Equities Fund Mid-capitalization stock fund 10-30% Nations MidCap Growth Fund Small-capitalization stock fund 10-30% Nations Small Company Fund International/Global stock funds 10-30% Nations International Value Fund Nations International Equity Fund Emerging markets stock fund 0-5% Nations Emerging Markets Fund The team can substitute or add other Funds to this list at any time, including Funds introduced after the date of this prospectus. 5 [GRAPHIC] You'll find detailed information about each Fund's investment strategies and risks in its prospectus, and in its SAI. Please call us at 1.800.321.7584 for a copy. [GRAPHIC] You'll find more about other risks of investing in this Portfolio in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations LifeGoal Growth Portfolio has the following risks: o Investment strategy risk - The team uses an asset allocation strategy to try to achieve the highest total return. There is a risk that the mix of investments will not produce the returns they expect, or that the Portfolio will fall in value. There is also the risk that the Funds the Portfolio invests in will not produce the returns the team expects, or will fall in value. o Stock market risk - The Portfolio allocates assets to Funds that invest in stocks. The value of the stocks a Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Small company risk - The Portfolio allocates assets to Funds that may invest in smaller companies. Stocks of smaller companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains, but also carry more risk. o Foreign investment risk - The Portfolio allocates assets to Funds that invest in foreign securities. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, may also apply to some foreign investments. o Emerging markets risk - The Portfolio allocates assets to Funds that invest in securities of companies in emerging markets. Securities issued by companies in developing or emerging market countries, like those in Eastern Europe, the Middle East, Asia or Africa, may be more sensitive to the risks of foreign investing. In particular, these countries may experience instability resulting from rapid social, political and economic development. Many of these countries are dependent on international trade, which makes them sensitive to world commodity prices and economic downturns in other countries. Some emerging countries have a higher risk of currency devaluation, and some countries may experience long periods of high inflation or rapid changes in inflation rates. o Technology and technology-related risk - The Portfolio allocates assets to Funds that may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. o Rebalancing policy - The actual amount in each Fund or category of Funds may vary from the allocations set by the team. This could continue for some time. 6 [GRAPHIC] Many things affect a Portfolio's performance, including market conditions, the composition of the Portfolio's holdings and Portfolio expenses. A look at the Portfolio's performance The following bar chart and table show you how the Portfolio has performed in the past, and can help you understand the risks of investing in the Portfolio. A Portfolio's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Portfolio's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1997 1998 1999 2000 14.57% 12.64% 25.61% 4.60% *Year-to-date return as of June 30, 2001: -9.10% Best and worst quarterly returns during this period Best: 4th quarter 1998: 23.55% Worst: 3rd quarter 1998: -16.68% [GRAPHIC] The Portfolio's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the index do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Portfolio's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment. Since 1 year inception* Investor A Shares -1.44% 12.70% Investor B Shares -0.44% 9.95% Investor C Shares 2.93% 13.52% S&P 500 -9.10% 17.94% *The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are October 15, 1996, August 12, 1997 and October 15, 1996, respectively. The return for the index shown is from inception of Investor A Shares. 7 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual portfolio operating expenses that are deducted from a portfolio's assets and from the assets of the Nations Funds the Portfolio invests in. [GRAPHIC] What it costs to invest in the Portfolio This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses (Expenses that are deducted from the Portfolio's assets) Management fees 0.25% 0.25% 0.25% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% ----- ----- ----- Total annual Fund operating expenses 0.50% 1.25% 1.25% ===== ===== =====
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. Indirect Expenses The Portfolio's annual Fund operating expenses include a portion of the annual Fund operating expenses of the Nations Funds in which the Portfolio invests. This portion is estimated to be between 0.99% and 1.17% (expressed as a weighted average, including any fee waiver and/or reimbursement commitments that will expire July 31, 2002), and is based on: o the amount the Portfolio expects to invest in each Fund, based on the target allocation o each Fund's annualized expense ratio for the period ended March 31, 2001, adjusted as necessary to reflect current service provider fees 8 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Portfolio's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Portfolio with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Portfolio for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Portfolio o your investment has a 5% return each year o the Portfolio's operating expenses remain the same as shown in the table above o the Portfolio's indirect expenses remain at the average of the range as shown above for the 1 year example, excluding any fee waivers and/or reimbursements for the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $727 $1,048 $1,391 $2,358 Investor B Shares $736 $1,029 $1,449 $2,488 Investor C Shares $336 $ 729 $1,249 $2,675 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $236 $729 $1,249 $2,488 Investor C Shares $236 $729 $1,249 $2,675 9 [GRAPHIC] About the sub-adviser BACAP is this Portfolio's sub-adviser. BACAP's Investment Strategies Team makes the day-to-day investment decisions for the Portfolio. [GRAPHIC] You'll find more about BACAP on page 28. [GRAPHIC] About the underlying Nations Funds You'll find more information about the Funds in which the Portfolio invests, including their objectives and strategies, in About the Nations Funds and in the SAI. Nations LifeGoal Balanced Growth Portfolio [GRAPHIC] Investment objective The Portfolio seeks total return through a balanced portfolio of equity and fixed income securities. [GRAPHIC] Investment strategies The Portfolio normally invests all of its assets in Primary A Shares of a balanced mix of Nations Funds Stock, International/Global Stock and Government & Corporate Bond Funds. The team uses asset allocation as its principal investment approach. It: o allocates assets among Fund categories, within the target allocations set for the Portfolio. It bases its allocations on the Portfolio's investment objective, historical returns for each asset class and on its outlook for the economy o chooses individual Funds within each category and the amount it will allocate to each, looking at each Fund's historical returns, as well as the expected performance of the mix of Funds o reviews the allocations to Fund categories and individual Funds at least monthly, and may change these allocations when it believes it's appropriate to do so The actual amount in each Fund or category of Funds may vary from the allocations set by the team, depending on how the Funds perform, and for other reasons. The team may use various strategies to try to manage how much the actual amount varies, and for how long. For example: o if there are more assets in a Fund category than in the target allocation, the team may allocate money coming into the Portfolio to the other Fund categories o if there are fewer assets in a Fund category than in the target allocation, it may allocate money coming into the Portfolio to that Fund category The Portfolio normally sells a proportionate amount of the shares it owns in each Nations Fund to meet its redemption requests. 10 Nations LifeGoal Balanced Growth Target allocation for each Portfolio can invest in: Fund category: Large-capitalization stock funds 15-40% Nations Value Fund Nations Blue Chip Fund Nations Strategic Growth Fund Nations Marsico Focused Equities Fund Mid-capitalization stock fund 5-15% Nations MidCap Growth Fund Small-capitalization stock fund 5-15% Nations Small Company Fund International/Global stock funds 5-15% Nations International Value Fund Nations International Equity Fund Government & corporate bond funds 35-60% Nations Bond Fund International Bond Portfolio High yield bond fund 0-10% Nations High Yield Bond Fund The team can substitute or add other Funds to this list at any time, including Funds introduced after the date of this prospectus. [GRAPHIC] You'll find detailed information about each Fund's investment strategies and risks in its prospectus, and in its SAI. Please call us at 1.800.321.7854 for a copy. [GRAPHIC] You'll find more about other risks of investing in this Portfolio in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations LifeGoal Balanced Growth Portfolio has the following risks: o Investment strategy risk - The team uses an asset allocation strategy to try to achieve the highest total return. There is a risk that the mix of investments will not produce the returns they expect, or that the Portfolio will fall in value. There is also the risk that the Funds the Portfolio invests in will not produce the returns the team expects, or will fall in value. o Stock market risk - The Portfolio allocates assets to Funds that invest in stocks. The value of the stocks a Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Small company risk - The Portfolio allocates assets to Funds that may invest in smaller companies. Stocks of smaller companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains, but also carry more risk. 11 o Foreign investment risk - The Portfolio allocates assets to Funds that invest in foreign securities. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, may also apply to some foreign investments. Funds that invest in securities of companies in emerging markets have high growth potential, but can be more volatile than securities in more developed markets. o Interest rate risk - The Portfolio allocates assets to Funds that may invest in fixed income securities. The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - A Fund that invests in fixed income securities could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but generally is not a factor for U.S. government obligations. The Portfolio allocates assets to Funds that typically invest in securities that are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Technology and technology-related risk - The Portfolio allocates assets to Funds that may invest in technology and technology-related companies, which can be significantly affected by obsolescence of existing technology, short product cycles, falling prices and profits, and competition from new market entrants. o Derivatives risk - The Portfolio allocates assets to Funds that may use derivative instruments. The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Rebalancing policy - The actual amount in each Fund or category of Funds may vary from the allocations set by the team. This could continue for some time. 12 [GRAPHIC] Many things affect a Portfolio's performance, including market conditions, the composition of the Portfolio's holdings and Portfolio expenses. A look at the Portfolio's performance The following bar chart and table show you how the Portfolio has performed in the past, and can help you understand the risks of investing in the Portfolio. A Portfolio's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Portfolio's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1997 1998 1999 2000 11.20% 11.66% 14.38% 6.96% *Year-to-date return as of June 30, 2001: -2.75% Best and worst quarterly returns during this period Best: 4th quarter 1998: 12.39% Worst: 3rd quarter 1998: -8.96% [GRAPHIC] The Portfolio's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the indices do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Portfolio's average annual total return for each period, compared with the S&P 500 and the Lehman Aggregate Bond Index. The S&P 500 is an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The Lehman Aggregate Bond Index is an index of fixed income securities issued by the U.S. government and its agencies, and by corporations. The indices are not available for investment. Since 1 year inception* Investor A Shares 0.78% 9.53% Investor B Shares 1.43% 8.87% Investor C Shares 5.22% 10.57% S&P 500 -9.10% 17.94% Lehman Aggregate Bond Index 11.63% 7.08% *The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are October 15, 1996, August 13, 1997 and October 15, 1996, respectively. The returns for the indices shown are from inception of Investor A Shares. 13 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual portfolio operating expenses that are deducted from a portfolio's assets and from the assets of the Nations Funds the Portfolio invests in. [GRAPHIC] What it costs to invest in the Portfolio This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses (Expenses that are deducted from the Portfolio's assets) Management fees 0.25% 0.25% 0.25% Distribution (12-b1) and shareholder servicing fees 0.25% 1.00% 1.00% ----- ----- ----- Total annual Fund operating expenses 0.50% 1.25% 1.25% ===== ===== =====
(1) A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2) This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. Indirect Expenses The Portfolio's annual Fund operating expenses include a portion of the annual Fund operating expenses of the Nations Funds in which the Portfolio invests. This portion is estimated to be between 0.46% and 0.97% (expressed as a weighted average, including any fee waiver and/or reimbursement commitments that will expire July 31, 2002), and is based on: o the amount the Portfolio expects to invest in each Fund, based on the target allocation o each Fund's annualized expense ratio for the period ended March 31, 2001, adjusted as necessary to reflect current service provider fees 14 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Portfolio's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Portfolio with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Portfolio for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Portfolio o your investment has a 5% return each year o the Portfolio's operating expenses remain the same as shown in the table above o the Portfolio's indirect expenses remain at the average of the range as shown above for the 1 year example, excluding any fee waivers and/or reimbursements for the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $691 $944 $1,215 $1,989 Investor B Shares $699 $922 $1,270 $2,121 Investor C Shares $299 $622 $1,070 $2,314 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $199 $622 $1,070 $2,121 Investor C Shares $199 $622 $1,070 $2,314 15 [GRAPHIC] About the sub-adviser BACAP is this Portfolio's sub-adviser. BACAP's Investment Strategies Team makes the day-to-day investment decisions for the Portfolio. [GRAPHIC] You'll find more about BACAP on page 28. [GRAPHIC] About the underlying Nations Funds You'll find more information about the Funds in which the Portfolio invests, including their objectives and strategies, in About the Nations Funds and in the SAI. Nations LifeGoal Income and Growth Portfolio [GRAPHIC] Investment objective The Portfolio seeks current income and modest growth to protect against inflation and to preserve purchasing power. [GRAPHIC] Investment strategies The Portfolio normally invests most of its assets in Primary A Shares of Nations Funds Government & Corporate Bond Funds, but may also invest in Nations Funds Stock and International/Global Stock, and Money Market Funds. The team uses asset allocation as its principal investment approach. It: o allocates assets among Fund categories, within the target allocations set for the Portfolio. It bases its allocations on the Portfolio's investment objective, historical returns for each asset class and on its outlook for the economy o chooses individual Funds within each category and the amount it will allocate to each, looking at each Fund's historical returns, as well as the expected performance of the mix of Funds o reviews the allocations to Fund categories and individual Funds at least monthly, and may change these allocations when it believes it's appropriate to do so The actual amount in each Fund or category of Funds may vary from the allocations set by the team, depending on how the Funds perform, and for other reasons. The team may use various strategies to try to manage how much the actual amount varies, and for how long. For example: o if there are more assets in a Fund category than in the target allocation, the team may allocate money coming into the Portfolio to the other Fund categories o if there are fewer assets in a Fund category than in the target allocation, it may allocate money coming into the Portfolio to that Fund category The Portfolio normally sells a proportionate amount of the shares it owns in each Nations Fund to meet its redemption requests. 16 Nations LifeGoal Income and Growth Portfolio Target allocation for each can invest in: Fund category: Large-capitalization stock funds 10-30% Nations Value Fund Nations Blue Chip Fund Nations Strategic Growth Fund Nations Marsico Focused Equities Fund Small-capitalization stock fund 0-10% Nations Small Company Fund International/Global stock funds 0-10% Nations International Value Fund Nations International Equity Fund Government & corporate bond funds 50-90% Nations Short-Term Income Fund Nations Bond Fund International Bond Portfolio High yield bond fund 0-10% Nations High Yield Bond Fund Money market fund 0-20% Nations Prime Fund Nations LifeGoal Income and Growth Portfolio's target allocation for total investments in stock and international/global stock funds is 30%. The team can substitute or add other Funds to this list at any time, including Funds introduced after the date of this prospectus. [GRAPHIC] You'll find detailed information about each Fund's investment strategies and risks in its prospectus, and in its SAI. Please call us at 1.800.321.7854 for a copy. [GRAPHIC] You'll find more about other risks of investing in this Portfolio in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations LifeGoal Income and Growth Portfolio has the following risks: o Investment strategy risk - The team uses an asset allocation strategy to try to achieve the highest total return. There is a risk that the mix of investments will not produce the returns they expect, or that the Portfolio will fall in value. There is also the risk that the Funds the Portfolio invests in will not produce the returns the team expects, or will fall in value. o Stock market risk - The Portfolio allocates assets to Funds that invest in stocks. The value of the stocks a Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Small company risk - The Portfolio allocates assets to Funds that may invest in smaller companies. Stocks of smaller companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains, but also carry more risk. 17 o Foreign investment risk - The Portfolio allocates assets to Funds that invest in foreign securities. Foreign investments may be riskier than U.S. investments because of political and economic conditions, changes in currency exchange rates, foreign controls on investment, difficulties selling some securities and lack of or limited financial information. Significant levels of foreign taxes, including withholding taxes, may also apply to some foreign investments. Funds that invest in securities of companies in emerging markets have high growth potential, but can be more volatile than securities in more developed markets. o Interest rate risk - The Portfolio allocates assets to Funds that may invest in fixed income securities. The prices of fixed income securities will tend to fall when interest rates rise. In general, fixed income securities with longer terms tend to fall more in value when interest rates rise than fixed income securities with shorter terms. o Credit risk - A Fund that invests in fixed income securities could lose money if the issuer of a fixed income security is unable to pay interest or repay principal when it's due. Credit risk usually applies to most fixed income securities, but generally is not a factor for U.S. government obligations. The Portfolio allocates assets to Funds that typically invest in securities that are not investment grade and are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. These securities typically pay a premium -- a high interest rate or yield -- because of the increased risk of loss. These securities also can be subject to greater price volatility. o Derivatives risk - The Portfolio allocates assets to Funds that may use derivative instruments. The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. o Rebalancing policy - The actual amount in each Fund or category of Funds may vary from the allocations set by the team. This could continue for some time. 18 [GRAPHIC] Many things affect a Portfolio's performance, including market conditions, the composition of the Portfolio's holdings and Portfolio expenses. [GRAPHIC] A look at the Portfolio's performance The following bar chart and table show you how the Portfolio has performed in the past, and can help you understand the risks of investing in the Portfolio. A Portfolio's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Portfolio's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE WITH THE FOLLOWING PLOT POINTS] 1997 1998 1999 2000 8.50% 10.12% 6.15% 5.72% *Year-to-date return as of June 30, 2001: 1.03% Best and worst quarterly returns during this period Best: 4th quarter 1998: 6.25% Worst: 3rd quarter 1998: -2.38% [GRAPHIC] The Portfolio's returns in this table reflect sales charges, if any. Share class returns may vary based on differences in sales charges and expenses. The returns shown for the indices do not reflect sales charges, fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Portfolio's average annual total return for each period, compared with the S&P 500 and the Lehman Aggregate Bond Index. The S&P 500 is an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The Lehman Aggregate Bond Index is an index of fixed income securities issued by the U.S. government and its agencies, and by corporations. The indices are not available for investment. Since 1 year inception* Investor A Shares -0.34% 6.23% Investor B Shares -0.12% 5.12% Investor C Shares 3.82% 7.03% S&P 500 -9.10% 17.94% Lehman Aggregate Bond Index 11.63% 7.08% *The inception dates of Investor A Shares, Investor B Shares and Investor C Shares are October 15, 1996, August 7, 1997 and October 15, 1996, respectively. The returns for the indices shown are from inception of Investor A Shares. 19 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual portfolio operating expenses that are deducted from a portfolio's assets and from the assets of the Nations Funds the Portfolio invests in. [GRAPHIC] What it costs to invest in the Portfolio This table describes the fees and expenses that you may pay if you buy and hold shares of the Portfolio.
Shareholder fees Investor A Investor B Investor C (Fees paid directly from your investment) Shares Shares Shares Maximum sales charge (load) imposed on purchases, as a % of offering price 5.75% none none Maximum deferred sales charge (load) as a % of the lower of the original purchase price or net asset value none(1) 5.00%(2) 1.00%(3) Annual Fund operating expenses (Expenses that are deducted from the Portfolio's assets) Management fees 0.25% 0.25% 0.25% Distribution (12b-1) and shareholder servicing fees 0.25% 1.00% 1.00% ----- ----- ----- Total annual Fund operating expenses 0.50% 1.25% 1.25% ===== ===== =====
(1) A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2) This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3) This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. Indirect Expenses The Portfolio's annual Fund operating expenses include a portion of the annual Fund operating expenses of the Nations Funds in which the Portfolio invests. This portion is estimated to be between 0.18% and 0.90% (expressed as a weighted average, including any fee waiver and/or reimbursement commitments that will expire July 31, 2002), and is based on: o the amount the Portfolio expects to invest in each Fund, based on the target allocation o each Fund's annualized expense ratio for the period ended March 31, 2001, adjusted as necessary to reflect current service provider fees 20 [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Portfolio's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Portfolio with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A, Investor B or Investor C Shares of the Portfolio for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Portfolio o your investment has a 5% return each year o the Portfolio's operating expenses remain the same as shown in the table above o the Portfolio's indirect expenses remain at the average of the range shown above for the 1 year example, excluding any fee waivers and/or reimbursements for the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions, your costs would be: 1 year 3 years 5 years 10 years Investor A Shares $675 $892 $1,125 $1,796 Investor B Shares $682 $868 $1,178 $1,928 Investor C Shares $282 $568 $ 978 $2,125 If you bought Investor B or Investor C Shares, you would pay the following expenses if you didn't sell your shares: 1 year 3 years 5 years 10 years Investor B Shares $182 $568 $978 $1,928 Investor C Shares $182 $568 $978 $2,125 21 About the Nations Funds The table starting on the next page is a brief overview of the objectives and principal investments of the Nations Funds in which the Nations LifeGoal Portfolios invest. Each Portfolio invests in a different mix of Nations Funds. You'll find the mix of Nations Funds and target allocations for each Portfolio starting on page 5. The team can substitute or add other Funds to this table at any time, including Funds introduced after the date of this prospectus. For more information You'll find more detailed information about each Fund's investment strategies and risks in its prospectus and in its SAI. Please call us at 1.800.321.7854 for copies. 22
The Fund's/Portfolio's investment objective ---------------------------------------------------------- Stock Funds Nations Value Fund Growth of capital by investing in companies that are believed to be undervalued. - --------------------------------------------------------------------------------------------- Nations Blue Chip Fund Long-term capital appreciation through investments in blue chip stocks. - --------------------------------------------------------------------------------------------- Nations Strategic Growth Fund Long-term, after-tax returns by investing in a diversified portfolio of common stocks. - --------------------------------------------------------------------------------------------- Nations Marsico Focused Long-term growth of capital. Equities Fund - --------------------------------------------------------------------------------------------- Nations MidCap Growth Fund Capital appreciation by investing in emerging growth companies that are believed to have superior long-term earnings growth prospects. - --------------------------------------------------------------------------------------------- Nations Small Company Fund Long-term capital growth by investing primarily in equity securities. - --------------------------------------------------------------------------------------------- International/Global Stock Funds Nations International Value Long-term capital appreciation by investing Fund primarily in equity securities of foreign issuers, including emerging markets countries. - --------------------------------------------------------------------------------------------- Nations International Equity Long-term capital growth by investing Fund primarily in equity securities of non-U.S. companies in Europe, Australia, the Far East and other regions, including developing countries. - --------------------------------------------------------------------------------------------- What the Fund/Portfolio invests in ---------------------------------------------------------- Stock Funds Nations Value Fund o at least 65% of its assets in common stocks of U.S. companies. The Fund generally invests in companies in a broad range of industries with market capitali- zations of at least $1 billion and daily trading volumes of at least $3 million - --------------------------------------------------------------------------------------------- Nations Blue Chip Fund Nations Blue Chip Master Portfolio. The Master Portfolio invests: o at least 65% of its assets in blue chip stocks o primarily in blue chip stocks that are included in the S&P 500 - --------------------------------------------------------------------------------------------- Nations Strategic Growth Fund o at least 65% of its assets in common stocks of companies selected from most major industry sectors - --------------------------------------------------------------------------------------------- Nations Marsico Focused Nations Marsico Focused Equities Master Portfolio. The Equities Fund Master Portfolio invests: o at least 65% of its assets in common stocks of large companies. The Master Portfolio, which is non-diversified, generally holds a core position of 20 to 30 common stocks o up to 25% of its assets in foreign securities - --------------------------------------------------------------------------------------------- Nations MidCap Growth Fund o at least 65% of its assets in companies chosen from a universe of medium capitalization companies. The Fund generally holds securities of between 60 and 100 issuers, which include common stocks, preferred stocks and convertible securities such as warrants, rights and convertible debt - --------------------------------------------------------------------------------------------- Nations Small Company Fund o at least 65% of its assets in companies with a market capitalization of $2 billion or less. The Fund usually holds 75 to 130 equity securities - --------------------------------------------------------------------------------------------- International/Global Stock Funds Nations International Value Nations International Value Master Portfolio. The Master Fund Portfolio invests: o at least 65% of its assets in foreign companies anywhere in the world that have a market capitalization of more than $1 billion at the time of investment. The Master Portfolio typically invests in at least three countries other than the United States at any one time o primarily in common stocks, preferred stocks, convertible securities, either directly or indirectly through closed-end investment companies and depositary receipts - --------------------------------------------------------------------------------------------- Nations International Equity Nations International Equity Master Portfolio. The Master Fund Portfolio invests: o at least 65% of its assets in established companies located in at least three countries other than the United States. The investment managers select countries, including emerging market or developing countries, that they believe have the potential for growth o primarily in equity securities, which may include equity interests in foreign investment funds or trusts, convertible securities, real estate investment trust securities and depositary receipts - ---------------------------------------------------------------------------------------------
23
The Fund's/Portfolio's investment objective ---------------------------------------------------------- Emerging Markets Stock Fund Nations Emerging Markets Long-term capital growth by investing Fund primarily in equity securities of companies in emerging market countries, such as those in Latin America, Eastern Europe, the Pacific Basin, the Far East and India. - --------------------------------------------------------------------------------------------- Government & Corporate Bond Funds Nations Short-Term Income High current income consistent with Fund minimal fluctuations of principal. - --------------------------------------------------------------------------------------------- Nations Bond Fund Total return by investing in investment grade fixed income securities. - --------------------------------------------------------------------------------------------- International Bond Portfolio Maximize total return by investing in a diversified portfolio of bonds of primarily non-U.S. issuers. - --------------------------------------------------------------------------------------------- High Yield Bond Fund Nations High Yield Bond Fund Maximum income by investing in a diversified portfolio of high yield debt securities. - --------------------------------------------------------------------------------------------- Money Market Fund Nations Prime Fund Maximization of current income to the extent consistent with the preservation of capital and the maintenance of liquidity. - --------------------------------------------------------------------------------------------- What the Fund/Portfolio invests in ---------------------------------------------------------- Emerging Markets Stock Fund Nations Emerging Markets o at least 65% of its assets in companies in emerging Fund markets or developing countries. The Fund typically invests in securities of companies in at least three emerging markets countries at any one time o may invest in foreign currency exchange contracts to convert foreign currencies to and from the U.S. dollar, and to hedge against changes in foreign currency exchange rates - --------------------------------------------------------------------------------------------- Government & Corporate Bond Funds Nations Short-Term Income o at least 65% of its total assets in investment grade Fund fixed income securities. The team may choose unrated securities if it believes they are of comparable quality to investment grade securities at the time of investment o corporate debt securities, including bonds, notes and debentures, mortgage-related securities issued by governments, asset-backed securities or U.S. government obligations - --------------------------------------------------------------------------------------------- Nations Bond Fund o at least 65% of its assets in investment grade fixed income securities. The portfolio management team may choose unrated securities if it believes they are of comparable quality to investment grade securities at the time of investment o corporate debt securities, including bonds, notes and debentures, U.S. government obligations, foreign debt securities denominated in U.S. dollars, mortgage-related securities, asset-backed securities or municipal securities - --------------------------------------------------------------------------------------------- International Bond Portfolio o at least 80% of its assets in foreign bonds (which may be collateralized with U.S. cash equivalents) o non-U.S. government and agency securities; investment grade foreign debt securities; foreign high yield securities rated at least "B" by at least one NRSRO. - --------------------------------------------------------------------------------------------- High Yield Bond Fund Nations High Yield Bond Fund Nations High Yield Bond Master Portfolio. The Master Portfolio invests: o at least 65% of its assets in domestic and foreign corporate high yield debt securities which are not rated investment grade but generally will be rated "Ba" or "B" by Moody's Investor Services, Inc. or "BB" or "B" by Standard & Poor's Corporation o primarily in U.S. government obligations, zero-coupon bonds, as well as domestic corporate high yield debt securities and U.S. dollar-denominated foreign corporate high yield debt securities, both of which include private placements o up to 25% of its assets in equity securities which may include convertible securities - --------------------------------------------------------------------------------------------- Money Market Fund Nations Prime Fund o money market instruments, including commercial paper, bank obligations, short-term debt securities, guaranteed investment contracts, short-term taxable municipal securities, repurchase agreements secured by first-tier securities or U.S. government obligations - ---------------------------------------------------------------------------------------------
24 [GRAPHIC] Other important information [GRAPHIC] You'll find specific information about each Portfolio's principal investments, strategies and risks in the descriptions starting on page 5. The following are some other risks and information you should consider before you invest: o Changing investment objectives and policies - The investment objective and certain investment policies of any Portfolio or Fund can be changed without shareholder approval. Other investment policies may be changed only with shareholder approval. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. Each Portfolio may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If a Portfolio becomes a feeder fund, it will have the additional risks of investing in a master portfolio. o Holding other kinds of investments - The Portfolios or any Fund may hold investments that aren't part of their principal investment strategies. Please refer to the SAI for more information. The management team can also choose not to invest in specific securities described in this prospectus and in the SAI. o Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds and the Portfolios may invest up to 25% of their assets in Nations Money Market Funds. BA Advisors and its affiliates are entitled to receive fees from the Nations Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Funds and the Portfolios for services provided directly. BA Advisors may waive fees which it is entitled to receive from either the Nations Money Market Funds or the Funds. 25 o Foreign investment risk - Funds that invest in foreign securities may be affected by changes in currency exchange rates and the costs of converting currencies; foreign government controls on foreign investment, repatriation of capital, and currency and exchange; foreign taxes; inadequate supervision and regulation of some foreign markets; difficulties selling some investments, which may increase volatility; different settlement practices or delayed settlements in some markets; difficulty getting complete or accurate information about foreign companies; less strict accounting, auditing and financial reporting standards than those in the U.S.; political, economic or social instability; and difficulty enforcing legal rights outside the U.S. If a Fund invests in emerging markets there may be other risks involved, such as those of immature economies and less developed and more thinly traded securities markets. o Investing defensively - A Portfolio may temporarily hold up to 100% of its assets in Nations Prime Fund, a money market fund, to try to protect it during a market or economic downturn or because of political or other conditions. A Portfolio may not achieve its investment objective while it is investing defensively. o Securities lending program - A Fund may lend portfolio securities to approved broker-dealers or other financial institutions on a fully collateralized basis in order to earn additional income. There may be delays in receiving additional collateral after the loan is made or in recovering the securities loaned. o Bank of America and its affiliates - Bank of America and its affiliates currently provide services to the Portfolios and the Funds, including investment advisory, investment sub-advisory, co-administration and brokerage services, and are paid for providing these services. Bank of America and its affiliates also may, at times, provide other services and be compensated for them, including transfer agency, interfund lending and securities lending services, or make loans to the Portfolios and the Funds. Finally, Bank of America or its affiliates may serve as counterparties in transactions with Nations Funds where permitted by law or regulation, and may receive compensation in that capacity. o Portfolio turnover - A Portfolio or Fund that replaces -- or turns over -- more than 100% of its investments in a year is considered to trade frequently. Frequent trading can result in larger distributions of short-term capital gains to shareholders. These gains are taxable at higher rates than long-term capital gains. Frequent trading can also mean higher brokerage and other transaction costs, which could reduce the Portfolio's returns. The Portfolios generally buy securities for capital appreciation, investment income, or both, and don't engage in short-term trading. You'll find the portfolio turnover rate for each Portfolio in Financial highlights. 26 [GRAPHIC] How the Portfolios are managed [GRAPHIC] Banc of America Advisors, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Investment adviser BA Advisors is the investment adviser to over 75 mutual fund portfolios in the Nations Funds Family, including the Portfolios described in this prospectus. BA Advisors is a registered investment adviser. It's a wholly-owned subsidiary of Bank of America, which is owned by Bank of America Corporation. Nations Funds pays BA Advisors an annual fee for its investment advisory services. The fee is calculated as a percentage of the average daily net assets of each Portfolio and is paid monthly. BA Advisors uses part of this money to pay the investment sub-adviser for the services it provides to each Portfolio. BA Advisors has also agreed to pay all other Portfolio expenses, except taxes, brokerage fees and commissions, extraordinary expenses, and any distribution (12b-1), shareholder servicing or shareholder administration fees. The following chart shows the maximum advisory fee BA Advisors can receive, along with the actual advisory fees it received during the Portfolios' last fiscal year: Annual investment advisory fee, as a % of average daily net assets Maximum Actual fee advisory paid last fee fiscal year Nations LifeGoal Growth Portfolio 0.25% 0.25% Nations LifeGoal Balanced Growth Portfolio 0.25% 0.25% Nations LifeGoal Income and Growth Portfolio 0.25% 0.25% 27 Investment sub-advisers Nations Funds and BA Advisors engage one or more investment sub-advisers for each Portfolio to make day-to-day investment decisions for the Portfolio. BA Advisors retains ultimate responsibility (subject to Board oversight) for overseeing the sub-advisers and evaluates the Portfolio's needs and available sub-advisers' skills and abilities on an ongoing basis. Based on its evaluations, BA Advisors may at times recommend to the Portfolio's Board that the Portfolio: o change, add or terminate one or more sub-advisers; o continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or o materially change a sub-advisory agreement with a sub-adviser. Applicable law requires a Portfolio to obtain shareholder approval in order to act on most of these types of recommendations, even if the Portfolio's Board has approved the proposed action and believes that the action is in shareholders' best interests. BA Advisors and Nations Funds have applied for relief from the SEC to permit the Portfolios to act on many of BA Advisors' recommendations with approval only by the Portfolios' Board and not by Portfolio shareholders. BA Advisors or a Portfolio would inform the Portfolio's shareholders of any actions taken in reliance on this relief. Until BA Advisors and the Portfolios obtain the relief, each Portfolio will continue to submit these matters to shareholders for their approval to the extent required by applicable law. [GRAPHIC] Banc of America Capital Management, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Banc of America Capital Management, LLC BACAP is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Its management expertise covers all major domestic asset classes, including equity and fixed income securities, and money market instruments. Currently managing more than $125 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 60 funds in the Nations Funds Family. BACAP generally takes a team approach to investment management. Each team or individual portfolio manager has access to the latest technology and analytical resources. BACAP is the investment sub-adviser to all of the LifeGoal Portfolios. BACAP's Investment Strategies Team is responsible for making the day-to-day investment decisions for each Portfolio. BACAP is also the investment sub-adviser to the Nations Funds that appear in the table below. The table tells you which internal BACAP asset management team is responsible for making the day-to-day investment decisions for each Fund. Fund BACAP Team Nations Value Fund Value Strategies Team Nations Small Company Fund SmallCap Strategies Team Nations Short-Term Income Fund Fixed Income Management Team Nations Bond Fund Fixed Income Management Team International Bond Portfolio International Team Nations Prime Fund Taxable Money Market Management Team Nations Strategic Growth Fund Growth Strategies Team Nations MidCap Growth Fund Growth Strategies Team 28 Nations Funds and BA Advisors have engaged investment sub-advisers to provide day-to-day portfolio management for the underlying Nations Funds in which the Portfolios invest. These sub-advisers function under the supervision of BA Advisors and the Boards of Nations Funds. [GRAPHIC] Marsico Capital Management, LLC 1200 17th Street Suite 1300 Denver, Colorado 80202 Marsico Capital Management, LLC Marsico Capital is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Marsico Capital is a full service investment advisory firm founded by Thomas F. Marsico in September 1997. Marsico Capital currently has over $13 billion in assets under management. Marsico Capital is the investment sub-adviser to Nations Marsico Focused Equities Master Portfolio. Thomas F. Marsico, Chairman and Chief Executive Officer of Marsico Capital, is the portfolio manager responsible for making the day-to-day investment decisions for Nations Marsico Focused Equities Master Portfolio. Mr. Marsico was an executive vice president and portfolio manager at Janus Capital Corporation from 1988 until he formed Marsico Capital in September 1997. He has more than 20 years of experience as a securities analyst and portfolio manager. [GRAPHIC] Brandes Investment Partners, L.P. 11988 El Camino Real Suite 500 San Diego, California 92130 Brandes Investment Partners, L.P. Founded in 1974, Brandes is an investment advisory firm with 56 investment professionals who manage more than $50 billion in assets. Brandes uses a value-oriented approach to managing international investments, seeking to build wealth by buying high quality, undervalued stocks. Brandes is the investment sub-adviser to Nations International Value Master Portfolio. Brandes' Large Cap Investment Committee is responsible for making the day-to-day investment decisions for the Master Portfolio. [GRAPHIC] Chicago Equity Partners, LLC 180 North LaSalle Suite 3800 Chicago, Illinois 60601 Chicago Equity Partners, LLC Chicago Equity is a registered investment adviser and is owned by the firm's senior management. Chicago Equity is the investment sub-adviser to Nations Blue Chip Master Portfolio. Chicago Equity's Equity Management Team is responsible for making the day-to-day investment decisions for Nations Blue Chip Master Portfolio. 29 [GRAPHIC] Gartmore Global Partners Gartmore House 8 Fenchurch Place London EC3M 4PH, England Gartmore Global Partners Gartmore is a global asset manager dedicated to serving the needs of U.S. based investors. Gartmore was formed in 1995 as a registered investment adviser and manages more than $991 million in assets. Gartmore is a general partnership which is an indirect wholly-owned subsidiary of Nationwide Mutual Insurance Company. Gartmore generally follows a growth philosophy, which is reflected in its active management of market allocation and stock selection. Gartmore is co-investment sub-adviser to: o Nations International Equity Master Portfolio Gartmore is investment sub-adviser to: o Nations Emerging Markets Fund Gartmore's Global Equities Portfolio Construction Team is responsible for the day-to-day investment decisions for its portion of the Master Portfolio. Christopher Palmer has been responsible since August 1999 for investments in developing countries, and has been the principal portfolio manager of Nations Emerging Markets Fund since that time. He joined Gartmore in 1995 and is a senior investment manager on the Gartmore Emerging Markets Team. Before he joined Gartmore, Mr. Palmer worked for Unifund, S.A., a private investment bank, in its Mexico City and Hong Kong offices, and managed global derivatives, credit and counterparty credit risk as vice president in the Institutional Credit Department of Bear Stearns & Co. He graduated from Colgate University in 1986 with a BA Honors degree in History and completed an MBA in Finance at New York University in 1988. Mr. Palmer was awarded the CFA designation by the Association of Investment Management and Research in 1993. [GRAPHIC] INVESCO Global Asset Management (N.A), Inc. 1360 Peachtree Street, N.E. Atlanta, Georgia 30309 INVESCO Global Asset Management (N.A), Inc. INVESCO Global is a division of AMVESCAP PLC, a publicly traded UK financial holding company located in London. INVESCO Global is one of the three investment sub-advisers to Nations International Equity Master Portfolio. INVESCO's International Equity Portfolio Management Team is responsible for making the day-to-day investment decisions for its portion of the Master Portfolio. 30 [GRAPHIC] Putnam Investment Management LLC One Post Office Square Boston, Massachusetts 02109 Putnam Investment Management LLC Putnam is a wholly-owned subsidiary of Putnam Investments, Inc., which, except for shares held by employees, is owned by Marsh & McLennan Companies. Putnam is one of three investment sub-advisers to Nations International Equity Master Portfolio. Putnam's Core International Equity Group is responsible for making the day-to-day investment decisions for its portion of the Master Portfolio. [GRAPHIC] MacKay Shields LLC 9 West 57th Street New York, New York 10019 MacKay Shields LLC Founded in 1938, MacKay Shields is an independently-managed, wholly-owned subsidiary of New York Life Insurance Company. The firm's 63 investment professionals manage more than $30 billion in assets, including over $6 billion in high yield assets. MacKay Shields' High Yield Portfolio Management Team is responsible for making the day-to-day decisions for Nations High Yield Bond Master Portfolio. [GRAPHIC] Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 Other service providers The Portfolios are distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. Stephens does not receive any fees for the administrative services it provides to the Portfolios. Stephens may pay commissions, distribution (12b-1) and shareholder servicing fees, and/or other compensation to companies for selling shares and providing services to investors. BA Advisors is also co-administrator of the Portfolios, and assists in overseeing the administrative operations of the Portfolios. [GRAPHIC] PFPC Inc. 400 Bellevue Parkway Wilmington, Delaware 19809 PFPC Inc. (PFPC) is the transfer agent for the Portfolios' shares. Its responsibilities include processing purchases, sales and exchanges, calculating and paying distributions, keeping shareholder records, preparing account statements and providing customer service. 31 About your investment - -------------------------------------------------------------------------------- [GRAPHIC] We've used the term, investment professional, to refer to the person who has assisted you with buying Nations Funds. Selling agent or servicing agent (sometimes referred to as a selling agent) means the company that employs your investment professional. Selling and servicing agents include banks, brokerage firms, mutual fund dealers and other financial institutions, including affiliates of Bank of America. [GRAPHIC] For more information about how to choose a share class, contact your investment professional or call us at 1.800.321.7854. [GRAPHIC] Before you invest, please note that over time, distribution (12b-1) and shareholder servicing fees will increase the cost of your investment, and may cost you more than any sales charges you may pay. For more information, see How selling and servicing agents are paid. [GRAPHIC] Choosing a share class Before you can invest in the Portfolios, you'll need to choose a share class. There are three classes of shares of each Portfolio offered by this prospectus. Each class has its own sales charges and fees. The table below compares the charges and fees and other features of the share classes.
Investor A Investor B Investor C Shares Shares Shares Maximum amount you can buy no limit $250,000 no limit Maximum front-end sales charge 5.75% none none Maximum deferred sales charge none(1) 5.00%(2) 1.00%(3) Maximum annual 0.25% 0.75% 0.75% distribution and distribution distribution distribution shareholder servicing fees (12b-1)/service (12b-1) fee and (12b-1) fee and fee 0.25% 0.25% service fee service fee Conversion feature none yes none
(1)A 1.00% maximum deferred sales charge applies to investors who buy $1 million or more of Investor A Shares and sell them within eighteen months of buying them. Please see Choosing a share class - About Investor A Shares - Contingent deferred sales charge for details. (2)This charge decreases over time. Different charges apply to Investor B Shares bought before January 1, 1996 and after July 31, 1997. Please see Choosing a share class - About Investor B Shares - Contingent deferred sales charge for details. (3)This charge applies to investors who buy Investor C Shares and sell them within one year of buying them. Please see Choosing a share class - About Investor C Shares - Contingent deferred sales charge for details. The share class you choose will depend on how much you're investing, how long you're planning to stay invested, and how you prefer to pay the sales charge. The total cost of your investment over the time you expect to hold your shares will be affected by the distribution (12b-1) and shareholder servicing fees, as well as by the amount of any front-end sales charge or contingent deferred sales charge (CDSC) that applies, and when you're required to pay the charge. You should think about these things carefully before you invest. Investor A Shares have a front-end sales charge, which is deducted when you buy your shares. This means that a smaller amount is invested in the Portfolios, unless you qualify for a waiver or reduction of the sales charge. However, Investor A Shares have lower ongoing distribution (12b-1) and/or shareholder servicing fees than Investor B and Investor C Shares. This means that Investor A Shares can be expected to pay relatively higher dividends per share. 32 Investor B Shares have limits on how much you can invest. When you buy Investor B or Investor C Shares, the full amount is invested in the Portfolios. However, you may pay a CDSC when you sell your shares. Over time, Investor B and Investor C Shares can incur distribution (12b-1) and shareholder servicing fees that are equal to or more than the front-end sales charge, and the distribution (12b-1) and shareholder servicing fees you would pay for Investor A Shares. Although the full amount of your purchase is invested in the Portfolios, any positive investment return on this money may be partially or fully offset by the expected higher annual expenses of Investor B and Investor C Shares. You should also consider the conversion feature for Investor B Shares, which is described in About Investor B Shares. [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by a Portfolio every business day. [GRAPHIC] About Investor A Shares There is no limit to the amount you can invest in Investor A Shares. You generally will pay a front-end sales charge when you buy your shares, or in some cases, a CDSC when you sell your shares. Front-end sales charge You'll pay a front-end sales charge when you buy Investor A Shares, unless: o you qualify for a waiver of the sales charge. You can find out if you qualify for a waiver in the section When you might not have to pay a sales charge - Front end sales charges o you're reinvesting distributions The sales charge you'll pay depends on the amount you're investing -- generally, the larger the investment, the smaller the percentage sales charge.
Amount retained Sales charge Sales charge by selling agents as a % of the as a % of the as a % of the offering price net asset value offering price Amount you bought per share per share per share $0-$49,999 5.75% 6.10% 5.00% $50,000-$99,999 4.50% 4.71% 3.75% $100,000-$249,999 3.50% 3.63% 2.75% $250,000-$499,999 2.50% 2.56% 2.00% $500,000-$999,999 2.00% 2.04% 1.75% $1,000,000 or more 0.00% 0.00% 1.00%(1)
(1)1.00% on the first $3,000,000, 0.50% on the next $47,000,000, 0.25% on amounts over $50,000,000. Stephens pays the amount retained by selling agents on investments of $1,000,000 or more, but may be reimbursed when a CDSC is deducted if the shares are sold within eighteen months from the time they were bought. Please see How selling and servicing agents are paid for more information. 33 Contingent deferred sales charge If you own or buy $1,000,000 or more of Investor A Shares, there is one situation when you'll pay a CDSC: o If you buy your shares on or after August 1, 1999 and sell them within 18 months of buying them, you'll pay a CDSC of 1.00%. The CDSC is calculated from the day your purchase is accepted (the trade date). We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. You won't pay a CDSC on any increase in net asset value since you bought your shares, or on any shares you receive from reinvested distributions. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. [GRAPHIC] About Investor B Shares You can buy up to $250,000 of Investor B Shares. You don't pay a sales charge when you buy Investor B Shares, but you may have to pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC when you sell your Investor B Shares, unless: o you bought the shares on or after January 1, 1996 and before August 1, 1997 o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge - Contingent deferred sales charges The CDSC you pay depends on when you bought your shares, how much you bought in some cases, and how long you held them.
If you sell your shares during the following year: You'll pay a CDSC of: - ---------------------------------- --------------------------------------------------------------------------- Shares you bought Shares on or after Shares you bought Shares you bought between 1/1/1996 you bought after 8/1/1997 and 11/15/1998 and before before 11/15/1998 in the following amounts: 8/1/1997 1/1/1996 ------------ ------------------------------------ ------------- ----------- $250,000- $500,000- $0-$249,999 $499,999 $999,999 the first year you own them 5.0% 5.0% 3.0% 2.0% none 5.0% the second year you own them 4.0% 4.0% 2.0% 1.0% none 4.0% the third year you own them 3.0% 3.0% 1.0% none none 3.0% the fourth year you own them 3.0% 3.0% none none none 2.0% the fifth year you own them 2.0% 2.0% none none none 2.0% the sixth year you own them 1.0% 1.0% none none none 1.0% after six years of owning them none none none none none none
34 The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor B Shares. Please see How selling and servicing agents are paid for more information. About the conversion feature Investor B Shares generally convert automatically to Investor A Shares according to the following schedule: Will convert to Investor A Shares Investor B Shares you bought after you've owned them for after November 15, 1998 eight years between August 1, 1997 and November 15, 1998 $0-$249,000 nine years $250,000-$499,999 six years $500,000-$999,999 five years before August 1, 1997 nine years The conversion feature allows you to benefit from the lower operating costs of Investor A Shares, which can help increase total returns. Here's how the conversion works: o We won't convert your shares if you tell your investment professional, selling agent or the transfer agent within 90 days before the conversion date that you don't want your shares to be converted. Remember, it's in your best interest to convert your shares because Investor A Shares have lower expenses. o Shares are converted at the end of the month in which they become eligible for conversion. Any shares you received from reinvested distributions on these shares will convert to Investor A Shares at the same time. o You'll receive the same dollar value of Investor A Shares as the Investor B Shares that were converted. No sales charge or other charges apply. o Investor B Shares that you received from an exchange of Investor B Shares of another Nations Fund will convert based on the day you bought the original shares. Your conversion date may be later if you exchanged to or from a Nations Money Market Fund. o Conversions are free from federal tax. 35 [GRAPHIC] About Investor C Shares There is no limit to the amount you can invest in Investor C Shares. You don't pay a sales charge when you buy Investor C Shares, but you may pay a CDSC when you sell them. Contingent deferred sales charge You'll pay a CDSC of 1.00% when you sell Investor C Shares within one year of buying them, unless: o you received the shares from reinvested distributions o you qualify for a waiver of the CDSC. You can find out how to qualify for a waiver in the section When you might not have to pay a sales charge - Contingent deferred sales charges The CDSC is calculated from the trade date of your purchase. We deduct the CDSC from the market value or purchase price of the shares, whichever is lower. We'll sell any shares that aren't subject to the CDSC first. We'll then sell shares that result in the lowest CDSC. Your selling agent receives compensation when you buy Investor C Shares. Please see How selling and servicing agents are paid for more information. [GRAPHIC] Please contact your investment professional for more information about reductions and waivers of sales charges. You should tell your investment professional that you may qualify for a reduction or a waiver before buying shares. We can change or cancel these terms at any time. Any change or cancellation applies only to future purchases. When you might not have to pay a sales charge Front-end sales charges (Investor A Shares) There are three ways you can lower the front-end sales charge you pay on Investor A Shares: o Combine purchases you've already made Rights of accumulation allow you to combine the value of Investor A, Investor B and Investor C Shares you already own with Investor A Shares you're buying to calculate the sales charge. The sales charge is based on the total value of the shares you already own, or the original purchase cost, whichever is higher, plus the value of the shares you're buying. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify for rights of accumulation. o Combine purchases you plan to make By signing a letter of intent, you can combine the value of shares you already own with the value of shares you plan to buy over a 13-month period to calculate the sales charge. o You can choose to start the 13-month period up to 90 days before you sign the letter of intent. o Each purchase you make will receive the sales charge that applies to the total amount you plan to buy. o If you don't buy as much as you planned within the period, you must pay the difference between the charges you've paid and the charges that actually apply to the shares you've bought. 36 o Your first purchase must be at least 5% of the minimum amount for the sales charge level that applies to the total amount you plan to buy. o If the purchase you've made later qualifies for a reduced sales charge through the 90-day backdating provisions, we'll make an adjustment for the lower charge when the letter of intent expires. Any adjustment will be used to buy additional shares at the reduced sales charge. o Combine purchases with family members You can receive a quantity discount by combining purchases of Investor A Shares that you, your spouse and children under age 21 make on the same day. Some distributions or payments from the dissolution of certain qualified plans also qualify for the quantity discount. Index Funds and Money Market Funds, except Investor B and Investor C Shares of Nations Reserves Money Market Funds, don't qualify. The following investors can buy Investor A Shares without paying a front-end sales charge: o full-time employees and retired employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries and the immediate families of these people o banks, trust companies and thrift institutions, acting as fiduciaries o individuals receiving a distribution from a Bank of America trust or other fiduciary account may use the proceeds of that distribution to buy Investor A Shares without paying a front-end sales charge, as long as the proceeds are invested in the Portfolios within 90 days of the date of distribution o Nations Funds' Trustees, Directors and employees of its investment sub-advisers o registered broker/dealers that have entered into a Nations Funds dealer agreement with Stephens may buy Investor A Shares without paying a front-end sales charge for their investment account only o registered personnel and employees of these broker/dealers and their family members may buy Investor A Shares without paying a front-end sales charge according to the internal policies and procedures of the employing broker/dealer as long as these purchases are made for their own investment purposes o employees or partners of any service provider to the Portfolios o investors who buy through accounts established with certain fee-based investment advisers or financial planners, wrap fee accounts and other managed agency/asset allocation accounts o shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at net asset value 37 The following plans can buy Investor A Shares without paying a front-end sales charge: o pension, profit-sharing or other employee benefit plans established under Section 401 or Section 457 of the Internal Revenue Code of 1986, as amended (the tax code) o employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must: o have at least $500,000 invested in Investor A Shares of Nations Funds (except Money Market Funds), or o sign a letter of intent to buy at least $500,000 of Investor A Shares of Nations Funds (except Money Market Funds), or o be an employer-sponsored plan with at least 100 eligible participants, or o be a participant in an alliance program that has signed an agreement with the Portfolio or a selling agent o certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors You can also buy Investor A Shares without paying a sales charge if you buy the shares within 120 days of selling the same Portfolio. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. Contingent deferred sales charges (Investor A, Investor B and Investor C Shares) You won't pay a CDSC on the following transactions: o shares sold following the death or disability (as defined in the tax code) of a shareholder, including a registered joint owner o distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors o the following retirement plan distributions: o lump-sum or other distributions from a qualified corporate or self-employed retirement plan following the retirement (or following attainment of age 59 1/2 in the case of a "key employee" of a "top heavy" plan) o distributions from an IRA or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2 o a tax-free return of an excess contribution to an IRA o distributions from a qualified retirement plan that aren't subject to the 10% additional federal withdrawal tax under Section 72(t)(2) of the tax code 38 o payments made to pay medical expenses which exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least 12 weeks o shares sold under our right to liquidate a shareholder's account, including instances where the aggregate net asset value of Investor A, Investor B or Investor C Shares held in the account is less than the minimum account size o shares bought through accounts established with certain fee-based investment advisers or financial planners, wrap fee accounts and other managed agency/asset allocation accounts o if you exchange Investor B or Investor C Shares of a Nations Fund that were bought through a Bank of America employee benefit plan for Investor A Shares of a Nations Fund o withdrawals made under the Automatic Withdrawal Plan described in Buying, selling and exchanging shares, if the total withdrawals of Investor A, Investor B or Investor C Shares made in a year are less than 12% of the total value of those shares in your account. A CDSC may only apply to Investor A Shares if you bought more than $1,000,000 We'll also waive the CDSC on the sale of Investor A or Investor C Shares bought before September 30, 1994 by current or retired employees of Bank of America Corporation (and its predecessors) and its affiliates, or by current or former trustees or directors of the Nations Funds or other management companies managed by Bank of America. You won't pay a CDSC on the sale of Investor B or Investor C Shares if you reinvest any of the proceeds in the same Portfolio within 120 days of the sale. This is called the reinstatement privilege. You can invest up to the amount of the sale proceeds. We'll credit your account with any CDSC paid when you sold the shares. The reinstatement privilege does not apply to any shares you bought through a previous reinstatement. PFPC, Stephens or their agents must receive your written request within 120 days after you sell your shares. 39 [GRAPHIC] When you sell shares of a mutual fund, the fund is effectively "buying" them back from you. This is called a redemption. [GRAPHIC] Buying, selling and exchanging shares You can invest in the Portfolios through your selling agent or directly from Nations Funds. We encourage you to consult with an investment professional who can open an account for you with a selling agent and help you with your investment decisions. Once you have an account, you can buy, sell and exchange shares by contacting your investment professional or selling agent. They will look after any paperwork that's needed to complete a transaction and send your order to us. You should also ask your selling agent about its limits, fees and policies for buying, selling and exchanging shares, which may be different from those described here, and about its related programs or services. The table on the next page summarizes some key information about buying, selling and exchanging shares. You'll find sales charges and other fees that apply to these transactions in Choosing a share class. The Funds also offer other classes of shares, with different features and expense levels, which you may be eligible to buy. Please contact your investment professional, or call us at 1.800.321.7854 if you have any questions or you need help placing an order. 40
Ways to buy, sell or How much you can buy, exchange sell or exchange Other things to know --------------- ------------------------------------------ ------------------------------------------------- Buying shares In a lump sum minimum initial investment: There is no limit to the amount you can invest in o $1,000 for regular accounts Investor A and C Shares. You can invest up to o $500 for traditional and Roth IRA $250,000 in Investor B Shares. accounts o $250 for certain fee-based accounts o no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: o $100 for all accounts Using our minimum initial investment: You can buy shares twice a month, monthly or Systematic o $100 quarterly, using automatic transfers from your Investment Plan minimum additional investment: bank account. o $50 ---------------------------------------------------------------------------------------------------------------------------------- Selling shares In a lump sum o you can sell up to $50,000 of your We'll deduct any CDSC from the amount you're shares by telephone, otherwise there selling and send you or your selling agent the are no limits to the amount you can sell balance, usually within three business days of o other restrictions may apply to receiving your order. withdrawals from retirement plan If you paid for your shares with a check that accounts wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the the check has cleared. Using our o minimum $25 per withdrawal Your account balance must be at least $10,000 to Automatic set up the plan. You can make withdrawals twice a Withdrawal Plan month, monthly, quarterly, bi-annually or annually. We'll send your money by check or deposit it directly to your bank account. No CDSC is deducted if you withdraw 12% or less of the value of your shares in a class. - ------------------------------------------------------------------------------------------------------------------------------------ Exchanging shares In a lump sum o minimum $1,000 per exchange You can exchange your Investor A Shares for Investor A shares of any other Portfolio or Nations Fund, except Index Funds. You won't pay a front-end sales charge, CDSC or redemption fee on the shares you're exchanging. You can exchange your Investor B Shares for: o Investor B Shares of any other Portfolio or Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You can exchange your Investor C Shares for: o Investor C Shares of any other Portfolio or Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of a Portfolio from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Using our o minimum $25 per exchange You must already have an investment in the Automatic Portfolios or Funds into which you want to Exchange Feature exchange. You can make exchanges monthly or quarterly.
41 [GRAPHIC] A business day is any day that the New York Stock Exchange (NYSE) is open. A business day ends at the close of regular trading on the NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes early, the business day ends as of the time the NYSE closes. The NYSE is closed on weekends and on the following national holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. How shares are priced All transactions are based on the price of a Portfolio's shares -- or its net asset value per share. We calculate net asset value per share for each class of each Portfolio at the end of each business day. The net asset value per share of a Portfolio is based on the net asset value per share of the Nations Funds the Portfolio invests in. We calculate the net asset value for each class of a Fund by determining the value of the Fund's assets in the class and then subtracting its liabilities. Next, we divide this amount by the number of shares that investors are holding in the class. Valuing securities in an underlying Fund The value of a Fund's assets is based on the total market value of all of the securities it holds. The prices reported on stock exchanges and securities markets around the world are usually used to value securities in a Fund. If prices aren't readily available, or the value of a security has been materially affected by events occurring after a foreign exchange closes, we'll base the price of a security on its fair value. When a Fund uses fair value to price securities it may value those securities higher or lower than another fund that uses market quotations to price the same securities. We use the amortized cost method, which approximates market value, to value short-term investments maturing in 60 days or less. International markets may be open on days when U.S. markets are closed. The value of foreign securities owned by a Fund could change on days when Fund shares may not be bought or sold. How orders are processed Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents before the end of a business day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive that day's net asset value per share. Orders received after the end of a business day will receive the next business day's net asset value per share. The business day that applies to your order is also called the trade date. We may refuse any order to buy or exchange shares. If this happens, we'll return any money we've received to your selling agent. Telephone orders You can place orders to buy, sell or exchange by telephone if you complete the telephone authorization section of our account application and send it to us. Here's how telephone orders work: o If you sign up for telephone orders after you open your account, you must have your signature guaranteed. o Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. o We'll take reasonable steps to confirm that telephone instructions are genuine. For example, we require proof of your identification before we will act on instructions received by telephone and may record telephone conversations. If we and our service providers don't take these steps, we may be liable for any losses from unauthorized or fraudulent instructions. o Telephone orders may be difficult to complete during periods of significant economic or market change. 42 [GRAPHIC] The offering price per share is the net asset value per share plus any sales charge that applies. The net asset value per share is the price of a share calculated by a Portfolio every business day. [GRAPHIC] Buying shares Here are some general rules for buying shares: o You buy Investor A Shares at the offering price per share. You buy Investor B and Investor C Shares at net asset value per share. o If we don't receive your money within three business days of receiving your order, we'll refuse the order. o Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. o Shares purchased are recorded on the books of the Portfolio. We generally don't issue certificates. Minimum initial investment The minimum initial amount you can buy is usually $1,000. If you're buying shares through one of the following accounts or plans, the minimum initial amount you can buy is: o $500 for traditional and Roth individual retirement accounts (IRAs) o $250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts o $100 using our Systematic Investment Plan o There is no minimum for 401(k) plans, simplified employee pension plans (SEPs), salary reduction-simplified employee pension plans (SAR-SEPs), Savings Incentives Match Plans for Employees (SIMPLE IRAs), salary reduction-IRAs (SAR-IRAs) or other similar kinds of accounts. However, if the value of your account falls below $1,000 for 401(k) plans or $500 for the other plans within one year after you open your account, we may sell your shares. We'll give you 60 days notice in writing if we're going to do this Minimum additional investment You can make additional purchases of $100, or $50 if you use our Systematic Investment Plan. Systematic Investment Plan You can make regular purchases of $50 or more using automatic transfers from your bank account to the Portfolios you choose. You can contact your investment professional or us to set up the plan. Here's how the plan works: o You can buy shares twice a month, monthly or quarterly. o You can choose to have us transfer your money on or about the 15th or the last day of the month. o Some exceptions may apply to employees of Bank of America and its affiliates, and to plans set up before August 1, 1997. For details, please contact your investment professional. 43 [GRAPHIC] For more information about telephone orders, see How orders are processed. [GRAPHIC] Selling shares Here are some general rules for selling shares: o We'll deduct any CDSC from the amount you're selling and send you the balance. o If you're selling your shares through a selling agent, we'll normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. Your selling agent is responsible for depositing the sale proceeds to your account on time. o If you're selling your shares directly through us, we'll normally send the sale proceeds by mail or electronic transfer them to your bank account within three business days after the Portfolio receives your order. o You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. o If you paid for your shares with a check that wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared, whichever is later. o If you hold any shares in certificate form, you must sign the certificates (or send a signed stock power with them) and send them to PFPC. Your signature must be guaranteed unless you've made other arrangements with us. We may ask for any other information we need to prove that the order is properly authorized. o Under certain circumstances allowed under the Investment Company Act of 1940 (1940 Act), we can pay you in securities or other property when you sell your shares. o We can delay payment of the sale proceeds for up to seven days. o Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. We may sell your shares: o if the value of your account falls below $500. We'll give you 60 days notice in writing if we're going to do this o if your selling agent tells us to sell your shares under arrangements made between the selling agent and you o under certain other circumstances allowed under the 1940 Act Automatic Withdrawal Plan The Automatic Withdrawal Plan lets you withdraw $25 or more twice a month, monthly, quarterly, bi-annually or annually. You can contact your investment professional or us to set up the plan. Here's how the plan works: o Your account balance must be at least $10,000 to set up the plan. o If you set up the plan after you've opened your account, your signature must be guaranteed. o You can choose to have us transfer your money on or about the 10th or the 25th of the month. o You won't pay a CDSC on Investor A, Investor B or Investor C Shares if you withdraw 12% or less of the value of those shares in a year. Otherwise, we'll deduct any CDSC from the withdrawals. o We'll send you a check or deposit the money directly to your bank account. o You can cancel the plan by giving your selling agent or us 30 days notice in writing. It's important to remember that if you withdraw more than your investment in the Portfolio is earning, you'll eventually use up your original investment. 44 [GRAPHIC] You should make sure you understand the investment objective and principal investment strategies of the Portfolio or Fund you're exchanging into. Please read its prospectus carefully. [GRAPHIC] Exchanging shares You can sell shares of a Portfolio to buy shares of another Portfolio or Nations Fund. This is called an exchange. You might want to do this if your investment goals or tolerance for risk changes. Here's how exchanges work: o You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. o The rules for buying shares of a Portfolio or Fund, including any minimum investment requirements, apply to exchanges into that Portfolio or Fund. o You may only make exchanges into a Portfolio or Fund that is legally sold in your state of residence. o You generally may only make an exchange into a Portfolio or Fund that is accepting investments. o We may limit the number of exchanges you can make within a specified period of time. o We may change or cancel your right to make an exchange by giving the amount of notice required by regulatory authorities (generally 60 days for a material change or cancellation). o You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. Exchanging Investor A Shares You can exchange Investor A Shares of a Portfolio for Investor A Shares of any other Portfolio or Nations Fund, except Index Funds. Here are some rules for exchanging Investor A Shares: o You won't pay a front-end sales charge on the shares of the Portfolio or Fund you're exchanging. o You won't pay a CDSC, if applicable, on the shares you're exchanging. Any CDSC will be deducted later on when you sell the shares you received from the exchange. The CDSC at that time will be based on the period from when you bought the original shares until when you sold the shares you received from the exchange. o You won't pay a redemption fee on the shares you're exchanging. Any redemption fee will be deducted later on when you sell the shares you received from the exchange. Any redemption fee will be paid to the original Portfolio or Fund. 45 Exchanging Investor B Shares You can exchange Investor B Shares of a Portfolio for: o Investor B Shares of any other Portfolio or Nations Fund, except Nations Money Market Funds o Investor B Shares of Nations Reserves Money Market Funds You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Investor C Shares of a Nations Money Market Fund through an exchange of Investor B Shares of a Fund before October 1, 1999, a CDSC may apply when you sell your Investor C Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. Exchanging Investor C Shares You can exchange Investor C Shares of a Portfolio for: o Investor C Shares of any other Portfolio or Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds If you received Investor C Shares of a Portfolio from an exchange of Investor A Shares of a Managed Index Fund, you can also exchange these shares for Investor A Shares of an Index Fund. You won't pay a CDSC on the shares you're exchanging. Any CDSC will be deducted later on when you sell the shares you received from the exchange. The CDSC will be based on the period from when you bought the original shares until you sold the shares you received from the exchange. If you received Daily Shares of a Nations Money Market Fund through an exchange of Investor C Shares of a Portfolio before October 1, 1999, a CDSC may apply when you sell your Daily Shares. The CDSC will be based on the period from when you bought the original shares until you exchanged them. Automatic Exchange Feature The Automatic Exchange Feature lets you exchange $25 or more of Investor A, Investor B or Investor C Shares every month or every quarter. You can contact your investment professional or us to set up the plan. Here's how automatic exchanges work: o Send your request to PFPC in writing or call 1.800.321.7854. o You must already have an investment in the Portfolios or Funds you want to exchange. o You can choose to have us transfer your money on or about the 1st or the 15th day of the month. o The rules for making exchanges apply to automatic exchanges. 46 [GRAPHIC] How selling and servicing agents are paid Your selling and servicing agents usually receive compensation based on your investment in the Portfolios. The kind and amount of the compensation depends on the share class in which you invest. Selling agents typically pay a portion of the compensation they receive to their investment professionals. Commissions Your selling agent may receive an up-front commission (reallowance) when you buy shares of a Portfolio. The amount of this commission depends on which share class you choose: o up to 5.00% of the offering price per share of Investor A Shares. The commission is paid from the sales charge we deduct when you buy your shares o up to 4.00% of the net asset value per share of Investor B Shares. The commission is not deducted from your purchase -- we pay your selling agent directly o up to 1.00% of the net asset value per share of Investor C Shares. The commission is not deducted from your purchase -- we pay your selling agent directly If you buy Investor B or Investor C Shares you will be subject to higher distribution (12b-1) and shareholder servicing fees and may be subject to a CDSC when you sell your shares. [GRAPHIC] The financial institution or intermediary that buys shares for you is also sometimes referred to as a selling agent. The distribution fee is often referred to as a "12b-1" fee because it's paid through a plan approved under Rule 12b-1 under the 1940 Act. Your selling agent may charge other fees for services provided to your account. Distribution (12b-1) and shareholder servicing fees Stephens and selling and servicing agents may be compensated for selling shares and providing services to investors under distribution and shareholder servicing plans. The amount of the fee depends on the class of shares you own:
Maximum annual distribution (12b-1) and shareholder servicing fees (as an annual % of average daily net assets) Investor A Shares 0.25% combined distribution (12b-1) and shareholder servicing fee Investor B Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee Investor C Shares 0.75% distribution (12b-1) fee, 0.25% shareholder servicing fee
Fees are calculated daily and paid monthly. Because these fees are paid out of the Portfolios' assets on an ongoing basis they will increase the cost of your investment over time, and may cost you more than any sales charges you may pay. The Portfolios pay these fees to Stephens and/or to eligible selling and servicing agents and financial institutions, including BA Advisors or its affiliates, for as long as the plans continue. We may reduce or discontinue payments at any time. 47 Other compensation Selling and servicing agents may also receive: o a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Portfolios o additional amounts on all sales of shares: o up to 1.00% of the offering price per share of Investor A Shares o up to 1.00% of the net asset value per share of Investor B Shares o up to 1.00% of the net asset value per share of Investor C Shares o non-cash compensation like trips to sales seminars, tickets to sporting events, theater or other entertainment, opportunities to participate in golf or other outings and gift certificates for meals or merchandise This compensation, which is not paid by the Portfolios, is discretionary and may be available only to selected selling and servicing agents. For example, Stephens sometimes sponsors promotions involving Banc of America Investment Services, Inc., an affiliate of BA Advisors, and certain other selling or servicing agents. Selected selling and servicing agents also may receive compensation for opening a minimum number of accounts. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. 48 [GRAPHIC] Distributions and taxes [GRAPHIC] The power of compounding Reinvesting your distributions buys you more shares of a Portfolio -- which lets you take advantage of the potential for compound growth. Putting the money you earn back into your investment means it, in turn, may earn even more money. Over time, the power of compounding has the potential to significantly increase the value of your investment. There is no assurance, however, that you'll earn more money if you reinvest your distributions. About distributions A mutual fund can make money two ways: o It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. o A fund can also have capital gain if the value of its investments increases. If a fund sells an investment at a gain, the gain is realized. If a fund continues to hold the investment, any gain is unrealized. A mutual fund is not subject to federal income tax as long as it distributes its net investment income and realized capital gain to its shareholders. The Portfolios intend to pay out a sufficient amount of their income and capital gain to their shareholders so the Portfolios won't have to pay any federal income tax. When a Portfolio makes this kind of a payment, it's split among all shares, and is called a distribution. All of the Portfolios distribute net investment income quarterly, and any net realized capital gain at least once a year. Any distribution you receive is based on the number of shares you hold on the record date, which is usually the day the distribution is declared (daily dividend Funds) or the day before the distribution is declared (all other Funds). Shares are eligible to receive net investment income distributions from the settlement date (daily dividend Funds), trade date (all other Funds) or realized capital gain from the trade date of the purchase up to and including the day before the shares are sold. Different share classes of a Portfolio usually pay different net investment income distribution amounts, because each class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. We'll automatically reinvest distributions in additional shares of the same Portfolio unless you tell us you want to receive your distributions in cash. You can do this by writing to us at the address on the back cover or by calling us at 1.800.321.7854. We generally pay cash distributions within five business days after the end of the month, quarter or year in which the distribution was made. If you sell all of your shares, we'll normally pay any distribution that applies to those shares in cash within five business days after the sale was made. If you buy shares of a Portfolio shortly before it makes a distribution, you will, in effect, receive part of your purchase back in the distribution, which is subject to tax. Similarly, if you buy shares of a Portfolio that holds securities with unrealized capital gain, you will, in effect, receive part of your purchase back if and when the Portfolio sells those securities and distributes the gain. This distribution is also subject to tax. The Portfolios have built up, or have the potential to build up, high levels of unrealized capital gain. 49 [GRAPHIC] This information is a summary of how federal income taxes may affect your investment in the Portfolios. It is not intended as a substitute for careful tax planning. You should consult with your own tax advisor about your situation, including any foreign, state and local taxes that may apply. [GRAPHIC] For more information about taxes, please see the SAI. How taxes affect your investment Distributions that come from net investment income, net short-term capital gain and certain other items generally are taxable to you as ordinary income. A portion of such distributions to corporate shareholders may qualify for the dividends-received deduction. Distributions that come from net long-term capital gain generally are taxable to you as net long-term capital gain. In general, all distributions are taxable to you when paid, whether they are paid in cash or automatically reinvested in additional shares of the Portfolio. However, any distributions declared to shareholders of record in October, November or December of one year and distributed in January of the following year will be taxable as if they had been paid to you on December 31 of the first year. We'll send you a notice every year that tells you how much you've received in distributions during the year and their federal tax status. Foreign, state and local taxes may also apply to these distributions. U.S. government obligations If you invest in U.S. government obligations directly, interest on those obligations is free from state and local and individual income taxes. Distributions you receive that come from interest each Fund earns from U.S. government obligations may not be exempt from these taxes. Please consult with your tax adviser. Withholding tax We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts to be paid for in securities or other property and exchanges) if: o you haven't given us a correct Taxpayer Identification Number (TIN) and haven't certified that the TIN is correct and withholding doesn't apply o the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records o the IRS informs us that you are otherwise subject to backup withholding The IRS may also impose penalties against you if you don't give us a correct TIN. Amounts we withhold are applied to your federal income tax liability. You may receive a refund from the IRS if the withholding tax results in an overpayment of taxes. We're also normally required by federal law to withhold tax on distributions (other than capital gain distributions) paid to foreign shareholders. Taxation of redemptions and exchanges Your redemptions (including redemptions paid in securities) and exchanges of Portfolio shares will usually result in a taxable capital gain or loss to you, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. 50 [GRAPHIC] Financial highlights The financial highlights table is designed to help you understand how the Portfolios have performed for the past five years or, if shorter, the period of the Portfolio's operations. Certain information reflects financial results for a single Portfolio share. The total investment return line indicates how much an investment in the Portfolio would have earned, assuming all dividends and distributions had been reinvested. This information has been audited by PricewaterhouseCoopers LLP. The independent accountants' report and Nations Funds financial statements are incorporated by reference into the SAI. Please see the back cover to find out how you can get a copy. 51
Nations LifeGoal Growth Portfolio For a Share outstanding throughout each period Year ended Year ended Year ended Year ended Period ended Investor A Shares 03/31/01 03/31/00# 03/31/99 03/31/98# 03/31/97* Operating performance: Net asset value, beginning of period $15.48 $12.16 $12.50 $10.15 $10.06 Net investment income 0.07 0.01 0.04 0.05 0.12 Net realized and unrealized gain/(loss) on investments (2.26) 3.87 0.30 2.89 0.09 Net increase/(decrease) in net assets resulting from investment operations (2.19) 3.88 0.34 2.94 0.21 Distributions: Distributions from net investment income (0.05) -- -- (0.01) (0.12) Distributions in excess of net investment income -- (0.17) (0.08) (0.37) -- Distributions from net realized capital gains (2.85) (0.39) (0.60) (0.21) -- Total distributions (2.90) (0.56) (0.68) (0.59) (0.12) Net asset value, end of period $10.39 $15.48 $12.16 $12.50 $10.15 Total return++ (16.50)% 32.67% 2.87% 29.68% 2.05% ========================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $9,728 $4,528 $3,404 $1,526 $ 681 Ratio of operating expenses to average net assets+++ 0.50% 0.50% 0.50% 0.50% 0.50%+ Ratio of net investment income to average net assets 0.56% 0.09% 0.21% 0.40% 0.86%+ Portfolio turnover rate 58% 161% 159% 69% 25% Ratio of expenses to average net assets without waivers and/or expense reimbursements 0.50% -- -- -- --
* Nations LifeGoal Growth Portfolio Investor A Shares commenced investment operations on October 2, 1996. Shares were offered to the public on October 15, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated and does not reflect the deduction of any applicable sales charges. +++ The Portfolio's expenses do not include the expenses of the underlying funds. # Per share net investment income has been calculated using the monthly average shares method.
Nations LifeGoal Growth Portfolio For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor B Shares 03/31/01 03/31/00# 03/31/99 03/31/98#* Operating performance: Net asset value, beginning of period $15.35 $12.13 $12.49 $11.98 Net investment income/(loss) 0.02 (0.08) (0.06) (0.02) Net realized and unrealized gain/(loss) on investments (2.28) 3.84 0.31 0.99 Net increase/(decrease) in net assets resulting from investment operations (2.26) 3.76 0.25 0.97 Distributions: Distributions from net investment income (0.01) -- -- (0.01) Distributions in excess of net investment income -- (0.15) (0.01) (0.24) Distributions from net realized capital gains (2.85) (0.39) (0.60) (0.21) Total distributions (2.86) (0.54) (0.61) (0.46) Net asset value, end of period $10.23 $15.35 $12.13 $12.49 Total return++ (17.18)% 31.68% 2.14% 8.55% ======================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $14,753 $8,972 $8,531 $5,829 Ratio of operating expenses to average net assets+++ 1.25% 1.25% 1.25% 1.25%+ Ratio of net investment income/(loss) to average net assets (0.19)% (0.66)% (0.54)% (0.35)%+ Portfolio turnover rate 58% 161% 159% 69% Ratio of expenses to average net assets without waivers and/or expense reimbursements 1.25% -- -- --
* Nations LifeGoal Growth Portfolio Investor B Shares commenced investment operations on August 12, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated and does not reflect the deduction of any applicable sales charges. +++ The Portfolio's expenses do not include the expenses of the underlying funds. # Per share net investment income has been calculated using the monthly average shares method. 52
Nations LifeGoal Growth Portfolio For a Share outstanding throughout each period Year ended Year ended Year ended Year ended Period ended Investor C Shares 03/31/01 03/31/00# 03/31/99 03/31/98# 03/31/97* Operating performance: Net asset value, beginning of period $15.30 $12.09 $12.46 $10.15 $10.06 Net investment income/(loss) 0.03 (0.08) (0.05) (0.02) 0.11 Net realized and unrealized gain/(loss) on investments (2.29) 3.83 0.30 2.89 0.09 Net increase/(decrease) in net assets resulting from investment operations (2.26) 3.75 0.25 2.87 0.20 Distributions: Distributions from net investment income (0.01) -- -- (0.01) (0.11) Distributions in excess of net investment income -- (0.15) (0.02) (0.34) -- Distributions from net realized capital gains (2.85) (0.39) (0.60) (0.21) -- Total distributions (2.86) (0.54) (0.62) (0.56) (0.11) Net asset value, end of period $10.18 $15.30 $12.09 $12.46 $10.15 Total return++ (17.18)% 31.65% 2.07% 28.89% 2.01% ======================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $2,198 $1,485 $ 473 $ 342 $ 82 Ratio of operating expenses to average net assets+++ 1.25% 1.25% 1.25% 1.09% 0.75%+ Ratio of net investment income/(loss) to average net assets (0.19)% (0.66)% (0.54)% (0.19)% 0.61%+ Portfolio turnover rate 58% 161% 159% 69% 25% Ratio of expenses to average net assets without waivers and/or expense reimbursements 1.25% -- -- -- --
* Nations LifeGoal Growth Portfolio Investor C Shares commenced investment operations on October 2, 1996. Shares were offered to the public on October 15, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated and does not reflect the deduction of any applicable sales charges. +++ The Portfolio's expenses do not include the expenses of the underlying funds. # Per share net investment income has been calculated using the monthly average shares method.
Nations LifeGoal Balanced Growth Portfolio For a Share outstanding throughout each period Year ended Year ended Year ended Year ended Period ended Investor A Shares 03/31/01 03/31/00# 03/31/99 03/31/98# 03/31/97* Operating performance: Net asset value, beginning of period $11.99 $10.82 $10.94 $ 9.95 $10.05 Net investment income 0.40 0.34 0.25 0.28 0.19 Net realized and unrealized gain/(loss) on investments (0.69) 1.53 0.21 1.79 (0.10) Net increase/(decrease) in net assets resulting from investment operations (0.29) 1.87 0.46 2.07 0.09 Distributions: Distributions from net investment income (0.40) (0.37) (0.25) (0.27) (0.19) Distributions in excess of net investment income -- (0.04) -- (0.31) -- Distributions from net realized capital gains (0.95) (0.29) (0.33) (0.50) -- Total distributions (1.35) (0.70) (0.58) (1.08) (0.19) Net asset value, end of period $10.35 $11.99 $10.82 $10.94 $9.95 Total return++ (2.61)% 18.03% 4.44% 21.76% 0.86% ========================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $4,308 $2,298 $1,308 $489 $94 Ratio of operating expenses to average net assets+++ 0.50% 0.50% 0.50% 0.50% 0.50%+ Ratio of net investment income to average net assets 3.44% 3.12% 2.52% 2.62% 3.69%+ Portfolio turnover rate 106% 124% 121% 94% 1% Ratio of expenses to average net assets without waivers and/or expense reimbursements 0.50% -- -- -- --
* Nations LifeGoal Balanced Growth Portfolio Investor A Shares commenced investment operations on October 2, 1996. Shares were offered to the public on October 15, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated and does not reflect the deduction of any applicable sales charges. +++ The Portfolio's expenses do not include the expenses of the underlying funds. # Per share net investment income has been calculated using the monthly average shares method. 53
Nations LifeGoal Balanced Growth Portfolio For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor B Shares 03/31/01 03/31/00# 03/31/99 03/31/98#* Operating performance: Net asset value, beginning of period $12.00 $10.82 $10.92 $10.88 Net investment income 0.32 0.26 0.17 0.11 Net realized and unrealized gain/(loss) on investments (0.70) 1.54 0.22 0.87 Net increase/(decrease) in net assets resulting from investment operations (0.38) 1.80 0.39 0.98 Distributions: Distributions from net investment income (0.32) (0.29) (0.16) (0.20) Distributions in excess of net investment income -- (0.04) -- (0.24) Distributions from net realized capital gains (0.95) (0.29) (0.33) (0.50) Total distributions (1.27) (0.62) (0.49) (0.94) Net asset value, end of period $10.35 $12.00 $10.82 $10.92 Total return++ (3.37)% 17.26% 3.78% 9.70% =================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $13,676 $9,789 $8,925 $4,917 Ratio of operating expenses to average net assets+++ 1.25% 1.25% 1.25% 1.25%+ Ratio of net investment income to average net assets 2.69% 2.37% 1.77% 1.87%+ Portfolio turnover rate 106% 124% 121% 94% Ratio of expenses to average net assets without waivers and/or expense reimbursements 1.25% -- -- --
* Nations LifeGoal Balanced Growth Portfolio Investor B Shares commenced investment operations on August 13, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated and does not reflect the deduction of any applicable sales charges. +++ The Portfolio's expenses do not include the expenses of the underlying funds. # Per share net investment income has been calculated using the monthly average shares method.
Nations LifeGoal Balanced Growth Portfolio For a Share outstanding throughout each period Year ended Year ended Year ended Year ended Period ended Investor C Shares 03/31/01 03/31/00# 03/31/99 03/31/98# 03/31/97* Operating performance: Net asset value, beginning of period $12.09 $10.92 $10.92 $9.95 $10.05 Net investment income 0.34 0.26 0.20 0.23 0.19 Net realized and unrealized gain/(loss) on investments (0.73) 1.55 0.26 1.78 (0.10) Net increase/(decrease) in net assets resulting from investment operations (0.39) 1.81 0.46 2.01 0.09 Distributions: Distributions from net investment income (0.31) (0.31) (0.13) (0.25) (0.19) Distributions in excess of net investment income -- (0.04) -- (0.29) -- Distributions from net realized capital gains (0.95) (0.29) (0.33) (0.50) -- Total distributions (1.26) (0.64) (0.46) (1.04) (0.19) Net asset value, end of period $10.44 $12.09 $10.92 $10.92 $ 9.95 Total return++ (3.43)% 17.22% 4.43% 21.10% 0.85% ======================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $1,613 $2,092 $266 $737 $ 18 Ratio of operating expenses to average net assets+++ 1.25% 1.25% 1.25% 1.09% 0.75%+ Ratio of net investment income to average net assets 2.69% 2.37% 1.77% 2.03% 3.44%+ Portfolio turnover rate 106% 124% 121% 94% 1% Ratio of expenses to average net assets without waivers and/or expense reimbursements 1.25% -- -- -- --
* Nations LifeGoal Balanced Growth Portfolio Investor C Shares commenced investment operations on October 2, 1996. Shares were offered to the public on October 15, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated and does not reflect the deduction of any applicable sales charges. +++ The Portfolio's expenses do not include the expenses of the underlying funds. # Per share net investment income has been calculated using the monthly average shares method. 54
Nations LifeGoal Income and Growth Portfolio For a Share outstanding throughout each period Year ended Year ended Year ended Year ended Period ended Investor A Shares 03/31/01# 03/31/00# 03/31/99 03/31/98# 03/31/97* Operating performance: Net asset value, beginning of period $10.69 $10.89 $10.71 $ 9.97 $10.03 Net investment income 0.51 0.48 0.36 0.41 0.31 Net realized and unrealized gain/(loss) on investments (0.06) 0.03 0.35 0.89 (0.06) Net increase/(decrease) in net assets resulting from investment operations 0.45 0.51 0.71 1.30 0.25 Distributions: Distributions from net investment income (0.47) (0.48) (0.33) (0.38) (0.31) Distributions in excess of net investment income -- -- -- (0.11) -- Distributions from net realized capital gains (0.24) (0.23) (0.20) (0.07) -- Total distributions (0.71) (0.71) (0.53) (0.56) (0.31) Net asset value, end of period $10.43 $10.69 $10.89 $10.71 $9.97 Total return++ 4.33% 4.93% 6.92% 13.38% 2.54% ========================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $1,487 $789 $1,347 $126 $131 Ratio of operating expenses to average net assets+++ 0.50% 0.50% 0.50% 0.50% 0.50%+ Ratio of net investment income to average net assets 4.80% 4.53% 3.74% 3.92% 6.09%+ Portfolio turnover rate 35% 96% 107% 64% 2%
* Nations LifeGoal Income and Growth Portfolio Investor A Shares commenced investment operations on October 2, 1996. Shares were offered to the public on October 15, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated and does not reflect the deduction of any applicable sales charges. +++ The Portfolio's expenses do not include the expenses of the underlying funds. # Per share net investment income has been calculated using the monthly average shares method.
Nations LifeGoal Income and Growth Portfolio For a Share outstanding throughout each period Year ended Year ended Year ended Period ended Investor B Shares 03/31/01# 03/31/00# 03/31/99 03/31/98#* Operating performance: Net asset value, beginning of period $10.70 $10.89 $10.70 $10.51 Net investment income 0.43 0.41 0.28 0.19 Net realized and unrealized gain/(loss) on investments (0.06) 0.03 0.35 0.36 Net increase in net assets resulting from investment operations 0.37 0.44 0.63 0.55 Distributions: Distributions from net investment income (0.39) (0.40) (0.24) (0.22) Distributions in excess of net investment income -- -- -- (0.07) Distributions from net realized capital gains (0.24) (0.23) (0.20) (0.07) Total distributions (0.63) (0.63) (0.44) (0.36) Net asset value, end of period $10.44 $10.70 $10.89 $10.70 Total return++ 3.55% 4.25% 6.16% 5.33% ==================================================================================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $5,391 $4,645 $4,806 $1,212 Ratio of operating expenses to average net assets+++ 1.25% 1.25% 1.25% 1.25%+ Ratio of net investment income to average net assets 4.05% 3.78% 2.99% 3.17%+ Portfolio turnover rate 35% 96% 107% 64%
* Nations LifeGoal Income and Growth Portfolio Investor B Shares commenced investment operations on August 7, 1997. + Annualized. ++ Total return represents aggregate total return for the period indicated and does not reflect the deduction of any applicable sales charges. +++ The Portfolio's expenses do not include the expenses of the underlying funds. # Per share net investment income has been calculated using the monthly average shares method. 55
Nations LifeGoal Income and Growth Portfolio For a Share outstanding throughout each period Year ended Year ended Year ended Year ended Period ended Investor C Shares 03/31/01# 03/31/00# 03/31/99 03/31/98# 03/31/97* Operating performance: Net asset value, beginning of period $10.67 $10.90 $10.70 $9.97 $10.03 Net investment income 0.43 0.40 0.31 0.36 0.31 Net realized and unrealized gain/(loss) on investments (0.07) 0.03 0.31 0.89 (0.06) Net increase in net assets resulting from investment operations 0.36 0.43 0.62 1.25 0.25 Distributions: Distributions from net investment income (0.39) (0.43) (0.22) (0.35) (0.31) Distributions in excess of net investment income -- -- -- (0.10) -- Distributions from net realized capital gains (0.24) (0.23) (0.20) (0.07) -- Total distributions (0.63) (0.66) (0.42) (0.52) (0.31) Net asset value, end of period $10.40 $10.67 $10.90 $10.70 $ 9.97 Total return++ 3.50% 4.11% 6.02% 12.83% 2.54% ============================================================================================================================= Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $1,051 $848 $100 $87 $ 1 Ratio of operating expenses to average net assets+++ 1.25% 1.25% 1.25% 1.09% 0.75%+ Ratio of net investment income to average net assets 4.05% 3.78% 2.99% 3.33% 5.84%+ Portfolio turnover rate 35% 96% 107% 64% 2%
* Nations LifeGoal Income and Growth Portfolio Investor C Shares commenced investment operations on October 2, 1996. Shares were offered to the public on October 15, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated and does not reflect the deduction of any applicable sales charges. +++ The Portfolio's expenses do not include the expenses of the underlying funds. # Per share net investment income has been calculated using the monthly average shares method. 56 [GRAPHIC] This glossary includes explanations of the important terms that may be used in this prospectus. Some of the terms explained may apply to Nations Funds not included in this prospectus. [GRAPHIC] Terms used in this prospectus Amortized cost method - under Rule 2a-7 of the 1940 Act, the method of calculating an investment company's net asset value whereby portfolio securities are valued at the Fund's acquisition cost as adjusted for amortization of premium or accretion of discount rather than at their current market value. Asset-backed security - a debt security that gives an investor an interest in a pool of assets that is collateralized or "backed" by one or more kinds of assets, including automobile loans or credit card receivables, generally issued by banks, credit card companies or other lenders. Asset-backed securities typically make periodic payments, which may be interest or a combination of interest and a portion of the principal of the underlying assets. Average dollar-weighted maturity - the average length of time until the debt securities held by a Fund reach maturity. In general, the longer the average dollar-weighted maturity, the more a Fund's share price will fluctuate in response to changes in interest rates. Bank obligation - a money market instrument issued by a domestic or U.S. branch of a foreign bank, including certificates of deposit, time deposits and bankers' acceptances. Capital gain or loss - the difference between the purchase price of a security and its selling price. An investor realizes a capital gain when it sells a security for more than it paid for it. An investor realizes a capital loss when it sells a security for less than it paid for it. Cash equivalents - short-term, interest-bearing instruments which can easily be converted into cash, including U.S. government obligations, bank obligations, and certain asset-backed securities, foreign government securities and commercial paper issued by U.S. and foreign issuers which, at the time of investment, is rated at least Prime-2 by Moody's Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch). Collateralized mortgage obligation (CMO) - a type of mortgage-backed security. CMO payment obligations are covered by interest and/or principal payments from a pool of mortgages. In addition, the underlying assets of a CMO are typically separated into classes, called tranches, based on maturity. Each tranche pays a different rate of interest. CMOs are not generally issued by the U.S. government, its agencies or instrumentalities. Commercial paper - a short-term corporate obligation. Commercial paper is typically considered a money market instrument. Common stock - a security that represents part equity ownership in a company. Common stock typically allows an investor to vote at shareholder meetings and to share in the company's profits by receiving dividends. Convertible debt - a debt security that can be exchanged for common stock (or another type of security) on a specified basis and date. 57 Convertible security - a security that can be exchanged for common stock (or another type of security) at a specified rate. Convertible securities include convertible debt, rights and warrants. Crossing networks - an electronic system where anonymous parties can match buy and sell transactions. These transactions don't affect the market, and transaction costs are extremely low. Debt security - a security issued by a governmental body or company (the issuer) to help fund their operations or major projects. The issuer pays interest at a specified rate on a specified date or dates, and repays the principal when the security matures. Short-term debt securities include money market instruments such as treasury bills. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Depositary receipts - evidence of the deposit of a security with a custodian bank. American Depositary Receipts (ADRs), for example, are certificates traded in U.S. markets representing an interest of a foreign company. They were created to make it possible for foreign issuers to meet U.S. security registration requirements. Other examples include ADSs, GDRs and EDRs. Derivatives - A derivative is a financial contract whose value is based upon, or "derived" from, an underlying financial asset (such as a stock or a bond), a commodity (such as gold), a market index (such as the S&P 500) or a reference rate (such as the prime lending interest rate). Examples of derivative instruments include futures, options, index-, equity-, commodity- and currency-linked securities, warrants and swap contracts. For a detailed description of the derivatives described here, see the SAI. Diversified - A diversified fund, as defined by the 1940 Act, must have at least 75% of its total assets in cash and cash equivalents, government securities, securities of other investment companies, or other securities. For purposes of this calculation, the fund may not count securities of a single issuer that comprise more than 5% of the fund's assets. Dividend yield - rate of return of dividends paid on a common or preferred stock. It equals the amount of the annual dividend on a stock expressed as a percentage of the stock's current market value. Duration - a security's or portfolio's sensitivity to changes in interest rates. For example, if interest rates rise by one percentage point, the share price of a fund with a duration of five years would decline by about 5%. If interest rates fall by one percentage point, the fund's share price would rise by about 5%. Equity security - an investment that gives an investor an equity ownership right in a company. Equity securities (or "equities") include common and preferred stock, rights and warrants. First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds and has the highest short-term rating from a nationally recognized statistical rating organization (NRSRO), or if unrated, is determined by the Fund's portfolio management team to be of comparable quality, or is a money market fund or a government security. 58 Fixed income security - an intermediate to long-term debt security that matures in more than one year. Foreign security - a debt or equity security determined by a Fund's portfolio management team to be foreign based on an issuer's domicile, its principle place of business, the source of its revenues or other factors. Forward foreign currency contracts - a forward foreign currency contract includes an obligation to purchase or sell a foreign currency at a specified future date. Forward purchase agreement - a contract obligating one party to buy and another party to sell an equity security, commodity, currency or other financial instrument at a specific future date. Fundamental analysis - a method of securities analysis that tries to evaluate the intrinsic, or "true," value of a particular stock. It includes a study of the overall economy, industry conditions and the financial condition and management of a company. Futures contract - a contract to buy or sell underlying instruments at a specified price on a specified future date. The price is typically set through a futures exchange. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to NRSROs such as S&P and Moody's. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by a Fund's Board. Please see the SAI for more information about credit ratings. High yield debt security - debt securities that, at the time of purchase, are rated "BB" or below by S&P or "Ba" or below by Moody's, or that are unrated and determined by the portfolio management team to be of comparable quality. Interest rate swap - an agreement between two parties to exchange periodic interest payments based on a predetermined principal amount. Investment grade - a debt security that has been given a medium to high credit rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating by other NRSROs) based on the issuer's ability to pay interest and repay principal on time. The portfolio management team may consider an unrated debt security to be investment grade if the team believes it is of comparable quality. Please see the SAI for more information about credit ratings. Lehman Aggregate Bond Index - an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 59 Lehman Government/Corporate Bond Index - an unmanaged index of U.S. government, U.S. Treasury and agency securities, and corporate and Yankee bonds. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Liquidity - a measurement of how easily a security can be bought or sold at a price that is close to its market value. Merrill Lynch 1-3 Year Treasury Index - an unmanaged index of U.S. Treasury bonds with maturities of 1 to 3 years. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Money market instrument - a short-term debt security that is considered to mature in 13 months or less. Money market instruments include U.S. Treasury obligations, U.S. government obligations, certificates of deposit, bankers' acceptances, commercial paper, repurchase agreements and certain municipal securities. Mortgage-backed security or Mortgage-related security - a debt security that gives you an interest in, and is backed by, a pool of residential mortgages issued by the U.S. government or by financial institutions. The underlying mortgages may be guaranteed by the U.S. government or one of its agencies, authorities or instrumentalities. Mortgage-backed securities typically make monthly payments, which are a combination of interest and a portion of the principal of the underlying mortgages. Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public or private projects and services. "General obligations" are typically backed by the issuer's full taxing and revenue-raising powers. "Revenue securities" depend on the income earned by a specific project or authority, like road or bridge tolls, user fees for water or revenues from a utility. Interest income from municipal securities that pay for "public" projects and services is exempt from federal income taxes and is generally exempt from state taxes if an investor lives in the state that issued the security. If an investor lives in the municipality that issued the security, interest income may also be exempt from local taxes. Non-diversified - a fund that holds securities of fewer issuers than other kinds of funds. Non-diversified funds tend to have greater price swings than more diversified funds because events affecting one or more of its securities may have a disproportionately large effect on the fund. NRSRO - A nationally recognized statistical rating organization, such as S&P or Moody's. Options - An option is the right to buy or sell a security based on an agreed upon price at a specified time. For example, an option may give the holder of a stock the right to sell the stock to another party, allowing the seller to profit if the price has fallen below the agreed price. Options may also be based on the movement of an index such as the S&P 500. Over-the-counter market - a market where dealers trade securities through a telephone or computer network rather than through a public stock exchange. 60 Preferred stock - a type of equity security that gives you a limited ownership right in a company, with certain preferences or priority over common stock. Preferred stock generally pays a fixed annual dividend. If the company goes bankrupt, preferred shareholders generally receive their share of the company's remaining assets before common shareholders and after bondholders and other creditors. Ownership of preferred stock typically does not come with certain voting rights that come with common stock. Pre-refunded bond - a bond that is repaid before its maturity date. The repayment is generally financed by a new issue. Issuers generally pre-refund bonds during periods of lower interest rates to reduce their interest costs. Price-to-earnings ratio (P/E ratio) - the current price of a share divided by its actual or estimated earnings per share. The P/E ratio is one measure of the value of a company. Private placement - a private placement is the sale of stocks, bonds or other investments directly to a qualified investor without having to register the offering with the SEC or other comparable foreign regulatory authorities. Qualified investors are typically large institutional investors or high net worth individuals. Securities acquired through private placements generally may not be resold. Quantitative analysis - an analysis of financial information about a company or security to identify securities that have the potential for growth or are otherwise suitable for a fund to buy. Real Estate Investment Trust (REIT) - a portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls, and real-estate-related loans or interests. Repurchase agreement - a short-term (often overnight) investment arrangement. The investor agrees to buy certain securities from the borrower and the borrower promises to buy them back at a specified date and price. The difference between the purchase price paid by the investor and the repurchase price paid by the borrower represents the investor's return. Repurchase agreements are popular because they provide low-risk returns and can allow a fund to remain fully invested. Reverse repurchase agreement - a repurchase agreement in which an investor sells a security to another party, like a bank or dealer, in return for cash, and agrees to buy the security back at a specified date and price. Reverse repurchase agreements are, in effect, loans to a fund. Right - a temporary privilege allowing investors who already own a common stock to buy additional shares directly from the company at a specified price or formula. S&P 500(1) - Standard & Poor's 500 Composite Stock Price Index, an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds, but is not a first-tier security. 61 Senior security - a debt security that allows holders to receive their share of a company's remaining assets in a bankruptcy before other bondholders, creditors, and common and preferred shareholders. Settlement date - the date on which an order is settled either by payment or delivery of securities. Total return swap - an agreement between two parties to exchange periodic interest payments for the total return of an equity or fixed income instrument. Trade date - the effective date of a purchase, sale or exchange transaction, or other instructions sent to us. The trade date is determined by the day and time we receive the order or instructions in a form that's acceptable to us. U.S. government obligations - a wide range of debt securities issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities. U.S. Treasury obligation - a debt security issued by the U.S. Treasury. Warrant - a certificate that gives you the right to buy common shares at a specified price within a specified period of time. Zero-coupon bond - a bond that makes no periodic interest payments. Zero coupon bonds are sold at a deep discount to their face value and mature at face value. The difference between the face value at maturity and the purchase price represents the return. (1) S&P has not reviewed any stock included in the S&P 500 for its investment merit. S&P determines and calculates its index independently of the Portfolios and is not a sponsor or affiliate of the Portfolios. S&P gives no information and make no statements about the suitability of investing in the Portfolios or the ability of its index to track stock market performance. S&P makes no guarantees about the index, any data included in it and the suitability of the index or its data for any purpose. "Standard and Poor's" and "S&P 500" are trademarks of The McGraw-Hill Companies, Inc. 62 Where to find more information You'll find more information about Nations LifeGoal Portfolios in the following documents: Annual and semi-annual reports The annual and semi-annual reports contain information about Portfolio investments and performance, the financial statements and the independent accountants' reports. The annual report also includes a discussion about the market conditions and investment strategies that had a significant effect on each Portfolio's performance during the period covered. [GRAPHIC] Statement of Additional Information The SAI contains additional information about the Portfolios and their policies. The SAI is legally part of this prospectus (it's incorporated by reference). A copy has been filed with the SEC. You can obtain a free copy of these documents, request other information about the Portfolios and make shareholder inquiries by contacting Nations Funds: By telephone: 1.800.321.7854 By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nations-funds.com Information about the Portfolios can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. The reports and other information about the Portfolios are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. SEC file number: Nations Funds Trust, 811-09645 LGPROIX-8/01 [Nations Funds Logo Appears Here] [GRAPHIC] Index Funds Prospectus -- Investor A Shares August 1, 2001 Nations LargeCap Index Fund Nations Managed Index Fund Nations MidCap Index Fund Nations SmallCap Index Fund The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. - ----------------- Not FDIC Insured - ----------------- May Lose Value - ----------------- No Bank Guarantee - ----------------- [NATIONS FUNDS LOGO] An overview of the Funds - -------------------------------------------------------------------------------- [GRAPHIC] Terms used in this prospectus In this prospectus, we, us and our refer to the Nations Funds family (Nations Funds or Nations Funds Family). Some other important terms we've used may be new to you. These are printed in italics where they first appear in a section and are described in Terms used in this prospectus. [GRAPHIC] You'll find Terms used in this prospectus on page 34. Your investment in these Funds is not a bank deposit and is not insured or guaranteed by Bank of America, N.A. (Bank of America), the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Your investment may lose money. Affiliates of Bank of America are paid for the services they provide to the Funds. This booklet, which is called a prospectus, tells you about Nations Funds Index Funds. Please read it carefully, because it contains information that's designed to help you make informed investment decisions. About the Funds The Index Funds focus on long-term growth. Except for Nations Managed Index Fund, they all seek to match the industry and risk characteristics of a specific stock market index, like the S&P 500, by investing primarily in the equity securities that are included in the index. While maintaining the characteristics of the index, Nations Managed Index Fund varies the number, type and weighting of its holdings from those of the index to try to provide higher returns. Equity securities have the potential to provide you with higher returns than many other kinds of investments, but they also tend to have the highest risk. There's always the risk that you'll lose money, or you may not earn as much as you expect. Choosing the right Funds for you Not every Fund is right for every investor. When you're choosing a Fund to invest in, you should consider things like your investment goals, how much risk you can accept and how long you're planning to hold your investment. The Index Funds may be suitable for you if: o you have longer-term investment goals o they're part of a balanced portfolio o you want to try to protect your portfolio against a loss of buying power that inflation can cause over time They may not be suitable for you if: o you're not prepared to accept or are unable to bear the risks associated with equity securities o you have short-term investment goals o you're looking for a regular stream of income You'll find a discussion of each Fund's principal investments, strategies and risks in the Fund descriptions that start on page 4. For more information If you have any questions about the Funds, please call us at 1.800.321.7854 or contact your investment professional. You'll find more information about the Funds in the Statement of Additional Information (SAI). The SAI includes more detailed information about each Fund's investments, policies, performance and management, among other things. Please turn to the back cover to find out how you can get a copy. 2 What's inside - -------------------------------------------------------------------------------- [GRAPHIC] Banc of America Advisors, LLC Banc of America Advisors, LLC (BA Advisors) is the investment adviser to each of the Funds. BA Advisors is responsible for the overall management and supervision of the investment management of each Fund. BA Advisors and Nations Funds have engaged a sub-adviser -- Banc of America Capital Management, LLC (BACAP), which is responsible for the day-to-day investment decisions for each of the Funds. [GRAPHIC] You'll find more about BA Advisors and BACAP starting on page 20. [GRAPHIC] About the Funds Nations LargeCap Index Fund 4 Sub-adviser: BACAP - ---------------------------------------------------------- Nations Managed Index Fund 8 Sub-adviser: BACAP - ---------------------------------------------------------- Nations MidCap Index Fund 12 Sub-adviser: BACAP - ---------------------------------------------------------- Nations SmallCap Index Fund 15 Sub-adviser: BACAP - ---------------------------------------------------------- Other important information 19 - ---------------------------------------------------------- How the Funds are managed 20 [GRAPHIC] About your investment Information for investors Buying, selling and exchanging shares 22 How orders are processed 24 How selling and servicing agents are paid 28 Distributions and taxes 29 - ---------------------------------------------------------- Financial highlights 31 - ---------------------------------------------------------- Terms used in this prospectus 34 - ---------------------------------------------------------- Where to find more information back cover 3 Nations LargeCap Index Fund [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Quantitative Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 21. [GRAPHIC] What is an index fund? Index funds use a "passive" or "indexing" investment approach, which attempts to duplicate the performance of a specific market index. Correlation measures how closely a fund's returns match those of an index. A perfect correlation of 1.0 means that the net asset value of the fund increases or decreases in exact proportion to changes in the index. [GRAPHIC] Investment objective The Fund seeks investment results that (before fees and expenses) correspond to the total return of the Standard & Poor's 500 Composite Stock Price Index (S&P 500). [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in common stocks that are included in the S&P 500. The S&P 500 is an unmanaged index of 500 widely held common stocks, and is not available for investment. The Fund may buy stock index futures and financial futures as substitutes for the underlying securities in the S&P 500. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Different common stocks have different weightings in the S&P 500, depending on the amount of stock outstanding and the stock's current price. In trying to match the performance of the S&P 500, the team will try to allocate the Fund's portfolio among common stocks in approximately the same weightings as the S&P 500, beginning with the most heavily weighted stocks that make up a larger portion of the value of the S&P 500. The Fund may buy shares of Bank of America Corporation, which is currently included in the S&P 500, subject to certain restrictions. The Fund tries to achieve a correlation of 0.95 with the S&P 500 on an annual basis (before fees and expenses). The Fund's ability to track the S&P 500 is affected by transaction costs and other expenses, changes in the composition of the S&P 500, changes in the number of shares issued by the companies represented in the S&P 500, and by the timing and amount of shareholder purchases and redemptions, among other things. Equity mutual funds, like other investors in equity securities, incur transaction costs, such as brokerage costs, when they buy and sell securities. The team tries to minimize these costs for the Fund by using program trades and crossing networks. The team may sell a stock when its percentage weighting in the index is reduced, when the stock is removed from the index, and for other reasons. 4 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations LargeCap Index Fund has the following risks: o Investment strategy risk - This Fund tries to match (before fees and expenses) the returns of the S&P 500, and is not actively managed. There is no assurance that the returns of the Fund will match the returns of the S&P 500. The value of the Fund will rise and fall with the performance of the S&P 500. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Futures risk - This Fund may use futures contracts as a substitute for the securities included in the index. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. 5 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 22.22% 32.04% 28.06% 20.34% -9.60% - ------------------------------------------- 1996 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -7.01% Best and worst quarterly returns during this period Best: 4th quarter 1998: 21.12% Worst: 3rd quarter 1998: -9.93%
[GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment.
Since 1 year 5 years inception* Investor A Shares -9.60% 17.59% 18.32% S&P 500 -9.10% 18.33% 18.70%
*The inception date of Investor A Shares is October 10, 1995. The return for the index shown is from that date. 6 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees (Fees paid directly from your investment) Investor A Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% Other expenses 0.28% ------ Total annual Fund operating expenses 0.93% Fee waivers and/or reimbursements (0.33)% ------ Total net expenses(2) 0.60% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $61 $263 $482 $1,113
7 Nations Managed Index Fund [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Quantitative Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 21. [GRAPHIC] What is a managed index fund? A managed index fund is designed to deliver the industry and risk characteristics of its benchmark with the benefits of relatively low costs and active investment management. With a managed index fund, the team may take advantage of individual asset selection from a variety of instruments that are expected to generate returns in excess of the S&P 500. There is no assurance that active management will result in a higher return than the index. [GRAPHIC] Investment objective The Fund seeks, over the long term, to provide a total return that (before fees and expenses) exceeds the total return of the Standard & Poor's 500 Composite Stock Price Index (S&P 500). [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in a portfolio consisting of common stocks that are included in the S&P 500, convertible securities that are convertible into stocks included in that index, and other derivatives whose economic returns are, by design, closely equivalent to the returns of the S&P 500 or its components. The S&P 500 is an unmanaged index of 500 widely held common stocks, and is not available for investment. The team tries to maintain a portfolio that matches the industry and risk characteristics of the S&P 500. The team will, from time to time, vary the number and percentages of the Fund's holdings to try to provide higher returns than the S&P 500 and to reduce the risk of underperforming the index over time. The Fund generally holds fewer stocks than the index and may hold securities that are not in the index. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. In selecting investments for the Fund, the team uses quantitative analysis to evaluate the attractiveness of each potential investment. The team may examine a wide variety of factors classified as value measures (forward price-to-earnings, trailing price-to-earnings, book value-to-price, price-to-cash flow, etc.), growth measures (earnings growth, revenue growth, etc.), price momentum and earnings momentum (earnings change, estimate revision, earnings surprise, etc.), among others. The Fund seeks to hold a higher percentage of attractive investments than the index and a lesser percentage, or none, of less attractive investments. In all cases, investments are selected with the intention of increasing return relative to the S&P 500 and/or reducing portfolio volatility relative to the S&P 500. In addition, the team believes capital market inefficiencies may exist and may sometimes be exploited by using a variety of derivative instruments. The team tries to control costs when it buys and sells securities for the Fund by using computerized systems called crossing networks that allow it to try to make trades at better prices and reduced commission rates. 8 The team uses various strategies, consistent with the Fund's investment objective, to try to reduce the amount of capital gains distributed to shareholders. For example, the team: o may try to sell shares of a security with the highest cost for tax purposes first, before selling other shares of the same security. The team will only use this strategy when it is in the best interest of the Fund to do so and may sell other shares when appropriate o may offset capital gains by selling securities to realize a capital loss. This may reduce capital gains distributions While the Fund tries to manage its capital gain distributions, it will not be able to completely avoid making taxable distributions. These strategies may also be affected by changes in tax laws and regulations, or by court decisions. The team may sell a stock when it believes other stocks in the index are more attractive investments, when the stock is removed from the index, and for other reasons. [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations Managed Index Fund has the following risks: o Investment strategy risk - The team chooses stocks that it believes have the potential for higher total returns than the S&P 500. There is a risk that the returns of these investments will not exceed those of the S&P 500, or will fall. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Futures risk - This Fund may use futures contracts periodically to manage liquidity. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. o Derivatives risk - The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, management risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the management team uses derivatives to enhance the Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Liquidity risk exists when a security cannot be purchased or sold at the time desired, or cannot be purchased or sold without adversely affecting the price. The management team is not required to utilize derivatives to reduce risks. 9 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 33.19% 26.33% 17.41% -11.14% - ---------------------------------- 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: -5.45% Best and worst quarterly returns during this period Best: 4th quarter 1998 20.91% Worst: 3rd quarter 1998: -10.67%
[GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P 500, an unmanaged index of 500 widely held common stocks, weighted by market capitalization. The S&P 500 is not available for investment.
Since 1 year inception* Investor A Shares -11.14% 17.67% S&P 500 -9.10% 19.60%
*The inception date of Investor A Shares is July 31, 1996. The return for the index shown is from that date. 10 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees (Fees paid directly from your investment) Investor A Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% Other expenses 0.29% ------ Total annual Fund operating expenses 0.94% Fee waivers and/or reimbursements (0.19)% ------ Total net expenses(2) 0.75% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $77 $281 $502 $1,137
11 Nations MidCap Index Fun [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Quantitative Strategies Management Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 21. [GRAPHIC] What is an index fund? Index funds use a "passive" or "indexing" investment approach, which attempts to duplicate the performance of a specific market index. Correlation measures how closely a fund's returns match those of an index. A perfect correlation of 1.0 means that the net asset value of the fund increases or decreases in exact proportion to changes in the index. [GRAPHIC] Investment objective The Fund seeks investment results that (before fees and expenses) correspond to the total return of the Standard & Poor's MidCap 400 Stock Price Index (S&P MidCap 400). [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in common stocks that are included in the S&P MidCap 400. The S&P MidCap 400 is an unmanaged index of 400 domestic stocks chosen for their market size, liquidity and industry representation. The index is not available for investment. The Fund may buy stock index futures and other financial futures as substitutes for the underlying securities in the S&P MidCap 400. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Different common stocks have different weightings in the S&P MidCap 400, depending on the amount of stock outstanding and the stock's current price. In trying to match the performance of the S&P MidCap 400, the team will try to allocate the Fund's portfolio among common stocks in approximately the same weightings as the S&P MidCap 400, beginning with the most heavily weighted stocks that make up a larger portion of the value of the S&P MidCap 400. The Fund tries to achieve a correlation of at least 0.95 with the return of the S&P MidCap 400 on an annual basis (before fees and expenses). The Fund's ability to track the S&P MidCap 400 may be adversely affected by transaction costs and other expenses, changes in the composition of the S&P MidCap 400, changes in the number of shares issued by the companies represented in the S&P MidCap 400, and by the timing and amount of shareholder purchases and redemptions, among other things. Equity mutual funds, like other investors in equity securities, incur transaction costs, such as brokerage costs, when they buy and sell securities. The team tries to minimize these costs for the Fund by using electronic trading systems such as crossing networks and other trading strategies. The team may sell a stock when its percentage weighting in the index is reduced, when the stock is removed from the index, when the team believes the stock is not liquid enough, and for other reasons. 12 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations MidCap Index Fund has the following risks: o Investment strategy risk - This Fund tries to match (before fees and expenses) the returns of the S&P MidCap 400, and is not actively managed. There is no assurance that the returns of the Fund will match the returns of the S&P MidCap 400. The value of the Fund will rise and fall with the performance of the S&P MidCap 400. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Futures risk - This Fund may use futures contracts as a substitute for the securities included in the index. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. o Changing to a feeder fund - Unlike traditional mutual funds, which invest in individual securities, a "feeder fund" invests all of its assets in another fund, called a "master portfolio." Other feeder funds generally also invest in a master portfolio. The master portfolio invests in individual securities and has the same investment objective, investment strategies and principal risks as the feeder funds. This structure can help reduce a feeder fund's expenses because its assets are combined with those of other feeder funds. If a master portfolio doesn't attract other feeder funds, however, a feeder fund's expenses could be higher than those of a traditional mutual fund. This Fund may become a feeder fund if the Board decides this would be in the best interests of shareholders. We don't require shareholder approval to make the change, but we'll notify you if it happens. If the Fund becomes a feeder fund, it will have the additional risks of investing in a master portfolio. [GRAPHIC] A look at the Fund's performance Because the Fund has not been in operation for a full calendar year, no performance information is included in the prospectus. 13 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees (Fees paid directly from your investment) Investor A Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% Other expenses 0.35% ------ Total annual Fund operating expenses 1.00% Fee waivers and/or reimbursements (0.40)% ------ Total net expenses(2) 0.60% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $61 $279 $514 $1,188
14 Nations SmallCap Index Fund [GRAPHIC] About the sub-adviser BACAP is this Fund's sub-adviser. BACAP's Quantitative Strategies Team makes the day-to-day investment decisions for the Fund. [GRAPHIC] You'll find more about BACAP on page 21. [GRAPHIC] What is an index fund? Index funds use a "passive" or "indexing" investment approach, which attempts to duplicate the performance of a specific market index. Correlation measures how closely a fund's returns match those of an index. A perfect correlation of 1.0 means that the net asset value of the fund increases or decreases in exact proportion to changes in the index. [GRAPHIC] Investment objective The Fund seeks investment results that (before fees and expenses) correspond to the total return of the Standard & Poor's SmallCap 600 Index (S&P SmallCap 600). [GRAPHIC] Principal investment strategies The Fund normally invests at least 80% of its assets in common stocks that are included in the S&P SmallCap 600. The S&P SmallCap 600 is an unmanaged market capitalization index consisting of 600 common stocks that capture the economic and industry characteristics of small company stock performance. It is not available for investment. The Fund may buy stock index futures and other financial futures as substitutes for the underlying securities in the S&P SmallCap 600. The Fund may also invest in securities that aren't part of its principal investment strategies, but it won't hold more than 10% of its assets in any one type of these securities. These securities are described in the SAI. Different common stocks have different weightings in the S&P SmallCap 600, depending on the amount of stock outstanding and the stock's current price. In trying to match the performance of the S&P SmallCap 600, the team will try to allocate the Fund's portfolio among common stocks in approximately the same weightings as the S&P SmallCap 600, beginning with the most heavily weighted stocks that make up a larger portion of the value of the S&P SmallCap 600. The Fund tries to achieve a correlation of at least 0.95 with the S&P SmallCap 600 on an annual basis (before fees and expenses). The Fund's ability to track the S&P SmallCap 600 is affected by transaction costs and other expenses, changes in the composition of the S&P SmallCap 600, changes in the number of shares issued by the companies represented in the S&P SmallCap 600, and by the timing and amount of shareholder purchases and redemptions, among other things. Equity mutual funds, like other investors in equity securities, incur transaction costs, such as brokerage costs, when they buy and sell securities. The team tries to minimize these costs for the Fund by using program trades and crossing networks. The team may sell a stock when its percentage weighting in the index is reduced, when the stock is removed from the index, and for other reasons. 15 [GRAPHIC] You'll find more about other risks of investing in this Fund in Other important information and in the SAI. [GRAPHIC] Risks and other things to consider Nations SmallCap Index Fund has the following risks: o Investment strategy risk - This Fund tries to match (before fees and expenses) the returns of the S&P SmallCap 600, and is not actively managed. There is no assurance that the returns of the Fund will match the returns of the S&P SmallCap 600. The value of the Fund will rise and fall with the performance of the S&P SmallCap 600. o Stock market risk - The value of the stocks the Fund holds can be affected by changes in U.S. or foreign economies and financial markets, and the companies that issue the stocks, among other things. Stock prices can rise or fall over short as well as long periods. In general, stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. o Small company risk - Stocks of smaller companies tend to have greater price swings than stocks of larger companies because they trade less frequently and in lower volumes. These securities may have a higher potential for gains but also carry more risk. o Futures risk - This Fund may use futures contracts as a substitute for the securities included in the index. There is a risk that this could result in losses, reduce returns, increase transaction costs or increase the Fund's volatility. 16 [GRAPHIC] Many things affect a Fund's performance, including market conditions, the composition of the Fund's holdings and Fund expenses. Prior to May 12, 2000, the Fund had a different investment objective and principal investment strategies. [GRAPHIC] A look at the Fund's performance The following bar chart and table show you how the Fund has performed in the past, and can help you understand the risks of investing in the Fund. A Fund's past performance is no guarantee of how it will perform in the future. Year by year total return (%) as of December 31 each year* The bar chart shows you how the performance of the Fund's Investor A Shares has varied from year to year. These returns do not reflect deductions of sales charges or account fees, if any, and would be lower if they did. [BAR CHART APPEARS HERE] 27.55% -1.89 5.27% 9.20% - -------------------------------- 1997 1998 1999 2000 *Year-to-date return as of June 30, 2001: 5.78% Best and worst quarterly returns during this period Best: 2nd quarter 1997: 17.52% Worst: 3rd quarter 1998: -20.89%
[GRAPHIC] The returns shown for the index do not reflect fees, brokerage commissions or other expenses of investing. Average annual total return as of December 31, 2000 The table shows the Fund's average annual total return for each period, compared with the S&P SmallCap 600, an unmanaged index of 600 common stocks, weighted by market capitalization. The S&P SmallCap 600 is not available for investment.
Since 1 year inception* Investor A Shares 9.20% 9.83% S&P SmallCap 600 11.80% 12.44%
*The inception date of Investor A Shares is October 15, 1996. The return for the index shown is from that date. 17 [GRAPHIC] There are two kinds of fees -- shareholder fees you pay directly, and annual fund operating expenses that are deducted from a fund's assets. Total net expenses are actual expenses paid by the Fund after waivers and/or reimbursements. [GRAPHIC] What it costs to invest in the Fund This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Shareholder fees (Fees paid directly from your investment) Investor A Shares Maximum sales charge (load) imposed on purchases none Maximum deferred sales charge (load) none Annual Fund operating expenses(1) (Expenses that are deducted from the Fund's assets) Management fees 0.40% Distribution (12b-1) and shareholder servicing fees 0.25% Other expenses 0.39% ------ Total annual Fund operating expenses 1.04% Fee waivers and/or reimbursements (0.39)% ------ Total net expenses(2) 0.65% ======
(1)The figures contained in the above table are based on amounts incurred during the Fund's most recent fiscal year and have been adjusted, as necessary, to reflect current service provider fees. (2)The Fund's investment adviser and/or some of its other service providers have agreed to waive fees and/or reimburse expenses until July 31, 2002. The figure shown here is after waivers and/or reimbursements. There is no guarantee that these waivers and/or reimbursements will continue after this date. [GRAPHIC] This is an example only. Your actual costs could be higher or lower, depending on the amount you invest, and on the Fund's actual expenses and performance. Example This example is intended to help you compare the cost of investing in this Fund with the cost of investing in other mutual funds. This example assumes: o you invest $10,000 in Investor A Shares of the Fund for the time periods indicated and then sell all of your shares at the end of those periods o you reinvest all dividends and distributions in the Fund o your investment has a 5% return each year o the Fund's operating expenses remain the same as shown in the table above o the waivers and/or reimbursements shown above expire July 31, 2002 and are not reflected in the 3, 5 and 10 year examples Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year 3 years 5 years 10 years Investor A Shares $66 $292 $536 $1,236
18 [GRAPHIC] Other important information You'll find specific information about each Fund's principal investments, strategies and risks in the descriptions starting on page 4. The following are some other risks and information you should consider before you invest: o Changing investment objectives and policies - The investment objective and certain investment policies of any Fund can be changed without shareholder approval. Other investment policies may be changed only with shareholder approval. o Holding other kinds of investments - The Funds may hold investments that aren't part of their principal investment strategies. Please refer to the SAI for more information. The management team can also choose not to invest in specific securities described in this prospectus and in the SAI. o Investment in Nations Money Market Funds - To seek to achieve a return on uninvested cash or for other reasons, the Funds may invest up to 25% of their assets in Nations Money Market Funds. BA Advisors and its affiliates are entitled to receive fees from the Nations Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Funds for services provided directly. BA Advisors may waive fees which it is entitled to receive from either the Nations Money Market Funds or the Funds. o Investing defensively - A Fund may temporarily hold investments that are not part of its investment objective or its principal investment strategies to try to protect it during a market or economic downturn or because of political or other conditions. A Fund may not achieve its investment objective while it is investing defensively. o Securities lending program - A Fund may lend portfolio securities to approved broker-dealers or other financial institutions on a fully collateralized basis in order to earn additional income. There may be delays in receiving additional collateral after the loan is made or in recovering the securities loaned. o Bank of America and its affiliates - Bank of America and its affiliates currently provide services to some or all of the Funds, including investment advisory, investment sub-advisory, co-administration and brokerage services, and are paid for providing these services. Bank of America and its affiliates also may, at times, provide other services and be compensated for them, including transfer agency, interfund lending and securities lending services, or make loans to the Funds. Finally, Bank of America or its affiliates may serve as counterparties in transactions with Nations Funds where permitted by law or regulation, and may receive compensation in that capacity. o Portfolio turnover - A Fund that replaces -- or turns over -- more than 100% of its investments in a year is considered to trade frequently. Frequent trading can result in larger distributions of short-term capital gains to shareholders. These gains are taxable at higher rates than long-term capital gains. Frequent trading can also mean higher brokerage and other transaction costs, which could reduce the Fund's returns. The Funds generally buy securities for capital appreciation, investment income, or both, and don't engage in short-term trading. You'll find the portfolio turnover rate for each Fund in Financial highlights. 19 [GRAPHIC] Banc of America Advisors, LLC One Bank of America Plaza Charlotte, North Carolina 28255 [GRAPHIC] How the Funds are managed Investment adviser BA Advisors is the investment adviser to over 75 mutual fund portfolios in the Nations Funds Family, including the Funds described in this prospectus. BA Advisors is a registered investment adviser. It's a wholly-owned subsidiary of Bank of America, which is owned by Bank of America Corporation. Nations Funds pays BA Advisors an annual fee for its investment advisory services. The fee is calculated as a percentage of the average daily net assets of each Fund and is paid monthly. BA Advisors uses part of this money to pay the investment sub-adviser for the services it provides to each Fund. BA Advisors has agreed to waive fees and/or reimburse expenses for certain Funds until July 31, 2002. You'll find a discussion of any waiver and/or reimbursement in the Fund descriptions. There is no assurance that BA Advisors will continue to waive and/or reimburse any fees and/or expenses after this date. The following chart shows the maximum advisory fees BA Advisors can receive, along with the actual advisory fees it received during the Funds' last fiscal year after waivers and/or reimbursements: Annual investment advisory fee, as a % of average daily net assets
Maximum Actual fee advisory paid last fee fiscal year Nations LargeCap Index Fund 0.40% 0.07% Nations Managed Index Fund 0.40% 0.21% Nations MidCap Index Fund 0.40% 0.10% Nations SmallCap Index Fund 0.40% 0.02%
Investment sub-adviser Nations Funds and BA Advisors engage one or more investment sub-advisers for each Fund to make day-to-day investment decisions for the Fund. BA Advisors retains ultimate responsibility (subject to Board oversight) for overseeing the sub-advisers and evaluates the Funds' needs and available sub-advisers' skills and abilities on an ongoing basis. Based on its evaluations, BA Advisors may at times recommend to a Fund's Board that the Fund: o change, add or terminate one or more sub-advisers; o continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or o materially change a sub-advisory agreement with a sub-adviser. 20 Applicable law requires a Fund to obtain shareholder approval in order to act on most of these types of recommendations, even if the Fund's Board has approved the proposed action and believes that the action is in shareholders' best interests. BA Advisors and the Funds have applied for relief from the SEC to permit the Funds to act on many of BA Advisors' recommendations with approval only by the Funds' Board and not by Fund shareholders. BA Advisors or a Fund would inform the Fund's shareholders of any actions taken in reliance on this relief. Until BA Advisors and the Funds obtain the relief, each Fund will continue to submit these matters to shareholders for their approval to the extent required by applicable law. [GRAPHIC] Banc of America Capital Management, LLC One Bank of America Plaza Charlotte, North Carolina 28255 Banc of America Capital Management, LLC BACAP is a registered investment adviser and a wholly-owned subsidiary of Bank of America. Its management expertise covers all major domestic asset classes, including equity and fixed income securities, and money market instruments. Currently managing more than $125 billion, BACAP acts as investment manager for individuals, corporations and financial institutions, and is the sub-adviser to private investment companies and more than 60 funds in the Nations Funds Family. BACAP takes a team approach to investment management. Each team has access to the latest technology and analytical resources. BACAP's Quantitative Strategies Team is responsible for making the day-to-day investment decisions for each Fund. [GRAPHIC] Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 Other service providers The Funds are distributed and co-administered by Stephens Inc. (Stephens), a registered broker/dealer. Stephens may pay distribution (12b-1) and shareholder servicing fees, and/or other compensation to companies for selling shares and providing services to investors. BA Advisors is also co-administrator of the Funds, and assists in overseeing the administrative operations of the Funds. The Funds pay BA Advisors and Stephens a combined fee of 0.23% for their services, plus certain out-of-pocket-expenses. The fee is calculated as an annual percentage of the average daily net assets of the Funds, and is paid monthly. [GRAPHIC] PFPC Inc. 400 Bellevue Parkway Wilmington, Delaware 19809 PFPC Inc. (PFPC) is the transfer agent for the Funds' shares. Its responsibilities include processing purchases, sales and exchanges, calculating and paying distributions, keeping shareholder records, preparing account statements and providing customer service. 21 About your investment - -------------------------------------------------------------------------------- [GRAPHIC] We've used the term, investment professional, to refer to the person who has assisted you with buying Nations Funds. Selling agent or servicing agent (sometimes referred to as a selling agent) means the company that employs your investment professional. Selling agents include banks, brokerage firms, mutual fund dealers and other financial institutions, including affiliates of Bank of America. When you sell shares of a mutual fund, the fund is effectively "buying" them back from you. This is called a redemption. [GRAPHIC] Buying, selling and exchanging shares You can invest in the Funds through your selling agent or directly from Nations Funds. You don't pay any sales charges when you buy, sell or exchange Investor A Shares of the Index Funds. We encourage you to consult with an investment professional who can open an account for you with a selling agent and help you with your investment decisions. Once you have an account, you can buy, sell and exchange shares by contacting your investment professional or selling agent. They will look after any paperwork that's needed to complete a transaction and send your order to us. You should also ask your selling agent about its limits, fees and policies for buying, selling and exchanging shares, which may be different from those described here, and about its related programs or services. The table on the next page summarizes some key information about buying, selling and exchanging shares. Please contact your investment professional, or call us at 1.800.321.7854 if you have any questions or you need help placing an order. 22
Ways to buy, sell or exchange ----------------- Buying shares In a lump sum - ------------------- ----------------- Using our Systematic Investment Plan - ------------------- ----------------- Selling shares In a lump sum - ------------------- ----------------- Using our Automatic Withdrawal Plan - ------------------- ----------------- Exchanging shares In a lump sum - ------------------- ----------------- Using our Automatic Exchange Feature How much you can buy, sell or exchange Other things to know ---------------------------------------- --------------------------------------------------- Buying shares minimum initial investment: There is no limit to the amount you can invest o $1,000 for regular accounts in Investor A Shares. o $500 for traditional and Roth IRA accounts o $250 for certain fee-based accounts o no minimum for certain retirement plan accounts like 401(k) plans and SEP accounts, but other restrictions apply minimum additional investment: o $100 for all accounts - ------------------- ---------------------------------------- --------------------------------------------------- minimum initial investment: You can buy shares twice a month, monthly or o $100 quarterly, using automatic transfers from your minimum additional investment: bank account. o $50 - ------------------- ---------------------------------------- --------------------------------------------------- Selling shares o you can sell up to $50,000 of your We'll send you or your selling agent the sale shares by telephone, otherwise there proceeds, usually within three business days of are no limits to the amount you can receiving your order. sell If you paid for your shares with a check that o other restrictions may apply to wasn't certified, we'll hold the sale proceeds withdrawals from retirement plan when you sell those shares for at least 15 days accounts after the trade date of the purchase, or until the check has cleared. - ------------------- ---------------------------------------- --------------------------------------------------- o minimum $25 per withdrawal Your account balance must be at least $10,000 to set up the plan. You can make withdrawals twice a month, monthly, quarterly, bi-annually or annually. We'll send your money by check or deposit it directly to your bank account. - ------------------- ---------------------------------------- --------------------------------------------------- Exchanging shares o minimum $1,000 per exchange You can exchange Investor A Shares of an Index Fund for Investor A Shares of any other Index Fund. o minimum $25 per exchange You must already have an investment in the Funds into which you want to exchange. You can make exchanges monthly or quarterly. - ------------------- ---------------------------------------- ---------------------------------------------------
23 [GRAPHIC] A business day is any day that the New York Stock Exchange (NYSE) is open. A business day ends at the close of regular trading on the NYSE, usually at 4:00 p.m. Eastern time. If the NYSE closes early, the business day ends as of the time the NYSE closes. The NYSE is closed on weekends and on the following national holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. How shares are priced All transactions are based on the price of a Fund's shares -- or its net asset value per share. We calculate net asset value per share for each class of each Fund at the end of each business day. First, we calculate the net asset value for each class of a Fund by determining the value of the Fund's assets in the class and then subtracting its liabilities. Next, we divide this amount by the number of shares that investors are holding in the class. Valuing securities in a Fund The value of a Fund's assets is based on the total market value of all of the securities it holds. The prices reported on stock exchanges and securities markets around the world are usually used to value securities in a Fund. If prices aren't readily available, we'll base the price of a security on its fair value. We use the amortized cost method, which approximates market value, to value short-term investments maturing in 60 days or less. How orders are processed Orders to buy, sell or exchange shares are processed on business days. Orders received by Stephens, PFPC or their agents before the end of a business day (usually 4:00 p.m. Eastern time, unless the NYSE closes early) will receive that day's net asset value per share. Orders received after the end of a business day will receive the next business day's net asset value per share. The business day that applies to your order is also called the trade date. We may refuse any order to buy or exchange shares. If this happens, we'll return any money we've received to your selling agent. Telephone orders You can place orders to buy, sell or exchange by telephone if you complete the telephone authorization section of our account application and send it to us. Here's how telephone orders work: o If you sign up for telephone orders after you open your account, you must have your signature guaranteed. o Telephone orders may not be as secure as written orders. You may be responsible for any loss resulting from a telephone order. o We'll take reasonable steps to confirm that telephone instructions are genuine. For example, we require proof of your identification before we will act on instructions received by telephone and may record telephone conversations. If we and our service providers don't take these steps, we may be liable for any losses from unauthorized or fraudulent instructions. o Telephone orders may be difficult to complete during periods of significant economic or market change. 24 [GRAPHIC] Buying shares Here are some general rules for buying shares: o You buy Investor A Shares at net asset value per share. o If we don't receive your money within three business days of receiving your order, we'll refuse the order. o Selling agents are responsible for sending orders to us and ensuring that we receive your money on time. o Shares purchased are recorded on the books of the Fund. We generally don't issue certificates. Minimum initial investment The minimum initial amount you can buy is usually $1,000. If you're buying shares through one of the following accounts or plans, the minimum initial amount you can buy is: o $500 for traditional and Roth individual retirement accounts (IRAs) o $250 for accounts set up with some fee-based investment advisers or financial planners, including wrap fee accounts and other managed accounts o $100 using our Systematic Investment Plan o There is no minimum for 401(k) plans, simplified employee pension plans (SEPs), salary reduction-simplified employee pension plans (SAR-SEPs), Savings Incentives Match Plans for Employees (SIMPLE IRAs), salary reduction-IRAs (SAR-IRAs) or other similar kinds of accounts. However, if the value of your account falls below $1,000 for 401(k) plans or $500 for the other plans within one year after you open your account, we may sell your shares. We'll give you 60 days notice in writing if we're going to do this Minimum additional investment You can make additional purchases of $100, or $50 if you use our Systematic Investment Plan. Systematic Investment Plan You can make regular purchases of $50 or more using automatic transfers from your bank account to the Funds you choose. You can contact your investment professional or us to set up the plan. Here's how the plan works: o You can buy shares twice a month, monthly or quarterly. o You can choose to have us transfer your money on or about the 15th or the last day of the month. o Some exceptions may apply to employees of Bank of America and its affiliates, and to plans set up before August 1, 1997. For details, please contact your investment professional. 25 [GRAPHIC] Selling shares Here are some general rules for selling shares: o If you're selling your shares through a selling agent, we'll normally send the sale proceeds by Fedwire within three business days after Stephens, PFPC or their agents receive your order. Your selling agent is responsible for depositing the sale proceeds to your account on time. o If you're selling your shares directly through us, we'll normally send the sale proceeds by mail or electronic transfer them to your bank account within three business days after the Fund receives your order. [GRAPHIC] For more information about telephone orders, see How orders are processed. o You can sell up to $50,000 of shares by telephone if you qualify for telephone orders. o If you paid for your shares with a check that wasn't certified, we'll hold the sale proceeds when you sell those shares for at least 15 days after the trade date of the purchase, or until the check has cleared, whichever is later. o If you hold any shares in certificate form, you must sign the certificates (or send a signed stock power with them) and send them to PFPC. Your signature must be guaranteed unless you've made other arrangements with us. We may ask for any other information we need to prove that the order is properly authorized. o Under certain circumstances allowed under the Investment Company Act of 1940 (1940 Act), we can pay you in securities or other property when you sell your shares. o We can delay payment of the sale proceeds for up to seven days. o Other restrictions may apply to retirement plan accounts. For more information about these restrictions, please contact your retirement plan administrator. We may sell your shares: o if the value of your account falls below $500. We'll give you 60 days notice in writing if we're going to do this o if your selling agent tells us to sell your shares under arrangements made between the selling agent and you o under certain other circumstances allowed under the 1940 Act Automatic Withdrawal Plan The Automatic Withdrawal Plan lets you withdraw $25 or more twice a month, monthly, quarterly, bi-annually or annually. You can contact your investment professional or us to set up the plan. Here's how the plan works: o Your account balance must be at least $10,000 to set up the plan. o If you set up the plan after you've opened your account, your signature must be guaranteed. o You can choose to have us transfer your money on or about the 10th or the 25th of the month. o We'll send you a check or deposit the money directly to your bank account. o You can cancel the plan by giving your selling agent or us 30 days notice in writing. It's important to remember that if you withdraw more than your investment in the Fund is earning, you'll eventually use up your original investment. 26 [GRAPHIC] You should make sure you understand the investment objective and principal investment strategies of the Fund you're exchanging into. Please read its prospectus carefully. [GRAPHIC] Exchanging shares You can sell shares of a Fund to buy shares of another Nations Fund. This is called an exchange. You might want to do this if your investment goals or tolerance for risk changes. Here's how exchanges work: o You can exchange Investor A Shares of an Index Fund for Investor A Shares of any other Index Fund. o If you received Investor A Shares of a Managed Index Fund through a conversion of Investor C Shares originally bought through a 401(k) plan, you can also exchange your shares for: o Investor C Shares of any other Nations Fund, except Nations Money Market Funds o Investor C Shares of Nations Reserves Money Market Funds o You must exchange at least $1,000, or $25 if you use our Automatic Exchange Feature. o The rules for buying shares of a Fund, including any minimum investment requirements, apply to exchanges into that Fund. o You may only make exchanges into a Fund that is legally sold in your state of residence. o You generally may only make an exchange into a Fund that is accepting investments. o We may limit the number of exchanges you can make within a specified period of time. o We may change or cancel your right to make an exchange by giving the amount of notice required by regulatory authorities (generally 60 days for a material change or cancellation). o You cannot exchange any shares you own in certificate form until PFPC has received the certificate and deposited the shares to your account. Automatic Exchange Feature The Automatic Exchange Feature lets you exchange $25 or more of Investor A Shares every month or every quarter. You can contact your investment professional or us to set up the plan. Here's how automatic exchanges work: o Send your request to PFPC in writing or call 1.800.321.7854. o If you set up your plan to exchange more than $50,000 you must have your signature guaranteed. o You must already have an investment in the Funds you want to exchange. o You can choose to have us transfer your money on or about the 1st or the 15th day of the month. o The rules for making exchanges apply to automatic exchanges. 27 [GRAPHIC] How selling and servicing agents are paid Selling and servicing agents usually receive compensation based on your investment in the Funds. The kind and amount of the compensation depends on the share class in which you invest. Selling agents typically pay a portion of the compensation they receive to their investment professionals. [GRAPHIC] The financial institution or intermediary that buys shares for you is also sometimes referred to as a selling agent. The distribution fee is often referred to as a "12b-1" fee because it's paid through a plan approved under Rule 12b-1 under the 1940 Act. Your selling agent may charge other fees related to services provided to your account. Distribution (12b-1) and shareholder servicing fees Stephens and selling and servicing agents may be compensated for selling shares and providing services to investors under a distribution and shareholder servicing plan. Stephens and selling and servicing agents may receive a maximum combined annual distribution (12b-1) and shareholder servicing fee of 0.25% for selling shares and providing services to investors. Fees are calculated daily and paid monthly. Because these fees are paid out of the Funds' assets on an ongoing basis, over time they will increase the cost of your investment, and may cost you more than any sale's charges you may pay. The Funds pay these fees to Stephens and/or to eligible selling and servicing agents and financial institutions, including BA Advisors or its affiliates, for as long as the plan continues. We may reduce or discontinue payments at any time. Other compensation Selling and servicing agents may also receive: o a bonus, incentive or other compensation relating to the sale, promotion and marketing of the Fund o an amount of up to 1.00% of the net asset value per share on all sales of Investor A Shares o non-cash compensation like trips to sales seminars, tickets to sporting events, theater or other entertainment, opportunities to participate in golf or other outings and gift certificates for meals or merchandise This compensation, which is not paid by the Funds, is discretionary and may be available only to selected selling and servicing agents. For example, Stephens sometimes sponsors promotions involving Banc of America Investment Services, Inc., an affiliate of BA Advisors, and certain other selling or servicing agents. Selected selling and servicing agents also may receive compensation for opening a minimum number of accounts. BA Advisors and Stephens may pay amounts from their own assets to selling or servicing agents of the Funds for services they provide. 28 [GRAPHIC] Distributions and taxes [GRAPHIC] The power of compounding Reinvesting your distributions buys you more shares of a Fund -- which lets you take advantage of the potential for compound growth. Putting the money you earn back into your investment means it, in turn, may earn even more money. Over time, the power of compounding has the potential to significantly increase the value of your investment. There is no assurance, however, that you'll earn more money if you reinvest your distributions. About distributions A mutual fund can make money two ways: o It can earn income. Examples are interest paid on bonds and dividends paid on common stocks. o A fund can also have capital gain if the value of its investments increases. If a fund sells an investment at a gain, the gain is realized. If a fund continues to hold the investment, any gain is unrealized. A mutual fund is not subject to federal income tax as long as it distributes its net investment income and realized capital gain to its shareholders. The Funds intend to pay out a sufficient amount of their income and capital gain to their shareholders so the Funds won't have to pay any federal income tax. When a Fund makes this kind of a payment, it's split among all shares, and is called a distribution. All of the Funds distribute any net realized capital gain at least once a year. The frequency of distributions of net investment income varies by Fund:
Frequency of Fund income distributions Nations LargeCap Index Fund quarterly Nations Managed Index Fund monthly Nations MidCap Index Fund quarterly Nations SmallCap Index Fund quarterly
Any distribution you receive is based on the number of shares you hold on the record date, which is usually the day the distribution is declared (daily dividend Funds) or the day before the distribution is declared (all other Funds). Shares are eligible to receive net investment income distributions from the settlement date (daily dividend Funds), trade date (all other Funds) or realized capital gain from the trade date of the purchase up to and including the day before the shares are sold. Different share classes of a Fund usually pay different net investment income distribution amounts, because each class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. We'll automatically reinvest distributions in additional shares of the same Fund unless you tell us you want to receive your distributions in cash. You can do this by writing to us at the address on the back cover or by calling us at 1.800.321.7854. We generally pay cash distributions within five business days after the end of the month, quarter or year in which the distribution was made. If you sell all of your shares, we'll normally pay any distribution that applies to those shares in cash within five business days after the sale was made. 29 If you buy shares of a Fund shortly before it makes a distribution, you will, in effect, receive part of your purchase back in the distribution, which is subject to tax. Similarly, if you buy shares of a Fund that holds securities with unrealized capital gain, you will, in effect, receive part of your purchase back if and when the Fund sells those securities and distributes the gain. This distribution is also subject to tax. The Funds have built up, or have the potential to build up, high levels of unrealized capital gain. [GRAPHIC] This information is a summary of how federal income taxes may affect your investment in the Funds. It is not intended as a substitute for careful tax planning. You should consult with your own tax adviser about your situation, including any foreign, state and local taxes that may apply. [GRAPHIC] For more information about taxes, please see the SAI. How taxes affect your investment Distributions that come from net investment income, net short-term capital gain and certain other items generally are taxable to you as ordinary income. A portion of such distributions to corporate shareholders may qualify for the dividends-received deduction. Distributions that come from net long-term capital gain generally are taxable to you as long-term capital gain. In general, all distributions are taxable to you when paid, whether they are paid in cash or automatically reinvested in additional shares of the Fund. However, any distributions declared to shareholders of record in October, November or December of one year and distributed in January of the following year will be taxable as if they had been paid to you on December 31 of the first year. We'll send you a notice every year that tells you how much you've received in distributions during the year and their federal tax status. Foreign, state and local taxes may also apply to these distributions. Withholding tax We're required by federal law to withhold tax on any distributions and redemption proceeds paid to you (including amounts to be paid for in securities or other property and exchanges) if: o you haven't given us a correct Taxpayer Identification Number (TIN) and haven't certified that the TIN is correct and withholding doesn't apply o the Internal Revenue Service (IRS) has notified us that the TIN listed on your account is incorrect according to its records o the IRS informs us that you're otherwise subject to backup withholding The IRS may also impose penalties against you if you don't give us a correct TIN. Amounts we withhold are applied to your federal income tax liability. You may receive a refund from the IRS if the withholding tax results in an overpayment of taxes. We're also normally required by federal law to withhold tax on distributions (other than capital gain distributions) paid to foreign shareholders. Taxation of redemptions and exchanges Your redemptions (including redemptions paid in securities) and exchanges of Fund shares will usually result in a taxable capital gain or loss, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. 30 [GRAPHIC] Financial highlights The financial highlights table is designed to help you understand how the Funds have performed for the past five years or, if shorter, the period of the Fund's operations. Certain information reflects financial results for a single Fund share. The total investment return line indicates how much an investment in the Fund would have earned, assuming all dividends and distributions had been reinvested. This information has been audited by PricewaterhouseCoopers LLP. The independent accountants' report and Nations Funds financial statements are incorporated by reference into the SAI. Please see the back cover to find out how you can get a copy. 31
Nations LargeCap Index Fund For a Share outstanding throughout each year Year ended Year ended Investor A Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of year $28.76 $24.94 Net investment income 0.17 0.19 Net realized and unrealized gain/(loss) on investments (6.52) 4.08 Net increase/(decrease) in net asset value from operations (6.35) 4.27 Distributions: Dividends from net investment income (0.17) (0.19) Distributions from net realized capital gains --## (0.26) Total dividends and distributions (0.17) (0.45) Net asset value, end of year $22.24 $28.76 Total return++ (22.18)% 17.32% ===================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $27,417 $28,943 Ratio of operating expenses to average net assets 0.60%(a)(b) 0.60%(a)(b) Ratio of operating expenses to average net assets including interest expense -- -- Ratio of net investment income to average net assets 0.63% 0.71% Portfolio turnover rate 8% 7% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.93%(a) 0.96%(a) Year ended Year ended Year ended Investor A Shares 03/31/99 03/31/98# 03/31/97 Operating performance: Net asset value, beginning of year $22.31 $15.87 $13.58 Net investment income 0.19 0.21 0.25 Net realized and unrealized gain/(loss) on investments 3.63 7.05 2.32 Net increase/(decrease) in net asset value from operations 3.82 7.26 2.57 Distributions: Dividends from net investment income (0.20) (0.23) (0.23) Distributions from net realized capital gains (0.99) (0.59) (0.05) Total dividends and distributions (1.19) (0.82) (0.28) Net asset value, end of year $24.94 $22.31 $15.87 Total return++ 18.00% 46.58% 19.06% ============================================================================================== Ratios to average net assets/supplemental data: Net assets, end of year (in 000's) $13,827 $4,595 $2,574 Ratio of operating expenses to average net assets 0.60%(a) 0.60%(a) 0.60%(a) Ratio of operating expenses to average net assets including interest expense -- 0.61% -- Ratio of net investment income to average net assets 0.92% 1.14% 1.66% Portfolio turnover rate 4% 26% 5% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.96%(a) 0.91%(a) 0.95%(a)
++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. ## Amount represents less than $0.01 per share. (a) The effect of the custodial expense offset 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%.
Nations Managed Index Fund For a Share outstanding throughout each period Year ended Year ended Investor A Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of period $22.04 $19.39 Net investment income 0.08 0.11 Net realized and unrealized gain/(loss) on investments (4.47) 2.78 Net increase/(decrease) in net asset value from operations (4.39) 2.89 Distributions: Dividends from net investment income (0.07) (0.11) Distributions from net realized capital gains (2.69) (0.13) Total dividends and distributions (2.76) (0.24) Net asset value, end of period $14.89 $22.04 Total return++ (21.75)% 15.04% ===================================================================================== Ratio to average net assets/supplemental data: Net assets, end of period (in 000's) $32,402 $51,433 Ratio of operating expenses to average net assets 0.75%(a)(b) 0.75%(a)(b) Ratio of net investment income to average net assets 0.42% 0.55% Portfolio turnover rate 97% 64% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.95%(a) 0.97%(a) Year ended Year ended Period ended Investor A Shares 03/31/99# 03/31/98 03/31/97* Operating performance: Net asset value, beginning of period $17.14 $11.89 $10.00 Net investment income 0.14 0.14 0.12 Net realized and unrealized gain/(loss) on investments 2.39 5.40 1.89 Net increase/(decrease) in net asset value from operations 2.53 5.54 2.01 Distributions: Dividends from net investment income (0.13) (0.14) (0.12) Distributions from net realized capital gains (0.15) (0.15) -- Total dividends and distributions (0.28) (0.29) (0.12) Net asset value, end of period $19.39 $17.14 $11.89 Total return++ 14.97% 47.21% 20.12% ==================================================================================================== Ratio to average net assets/supplemental data: Net assets, end of period (in 000's) $51,439 $25,447 $3,038 Ratio of operating expenses to average net assets 0.75%(a) 0.75%(a)(b) 0.75%+(a) Ratio of net investment income to average net assets 0.78% 1.01% 1.67%+ Portfolio turnover rate 35% 30% 17% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.98%(a) 1.05%(a) 1.30%+(a)
* Managed Index Fund Investor A Shares commenced operations on July 31, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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%. 32
Nations MidCap Index Fund For a Share outstanding throughout the period Period ended Investor A Shares 03/31/01* Net asset value, beginning of period $9.55 Net investment income/(loss) 0.05 Net realized and unrealized gain/(loss) on investments (0.24) Net increase/(decrease) in net asset value from operations (0.19) Distributions: Dividends from net investment income (0.06) Distributions from net realized capital gains (0.89) Total dividends and distributions (0.95) Net asset value, end of period $8.41 Total return++ (2.84)% ============================================================== Ratios to average net assets/supplemental data: Net assets, end of period (in 000's) $215 Ratio of operating expenses to average net assets 0.60%(a)+ Ratio of operating expenses including interest expense to average net assets 0.61%(a)+ Ratio of net investment income/(loss) to average net assets 0.57% Portfolio turnover rate 69% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.00%(a)+
* MidCap Index Fund Investor A Shares commenced operations on May 31, 2000. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. (a) The effect of the custodial expense offset on the operating expense ratio, with and without waivers and/or expense reimbursements, was less than 0.01%.
Nations SmallCap Index Fund For a Share outstanding throughout each period Year ended Year ended Investor A Shares 03/31/01# 03/31/00# Operating performance: Net asset value, beginning of period $13.52 $11.03 Net investment income 0.04 0.01 Net realized and unrealized gain/(loss) on investments (0.32) 2.49 Net increase/(decrease) in net asset value from operations (0.28) 2.50 Distributions: Dividends from net investment income (0.02) (0.01) Distributions from net realized capital gains -- -- Total dividends and distributions (0.02) (0.01) Net asset value, end of period $13.22 $13.52 Total return++ (2.06)% 22.67% =================================================================================== Ratio to average net assets/supplemental data: Net assets, end of period (in 000's) $6,517 $7,610 Ratio of operating expenses to average net assets 0.66%(a)(b) 0.75%(a) Ratio of operating expenses to average net assets including interest expense -- 0.76%(a) Ratio of net investment income to average net assets 0.31% 0.10% Portfolio turnover rate 65% 53% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.04%(a) 1.02%(a) Year ended Year ended Period ended Investor A Shares 03/31/99# 03/31/98 03/31/97* Operating performance: Net asset value, beginning of period $14.08 $9.82 $10.00 Net investment income 0.03 0.03 0.03 Net realized and unrealized gain/(loss) on investments (2.91) 4.57 (0.18) Net increase/(decrease) in net asset value from operations (2.88) 4.60 (0.15) Distributions: Dividends from net investment income (0.03) (0.03) (0.03) Distributions from net realized capital gains (0.14) (0.31) -- Total dividends and distributions (0.17) (0.34) (0.03) Net asset value, end of period $11.03 $14.08 $9.82 Total return++ (20.67)% 47.35% (1.52)% =========================================================================================================== Ratio to average net assets/supplemental data: Net assets, end of period (in 000's) $9,782 $13,768 $334 Ratio of operating expenses to average net assets 0.75%(a)(b) 0.75%(a)(b) 0.75%+ Ratio of operating expenses to average net assets including interest expense -- -- -- Ratio of net investment income to average net assets 0.27% 0.27% 0.80%+ Portfolio turnover rate 65% 62% 18% Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 1.07%(a) 1.27%(a) 1.46%+
* SmallCap Index Fund Investor A Shares commenced operations on October 15, 1996. + Annualized. ++ Total return represents aggregate total return for the period indicated, assumes reinvestment of all distributions, and does not reflect the deduction of any applicable sales charges. # Per share net investment income has been calculated using the monthly average shares method. (a) The effect of the custodial expense offset 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 0.01%. 33 [GRAPHIC] This glossary includes explanations of the important terms that may be used in this prospectus. Some of the terms explained may apply to Nations Funds not included in this prospectus. [GRAPHIC] Terms used in this prospectus Amortized cost method - under Rule 2a-7 of the 1940 Act, the method of calculating an investment company's net asset value whereby portfolio securities are valued at the Fund's acquisition cost as adjusted for amortization of premium or accretion of discount rather than at their current market value. Asset-backed security - a debt security that gives an investor an interest in a pool of assets that is collateralized or "backed" by one or more kinds of assets, including automobile loans or credit card receivables, generally issued by banks, credit card companies or other lenders. Asset-backed securities typically make periodic payments, which may be interest or a combination of interest and a portion of the principal of the underlying assets. Average dollar-weighted maturity - the average length of time until the debt securities held by a Fund reach maturity. In general, the longer the average dollar-weighted maturity, the more a Fund's share price will fluctuate in response to changes in interest rates. Bank obligation - a money market instrument issued by a domestic or U.S. branch of a foreign bank, including certificates of deposit, time deposits and bankers' acceptances. Capital gain or loss - the difference between the purchase price of a security and its selling price. An investor realizes a capital gain when it sells a security for more than it paid for it. An investor realizes a capital loss when it sells a security for less than it paid for it. Cash equivalents - short-term, interest-bearing instruments which can easily be converted into cash, including U.S. government obligations, bank obligations, and certain asset-backed securities, foreign government securities and commercial paper issued by U.S. and foreign issuers which, at the time of investment, is rated at least Prime-2 by Moody's Investor Services, Inc. (Moody's), A-2 by S&P, or F-1 by Fitch IBCA (Fitch). Collateralized mortgage obligation (CMO) - a type of mortgage-backed security. CMO payment obligations are covered by interest and/or principal payments from a pool of mortgages. In addition, the underlying assets of a CMO are typically separated into classes, called tranches, based on maturity. Each tranche pays a different rate of interest. CMOs are not generally issued by the U.S. government, its agencies or instrumentalities. Commercial paper - a short-term corporate obligation. Commercial paper is typically considered a money market instrument. Common stock - a security that represents part equity ownership in a company. Common stock typically allows an investor to vote at shareholder meetings and to share in the company's profits by receiving dividends. 34 Convertible debt - a debt security that can be exchanged for common stock (or another type of security) on a specified basis and date. Convertible security - a security that can be exchanged for common stock (or another type of security) at a specified rate. Convertible securities include convertible debt, rights and warrants. Crossing networks - an electronic system where anonymous parties can match buy and sell transactions. These transactions don't affect the market, and transaction costs are extremely low. CSFB Convertible Securities Index - 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. Debt security - a security issued by a governmental body or company (the issuer) to help fund their operations or major projects. The issuer pays interest at a specified rate on a specified date or dates, and repays the principal when the security matures. Short-term debt securities include money market instruments such as treasury bills. Long-term debt securities include fixed income securities such as government and corporate bonds, and mortgage-backed and asset-backed securities. Depositary receipts - evidence of the deposit of a security with a custodian bank. American Depositary Receipts (ADRs), for example, are certificates traded in U.S. markets representing an interest of a foreign company. They were created to make it possible for foreign issuers to meet U.S. security registration requirements. Other examples include ADSs, GDRs and EDRs. Derivatives - A derivative is a financial contract whose value is based upon, or "derived" from, an underlying financial asset (such as a stock or a bond), a commodity (such as gold), a market index (such as the S&P 500) or a reference rate (such as the prime lending interest rate). Examples of derivative instruments include futures, options, index-, equity-, commodity- and currency-linked securities, warrants and swap contracts. For a detailed description of the derivatives described here, see the SAI. Diversified - A diversified fund, as defined by the 1940 Act, must have at least 75% of its total assets in cash and cash equivalents, government securities, securities of other investment companies, or other securities. For purposes of this calculation, the fund may not count securities of a single issuer that comprise more than 5% of the fund's assets. Dividend yield - rate of return of dividends paid on a common or preferred stock. It equals the amount of the annual dividend on a stock expressed as a percentage of the stock's current market value. Duration - a security's or portfolio's sensitivity to changes in interest rates. For example, if interest rates rise by one percentage point, the share price of a fund with a duration of five years would decline by about 5%. If interest rates fall by one percentage point, the fund's share price would rise by about 5%. 35 Equity security - an investment that gives an investor an equity ownership right in a company. Equity securities (or "equities") include common and preferred stock, rights and warrants. First-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds and has the highest short-term rating from a nationally recognized statistical rating organization (NRSRO), or if unrated, is determined by the Fund's portfolio management team to be of comparable quality, or is a money market fund or a government security. Fixed income security - an intermediate to long-term debt security that matures in more than one year. Foreign security - a debt or equity security determined by a Fund's portfolio management team to be foreign based on an issuer's domicile, its principle place of business, the source of its revenues or other factors. Forward foreign currency contracts - a forward foreign currency contract includes an obligation to purchase or sell a foreign currency at a specified future date. Forward purchase agreement - a contract obligating one party to buy and another party to sell an equity security, commodity, currency or other financial instrument at a specific future date. Fundamental analysis - a method of securities analysis that tries to evaluate the intrinsic, or "true," value of a particular stock. It includes a study of the overall economy, industry conditions and the financial condition and management of a company. Futures contract - a contract to buy or sell underlying instruments at a specified price on a specified future date. The price is typically set through a futures exchange. High quality - includes municipal securities that are rated in the top two highest short-term debt categories according to NRSROs such as S&P and Moody's. The portfolio management team may consider an unrated municipal security if it is determined to be of comparable quality, based upon guidelines approved by a Fund's Board. Please see the SAI for more information about credit ratings. High yield debt security - debt securities that, at the time of purchase, are rated "BB" or below by S&P or "Ba" or below by Moody's, or that are unrated and determined by the portfolio management team to be of comparable quality. Interest rate swap - an agreement between two parties to exchange periodic interest payments based on a predetermined principal amount. 36 Investment grade - a debt security that has been given a medium to high credit rating (Baa or higher by Moody's, BBB or higher by S&P or a comparable rating by other NRSROs) based on the issuer's ability to pay interest and repay principal on time. The portfolio management team may consider an unrated debt security to be investment grade if the team believes it is of comparable quality. Please see the SAI for more information about credit ratings. Lehman Aggregate Bond Index - an unmanaged index made up of the Lehman Government/Corporate Index, the Asset-Backed Securities Index and the Mortgage-Backed Securities Index. These indices include U.S. government agency and U.S. Treasury securities, corporate bonds and mortgage-backed securities. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Lehman Government/Corporate Bond Index - an unmanaged index of U.S. government, U.S. Treasury and agency securities, and corporate and Yankee bonds. All dividends are reinvested. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Liquidity - a measurement of how easily a security can be bought or sold at a price that is close to its market value. Money market instrument - a short-term debt security that is considered to mature in 13 months or less. Money market instruments include U.S. Treasury obligations, U.S. government obligations, certificates of deposit, bankers' acceptances, commercial paper, repurchase agreements and certain municipal securities. Mortgage-backed security or Mortgage-related security - a debt security that gives you an interest in, and is backed by, a pool of residential mortgages issued by the U.S. government or by financial institutions. The underlying mortgages may be guaranteed by the U.S. government or one of its agencies, authorities or instrumentalities. Mortgage-backed securities typically make monthly payments, which are a combination of interest and a portion of the principal of the underlying mortgages. MSCI EAFE Index - Morgan Stanley Capital International Europe, Australasia and Far East Index is an unmanaged, capitalization-weighted index. The index reflects the relative size of each market consisting of securities listed on exchanges in European, Australasian and Far Eastern markets and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investment. It is not available for investment. MSCI World Index - Morgan Stanley Capital International World Index is an unmanaged index consisting of securities listed on exchanges in the major European and Asian countries, Australia and the U.S. and includes dividends and distributions, but does not reflect fees, brokerage commissions or other expenses of investing. It is not available for investment. 37 Municipal security (obligation) - a debt security issued by state or local governments or governmental authorities to pay for public or private projects and services. "General obligations" are typically backed by the issuer's full taxing and revenue-raising powers. "Revenue securities" depend on the income earned by a specific project or authority, like road or bridge tolls, user fees for water or revenues from a utility. Interest income from municipal securities that pay for "public" projects and services is exempt from federal income taxes and is generally exempt from state taxes if an investor lives in the state that issued the security. If an investor lives in the municipality that issued the security, interest income may also be exempt from local taxes. Non-diversified - a fund that holds securities of fewer issuers than other kinds of funds. Non-diversified funds tend to have greater price swings than more diversified funds because events affecting one or more of its securities may have a disproportionately large effect on the fund. NRSRO - A nationally recognized statistical rating organization, such as S&P or Moody's. Options - An option is the right to buy or sell a security based on an agreed upon price at a specified time. For example, an option may give the holder of a stock the right to sell the stock to another party, allowing the seller to profit if the price has fallen below the agreed price. Options may also be based on the movement of an index such as the S&P 500. Over-the-counter market - a market where dealers trade securities through a telephone or computer network rather than through a public stock exchange. Preferred stock - a type of equity security that gives you a limited ownership right in a company, with certain preferences or priority over common stock. Preferred stock generally pays a fixed annual dividend. If the company goes bankrupt, preferred shareholders generally receive their share of the company's remaining assets before common shareholders and after bondholders and other creditors. Ownership of preferred stock typically does not come with certain voting rights that come with common stock. Pre-refunded bond - a bond that is repaid before its maturity date. The repayment is generally financed by a new issue. Issuers generally pre-refund bonds during periods of lower interest rates to reduce their interest costs. Price-to-earnings ratio (P/E ratio) - the current price of a share divided by its actual or estimated earnings per share. The P/E ratio is one measure of the value of a company. Private placement - a private placement is the sale of stocks, bonds or other investments directly to a qualified investor without having to register the offering with the SEC or other comparable foreign regulatory authorities. Qualified investors are typically large institutional investors or high net worth individuals. Securities acquired through private placements generally may not be resold. 38 Quantitative analysis - an analysis of financial information about a company or security to identify securities that have the potential for growth or are otherwise suitable for a fund to buy. Real Estate Investment Trust (REIT) - a portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls, and real-estate-related loans or interests. Repurchase agreement - a short-term (often overnight) investment arrangement. The investor agrees to buy certain securities from the borrower and the borrower promises to buy them back at a specified date and price. The difference between the purchase price paid by the investor and the repurchase price paid by the borrower represents the investor's return. Repurchase agreements are popular because they provide low-risk returns and can allow a fund to remain fully invested. Reverse repurchase agreement - a repurchase agreement in which an investor sells a security to another party, like a bank or dealer, in return for cash, and agrees to buy the security back at a specified date and price. Reverse repurchase agreements are, in effect, loans to a fund. Right - a temporary privilege allowing investors who already own a common stock to buy additional shares directly from the company at a specified price or formula. Russell 1000 Index - 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. The Russell 3000 Index is a listing of 3000 corporations by the Frank Russell Company that is intended to be representative of the U.S. economy. The Russell 1000 is considered a "large cap" index. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. 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. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 2000 Index - 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. 39 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. The index is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Russell 3000 Growth Index - an unmanaged index comprised of securities in the Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies based on total market capitalization, with a greater than average growth orientation. Companies in the Russell 3000 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. S&P 500(1) - Standard & Poor's 500 Composite Stock Price Index, an unmanaged index of 500 widely held common stocks. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P/BARRA Value Index(1) - an unmanaged index of a subset of stocks from the S&P 500 that have low price-to-book ratios relative to the S&P 500 as a whole. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P/IFC Investables Index - an unmanaged index that tracks more than 1,400 stocks in 25 emerging markets in Asia, Latin America, Eastern Europe, Africa and the Middle East. The index is weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P MidCap 400(1) - an unmanaged index of 400 domestic stocks chosen for market size, liquidity and industry representation. The index is weighted by market value, and is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SmallCap 600(1) - Standard & Poor's SmallCap 600 Index, an unmanaged index of 600 common stocks, weighted by market capitalization. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. S&P SuperComposite 1500(1) - an unmanaged index created by Standard & Poors combining the companies represented in three other indices -- the S&P 500, MidCap 400, and SmallCap 600. The index represents 87% of the total capitalization of U.S. equity markets. It is not available for investment and does not reflect fees, brokerage commissions or other expenses of investing. Second-tier security - under Rule 2a-7 under the 1940 Act, a debt security that is an eligible investment for money market funds, but is not a first-tier security. 40 Senior security - a debt security that allows holders to receive their share of a company's remaining assets in a bankruptcy before other bondholders, creditors, and common and preferred shareholders. Settlement date - the date on which an order is settled either by payment or delivery of securities. Total return swap - an agreement between two parties to exchange periodic interest payments for the total return of an equity or fixed income instrument. Trade date - the effective date of a purchase, sale or exchange transaction, or other instructions sent to us. The trade date is determined by the day and time we receive the order or instructions in a form that's acceptable to us. U.S. government obligations - a wide range of debt securities issued or guaranteed by the U.S. government or its agencies, authorities or instrumentalities. U.S. Treasury obligation - a debt security issued by the U.S. Treasury. Warrant - a certificate that gives you the right to buy common shares at a specified price within a specified period of time. Zero-coupon bond - a bond that makes no periodic interest payments. Zero coupon bonds are sold at a deep discount to their face value and mature at face value. The difference between the face value at maturity and the purchase price represents the return. (1) S&P and BARRA have not reviewed any stock included in the S&P SuperComposite 1500, S&P 500, S&P SmallCap 600, S&P MidCap 400 Index or BARRA Value Index for its investment merit. S&P and BARRA determine and calculate their indices independently of the Funds and are not a sponsor or affiliate of the Funds. S&P and BARRA give no information and make no statements about the suitability of investing in the Funds or the ability of their indices to track stock market performance. S&P and BARRA make no guarantees about the indices, any data included in them and the suitability of the indices or their data for any purpose. "Standard and Poor's," "S&P 500" and "S&P 600" are trademarks of The McGraw-Hill Companies, Inc. 41 [GRAPHIC] Where to find more information You'll find more information about Nations Funds Index Funds in the following documents: Annual and semi-annual reports The annual and semi-annual reports contain information about Fund investments and performance, the financial statements and the independent accountants' reports. The annual report also includes a discussion about the market conditions and investment strategies that had a significant effect on each Fund's performance during the period covered. [GRAPHIC] Statement of Additional Information The SAI contains additional information about the Funds and their policies. The SAI is legally part of this prospectus (it's incorporated by reference). A copy has been filed with the SEC. You can obtain a free copy of these documents, request other information about the Funds and make shareholder inquiries by contacting Nations Funds: By telephone: 1.800.321.7854 By mail: Nations Funds c/o Stephens Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 On the Internet: www.nations-funds.com Information about the Funds can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-942-8090. The reports and other information about the Funds are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. SEC file numbers: Nations Fund Trust, 811-04305 Nations Funds Trust, 811-09645 INDEXPROIA-8/01 [NATIONS FUNDS LOGO] Statement of Additional Information
NATIONS FUND, INC. NATIONS FUND TRUST Nations Prime Fund Nations Government Money Market Fund Nations Treasury Fund Nations Tax Exempt Fund Nations Equity Income Fund Nations Value Fund Nations Small Company Fund Nations Capital Growth Fund Nations MidCap Growth Fund NATIONS RESERVES Nations LargeCap Index Fund Nations Cash Reserves Nations Managed Index Fund Nations Money Market Reserves Nations SmallCap Index Fund Nations Treasury Reserves Nations Aggressive Growth Fund Nations Government Reserves Nations Strategic Growth Fund Nations Municipal Reserves Nations Short-Intermediate Government Fund Nations California Tax-Exempt Reserves Nations Short-Term Income Fund Nations Convertible Securities Fund Nations Strategic Income Fund Nations Emerging Markets Fund Nations Bond Fund Nations California Municipal Bond Fund Nations Municipal Income Fund Nations Intermediate Bond Fund Nations Short-Term Municipal Income Fund Nations International Equity Fund Nations Intermediate Municipal Bond Fund Nations International Value Fund Nations Florida Intermediate Municipal Bond Fund Nations Blue Chip Fund Nations Florida Municipal Bond Fund Nations Georgia Intermediate Municipal Bond Fund NATIONS FUNDS TRUST Nations Georgia Municipal Bond Fund Nations Focused Equities Fund Nations Maryland Intermediate Municipal Bond Fund Nations Marsico Growth & Income Fund Nations Maryland Municipal Bond Fund Nations Asset Allocation Fund Nations North Carolina Intermediate Municipal Bond Fund Nations Government Securities Fund Nations North Carolina Municipal Bond Fund Nations High Yield Bond Fund Nations South Carolina Intermediate Municipal Bond Fund Nations Kansas Municipal Income Fund Nations South Carolina Municipal Bond Fund Nations MidCap Index Fund Nations Tennessee Intermediate Municipal Bond Fund Nations Marsico 21st Century Fund Nations Tennessee Municipal Bond Fund Nations Marsico International Opportunities Fund Nations Texas Intermediate Municipal Bond Fund Nations Global Value Fund Nations Texas Municipal Bond Fund Nations Classic Value Fund Nations Virginia Intermediate Municipal Bond Fund Nations LifeGoal Balanced Growth Portfolio Nations Virginia Municipal Bond Fund Nations LifeGoal Growth Portfolio Nations LifeGoal Income and Growth Portfolio Nations Financial Services Fund
Adviser Class Shares, Capital Class Shares, Daily Class Shares, Institutional Class Shares, Investor Class Shares, Liquidity Class Shares, Market Class Shares, Marsico Shares, Service Class Shares, Trust Class Shares, Primary A Shares, Primary B Shares, Investor A Shares, Investor B Shares and Investor C Shares August 1, 2001 This SAI provides information relating to the classes of shares representing interests in the Funds listed above. This information supplements the information contained in the prospectuses for the Funds and is intended to be read in conjunction with the prospectuses. The SAI is not a prospectus for the Funds. See "About the SAI" for information on what the SAI is and how it should be used. Copies of any of the prospectuses may be obtained without charge by writing Nations Funds c/o Stephens Inc., One Bank of America Plaza, 33rd Floor, Charlotte, North Carolina 28255, or by calling Nations Funds at 1-800-321-7854 or 1-800-626-2275 (for institutional money market investors). The Funds' annual reports to shareholders, including the audited financial statements for the Funds, dated March 31, 2001, are hereby incorporated into this SAI by reference. For ease of use, certain terms or names that are used in this SAI have been shortened or abbreviated. A list of these terms and their corresponding full names or definitions can be found at the end of this SAI in Appendix B. An investor may find it helpful to review the terms and names in Appendix B before reading the SAI. TABLE OF CONTENTS About this SAI.................................................................1 HISTORY OF NFT, NFI, NR and NFST...............................................2 DESCRIPTION OF THE FUNDS AND THE INVESTMENTS AND RISKS OF THEIR FUNDS.........2 General.....................................................................2 Investment Policies and Limitations.........................................2 NR Funds' Fundamental Policies..........................................3 NFT and NFI Funds' Fundamental Policy Restrictions......................7 NFST's Fundamental Policy Restrictions..................................9 NFT, NFI, NR and NFST's Non-Fundamental Policy Restrictions............10 Exemptive Orders.......................................................10 Permissible Fund Investments and Investment Techniques.....................11 Money Market Funds.....................................................11 The Stock Funds........................................................11 The International/Global Stock Funds...................................12 The Index Funds........................................................13 Government & Corporate Bond Funds......................................13 Municipal Bond Funds...................................................14 LifeGoal Portfolios....................................................14 Descriptions of Permissible Investments....................................15 Asset-Backed Securities................................................15 Bank Obligations (Domestic and Foreign)................................15 Borrowings.............................................................16 Common Stock...........................................................16 Convertible Securities.................................................17 Corporate Debt Securities..............................................18 Derivatives............................................................18 Dollar Roll Transactions...............................................19 Foreign Securities.....................................................19 Futures and Options....................................................21 Guaranteed Investment Contracts........................................24 High Yield/Lower-Rated Debt Securities.................................24 Money Market Instruments...............................................26 Mortgage-Backed Securities.............................................26 Municipal Securities...................................................27 Other Investment Companies.............................................29 Pass Through Securities (Participation Interests and Company Receipts).31 Preferred Stock........................................................31 Private Placement Securities and Other Restricted Securities...........32 REITs and Master Limited Partnerships..................................32 Repurchase Agreements..................................................33 Reverse Repurchase Agreements..........................................33 Securities Lending.....................................................34 Short Sales............................................................34 Stripped Securities....................................................35 Swap Contracts.........................................................35 U.S. Government Obligations............................................36 Variable- and Floating-Rate Instruments................................36 Warrants and Rights....................................................36 When-Issued Purchases, Delayed Delivery and Forward Commitments........37 Zero-Coupon, Pay-In-Kind and Step-Coupon Securities....................37 Other Considerations.......................................................38 i Temporary Defensive Purposes...........................................38 Portfolio Turnover.....................................................38 The High Technology Industry...........................................39 The Financial Services Industry........................................39 MANAGEMENT OF THE COMPANIES...................................................39 The Board Members and Principal Officers...................................40 Board Committees...........................................................41 Board Compensation.........................................................42 Nations Funds Retirement Plan..............................................44 Nations Funds Deferred Compensation Plan...................................44 Codes of Ethics............................................................44 CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................45 INVESTMENT ADVISORY AND OTHER SERVICES........................................99 Investment Adviser and Sub-Advisers........................................99 BA Advisors, BACAP and Marsico Capital.................................99 Sub-Advisers Unaffiliated with BA Advisors............................100 Investment Advisory and Sub-Advisory Agreements.......................100 Expense Limitations...................................................101 Advisory Fee Rates....................................................102 Advisory Fees Paid....................................................102 Sub-Advisory Fee Rates................................................107 Sub-Advisory Fees Paid................................................107 Co-Administrators and Sub-Administrator...................................108 Co-Administrators.....................................................108 Sub-Administrator.....................................................109 Co-Administration and Sub-Administration Fees Paid....................110 Other Agreements..........................................................112 12b-1 Plans...............................................................113 Expenses..................................................................121 Other Service Providers...................................................122 Transfer Agents and Custodians........................................122 Independent Accountants...............................................122 Counsel...............................................................122 BROKERAGE ALLOCATION AND OTHER PRACTICES.....................................123 General Brokerage Policy, Brokerage Transactions and Broker Selection.....123 Aggregate Brokerage Commissions.......................................125 Brokerage Commissions Paid to Affiliates..................................126 Directed Brokerage........................................................127 Securities of Regular Broker/Dealers......................................129 Monies Paid to Broker/Dealers from the Adviser's or Distributor's Profit..130 CAPITAL STOCK................................................................130 Description of Shares of the Companies....................................130 NR's Funds................................................................132 NFT's Funds...............................................................133 NFI's Funds...............................................................134 NFST's Funds..............................................................135 PURCHASE, REDEMPTION AND PRICING OF SHARES...................................136 Purchase, Redemption and Exchange.........................................136 Offering Price............................................................137 INFORMATION CONCERNING TAXES.................................................138 General...................................................................138 Equalization Accounting...................................................139 Excise Tax................................................................139 Investment through Master Portfolios......................................139 Taxation of Fund Investments..............................................139 ii Foreign Taxes.............................................................141 Distributions, Generally..................................................141 Capital Gain Distributions................................................141 Disposition of Fund Shares................................................141 Federal Income Tax Rates..................................................142 Corporate Shareholders....................................................142 Foreign Shareholders......................................................142 Backup Withholding........................................................142 Tax-Deferred Plans........................................................143 Special Tax Considerations Pertaining to all the Tax-Exempt Funds.........143 Special Tax Considerations Pertaining to the California Funds.............143 Special Tax Considerations Pertaining to the Florida Funds................144 Special Tax Considerations Pertaining to the Georgia Funds................144 Special Tax Considerations Pertaining to the Kansas Bond Fund.............145 Special Tax Considerations Pertaining to the Maryland Funds...............145 Special Tax Considerations Pertaining to the North Carolina Funds.........145 Special Tax Considerations Pertaining to the South Carolina Funds.........145 Special Tax Considerations Pertaining to the Tennessee Funds..............146 Special Tax Considerations Pertaining to the Virginia Funds...............146 Other Matters.............................................................146 UNDERWRITER COMPENSATION AND PAYMENTS........................................146 FUND PERFORMANCE.............................................................147 Advertising Fund Performance..............................................147 Yield Calculations........................................................149 Money Market Funds....................................................149 Non-Money Market Funds................................................151 Total Return Calculations.................................................154 APPENDIX A.....................................................................1 APPENDIX B.....................................................................1 APPENDIX C.....................................................................1 iii ABOUT THIS SAI What is the SAI? The SAI, or statement of additional information, is a section of the registration statement filed with the SEC relating to the Funds. It contains information about the Funds that the SEC has concluded is not required to be in the Funds' prospectuses, but that investors may nevertheless find useful. The information generally supplements the discussion of matters set forth in the prospectuses. Specifically, the SAI, among other things, provides information about the corporations or trusts that "house" the Funds (such as NFT, NR, NFI and NFST); the investment policies and permissible investments of the Funds; the management of the Funds, including the Boards, the investment adviser and sub-advisers; other service providers to the Funds; certain brokerage policies of the Funds; and performance information about the Funds. How should I use the SAI? The SAI is intended to be read in conjunction with the Funds' prospectuses. The SAI is not a prospectus and is not a substitute for reading any prospectus. A copy of any Fund prospectus may be obtained by calling Nations Funds at (800) 321-7854 or by visiting the Funds online at www.nations-funds.com. What governs the type of information that is put in the SAI? The information required to be included in the SAI is governed by a form (called Form N-1A) that all mutual funds must use to register their shares with the SEC and disclose information to investors. Form N-1A generally provides that every mutual fund provide in its SAI (in addition to the information required to be in its prospectus) certain information, such as the investment policies and limitations of a fund, the fees that an investment adviser or sub-adviser receives for providing services to the fund and the fees directors or trustees receive from a fund. The SEC generally believes that if all mutual funds are generally required to disclose the same type of information, investors can more easily compare funds and make informed decisions about their investments. Is the SAI available on the Internet? Yes. The SAI is part of the registration statement for the Funds that is filed with the SEC electronically. The registration includes the prospectus, the SAI and other exhibits, such as various agreements and contracts. The SAI, and any supplements to it, can be found by searching the SEC's website at http://www.sec.gov/edgar/searchedgar/formpick.htm. Who may I contact for more information? If you have any questions about the Funds, please call Nations Funds at (800) 321-7854 or contact your investment professional. 1 HISTORY OF NFT, NFI, NR and NFST NFT, NFI, NR and NFST are each registered investment companies in the Nations Funds Family. The Nations Funds Family currently has more than 80 distinct investment portfolios and total assets in excess of $120 billion. NFT was organized as a Massachusetts business trust on May 6, 1985. NFI was organized as a Maryland corporation on December 13, 1983. NR (also known as The Capitol Mutual Funds) was organized as a Massachusetts business trust on January 22, 1990. NFST was organized as a Delaware business trust on October 22, 1999. All Funds of NFT, NFI, NR and NFST have fiscal year ends of March 31st. DESCRIPTION OF THE FUNDS AND THE INVESTMENTS AND RISKS OF THEIR FUNDS General NFT currently consists of thirty-three different Funds, all of which are open-end, management investment companies and are diversified, with the exception of the State Bond Funds, which are non-diversified. NFI currently consists of four different Funds, all of which are open-end, management investment companies and are diversified. NR currently consists of thirteen different Funds, all of which are open-end, management investment companies and are diversified, with the exception of the Marsico Focused Equities Fund, California Reserves and the California Bond Fund, which are non-diversified. NFST currently consists of sixteen different Funds, all of which are open-end, management investment companies and are diversified, with the exception of the Kansas Bond Fund and Marsico Focused Equities Fund, which are non-diversified. See "Capital Stock" for a listing and description of the classes of shares that each Fund offers. Certain Funds seek to achieve their respective investment objectives by investing substantially all of their assets in other mutual funds with the same investment objective, principal investment strategies and investment risks. These Funds are called "Feeder Funds" and the mutual funds in which the Feeder Funds invest are called "Master Portfolios." The Feeder Funds include: the Intermediate Bond Fund, Blue Chip Fund, International Equity Fund, International Value Fund, Marsico Focused Equities Fund, Marsico Growth & Income Fund, Marsico 21st Century Fund, Marsico International Opportunities Fund and High Yield Bond Fund. For more information about the Feeder Funds and the Master Portfolios see "Descriptions of Permissible Investments--Other Investment Companies." Some of the Funds seek to achieve their respective investment objectives by investing substantially all of their assets in a mix of the Stock Funds, International/Global Stock Funds, Government & Corporate Bond Funds and Money Market Funds in the Nations Funds Family. These Funds are called "LifeGoal Portfolios." For more information about the LifeGoal Portfolios see "Permissible Fund Investments and Investment Techniques." Investment Policies and Limitations The investment objectives, principal investment strategies and the principal investment risks associated with these strategies for each Fund, are discussed in the Fund's prospectus. The following discussion of "fundamental" and "non-fundamental" investment policies and limitations for the Funds supplement the discussion in the prospectuses for the Funds. A fundamental policy may only be changed with shareholder approval. A non-fundamental policy may be changed by a Board, without shareholder approval. Unless otherwise noted, whenever an investment policy or limitation states a maximum percentage of a Fund's assets that may be invested in any security or other asset, or sets forth a policy regarding a qualitative 2 investment standard, compliance with such percentage limitation or standard will be determined solely at the time of the Fund's acquisition of such security or asset. NR Funds' Fundamental Policies Cash Reserves, Treasury Reserves, Government Reserves and Municipal Reserves may not: 1. Acquire more than 10% of the voting securities of any one issuer. 2. Invest in companies for the purpose of exercising control. 3. Borrow money except for temporary or emergency purposes and then only in an amount not exceeding one-third of the value of total assets. Any borrowing will be done from a bank and to the extent that such borrowing exceeds 5% of the value of the Fund's assets, asset coverage of at least 300% is required. In the event that such asset coverage shall at any time fall below 300%, the Fund shall, within three days thereafter or such longer period as the SEC may prescribe by rules and regulations, reduce the amount of its borrowings to such an extent that the asset coverage of such borrowings shall be at least 300%. This borrowing provision is included solely to facilitate the orderly sale of portfolio securities to accommodate heavy redemption requests if they should occur and is not for investment purposes. All borrowings will be repaid before making additional investments and any interest paid on such borrowings will reduce income. 4. Make loans, except that (a) a Fund may purchase or hold debt instruments in accordance with its investment objective and policies; (b) may enter into repurchase agreement and non-negotiable time deposits, provided that repurchase agreements and non-negotiable time deposits maturing in more than seven days, illiquid restricted securities and other securities which are not readily marketable are not to exceed, in the aggregate, 10% of the Fund's total assets and (c) the Funds (except Municipal Reserves) may engage in securities lending as described in each prospectus and in this SAI. 5. Pledge, mortgage or hypothecate assets except to secure temporary borrowings permitted by (3) above in aggregate amounts not to exceed 10% of total assets taken at current value at the time of the incurrence of such loan, except as permitted with respect to securities lending. 6. Purchase or sell real estate, real estate limited partnership interests, commodities or commodities contracts. 7. Make short sales of securities, maintain a short position or purchase securities on margin, except that the Trust may obtain short-term credits as necessary for the clearance of security transactions. 8. Act as an underwriter of securities of other issuers except as it may be deemed an underwriter in selling a Fund security. 9. Purchase securities of other investment companies except as permitted by the 1940 Act and the rules and regulations thereunder and may only purchase securities of other money market funds. Under these rules and regulations, the Funds are prohibited from acquiring the securities of other investment companies if, as a result of such acquisition, the Funds own more than 3% of the total voting stock of the company; securities issued by any one investment company represent more than 5% of the Fund's total assets; or securities (other than treasury stock) issued by all investment companies represent more than 10% of the total assets of the Fund. These investment companies typically incur fees that are separate from those fees incurred directly by the Fund. A Fund's purchase of such investment company securities results in the layering of expenses, such that Shareholders would indirectly bear a proportionate share of the operating expenses of such investment companies, including advisory fees. It is the position of the SEC's staff that certain nongovernmental issues of CMOs and REMICS constitute investment companies pursuant to the 1940 Act and either (a) investments in such instruments are subject to the limitations set forth above or (b) the issuers of such instruments have received orders from the SEC exempting such instruments from the definition of investment company. 10. Issue senior securities (as defined in the 1940 Act) except in connection with permitted borrowings as described above or as permitted by rule, regulation or order of the SEC. 11. Purchase or retain securities of an issuer if, to the knowledge of the NR, an officer, trustee, or partner of NR or adviser of NR owns beneficially more than 1/2 of 1% of the shares or securities of such issuer and all 3 such officers, trustees and partners owning more than 1/2 of 1% of such shares or securities together own more than 5% of such shares or securities. 12. Invest in interest in oil, gas or other mineral exploration or development programs and oil, gas or mineral leases. 13. Write or purchase puts, calls or combinations thereof. 14. Invest in warrants valued at lower of cost or market exceeding 5% of the Fund's net assets. Included in that amount but not to exceed 2% of the Fund's net assets, may be warrants not listed on the NYSE or AMEX. Money Market Reserves may not: 1. Purchase or sell real estate, except that the Fund may purchase securities of issuers which deal in real estate and may purchase securities which are secured by interests in real estate. 2. Acquire any other investment company or investment company security except in connection with a merger, consolidation, reorganization or acquisition of assets or where otherwise permitted by the 1940 Act. 3. Act as an underwriter of securities within the meaning of the 1933 Act except to the extent that the purchase of obligations directly from the issuer thereof in accordance with the Fund's investment objective, policies and limitations may be deemed to be underwriting. 4. Write or sell put options, call options, straddles, spreads, or any combination thereof, except for transactions in options on securities, securities indices, futures contracts and options on futures contracts. 5. Purchase securities on margin, make short sales of securities or maintain a short position, except that (a) this investment limitation shall not apply to the Fund's transactions in futures contracts and related options, and (b) the Fund may obtain short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities. 6. Purchase or sell commodity contracts, or invest in oil, gas or mineral exploration or development programs, except that the Fund may, to the extent appropriate to its investment objective, purchase publicly traded securities of companies engaging in whole or in part in such activities and may enter into futures contracts and related options. 7. Make loans, except that the Fund may purchase and hold debt instruments and enter into repurchase agreements in accordance with its investment objective and policies and may lend portfolio securities. 8. Purchase securities of companies for the purpose of exercising control. 9. Purchase securities of any one issuer (other than securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities or certificates of deposit for any such securities) if, immediately after such purchase, more than 15% of its total assets would be invested in certificates of deposit or bankers' acceptances of any one bank, or more than 5% of the value of the Fund's total assets would be invested in other securities of any one bank or in the securities of any other issuer, or more than 10% of the issuer's outstanding voting securities would be owned by the Fund; except that up to 25% of the value of the Fund's total assets may be invested without regard to the foregoing limitations. For purposes of this limitation, a security is considered to be issued by the entity (or entities) whose assets and revenues back the security. A guarantee of a security shall not be deemed to be a security issued by the guarantor when the value of all securities issued and guaranteed by the guarantor, and owned by the Fund, does not exceed 10% of the value of the Fund's total assets. In accordance with the current regulations of the SEC, the Fund intends to limit its investments in bankers' acceptances, certificates of deposit and other securities of any one bank to not more than 5% of the Fund's total assets at the time of purchase (rather than the 15% limitation set forth above), provided that the Fund may invest up to 25% of its total assets in the securities of any one issuer for a period of up to three business days. This practice, which is not a fundamental policy of the Fund, could be changed only in the event that such regulations of the SEC are amended in the future. 10. Purchase any securities which would cause 25% or more of the value of the Fund's total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that (a) there is no limitation with respect to: (i) instruments issued or 4 guaranteed by the United States, any state, territory or possession of the United States, the District of Columbia or any of their authorities, agencies, instrumentalities or political subdivisions, (ii) instruments issued by domestic branches of U.S. banks; and (iii) repurchase agreements secured by the instruments described in clauses (i) and (ii); (b) wholly-owned finance companies will be considered to be in the industries of their parents if their activities are primarily related to financing the activities of the parents; and (c) utilities will be divided according to their services; for example, gas, gas transmission, electric and gas, electric and telephone will each be considered a separate industry. In construing Investment Limitation 10 in accordance with SEC policy, to the extent permitted, U.S. branches of foreign banks will be considered to be U.S. banks where they are subject to the same regulation as U.S. banks. 11. Borrow money or issue senior securities, except that the Fund may borrow from banks and enter into reverse repurchase agreements for temporary purposes in amounts up to one-third of the value of the total assets at the time of such borrowing or mortgage, pledge or hypothecate any assets, except in connection with any such borrowing and then in amounts not in excess of one-third of the value of the Fund's total assets at the time of such borrowing. The Fund will not purchase securities while its borrowings (including reverse repurchase agreements) in excess of 5% of its total assets are outstanding. Securities held in escrow or separate accounts in connection with the Fund's investment practices described in this SAI or in the prospectuses are not deemed to be pledged for purposes of this limitation. Although the foregoing investment limitations would permit Money Market Reserves to invest in options, futures contracts and options on futures contracts, the Fund does not currently intend to trade in such instruments during the next 12 months. Prior to making any such investments, the Fund would notify its shareholders and add appropriate descriptions concerning the instruments to the prospectuses and this SAI. California Reserves may not: 1. Borrow money, issue senior securities or mortgage, pledge or hypothecate its assets except to the extent permitted under the 1940 Act. 2. Underwrite any issue of securities within the meaning of the 1933 Act, except when it might be technically deemed to be an underwriter either (a) in connection with the disposition of a portfolio security, or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. 3. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions, and (b) not withstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more diversified management investment companies to the extent permitted by the 1940 Act. Notwithstanding the above limitation, there is no limitation with respect to investments by any of the Funds in repurchase agreements, domestic bank obligations and certain bank obligations considered to be issued by domestic banks purchase to regulations or pronouncements of the Securities and Exchange Commission or its staff. 4. Purchase or sell real estate, except a Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate. 5. Purchase or sell commodities, except that a Fund may, to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, future contracts and options on future contracts. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts. 6. Make loans, except to the extent permitted by the 1940 Act. Convertible Securities Fund, California Bond Fund, Intermediate Bond Fund and Blue Chip Fund may not: 1. Underwrite any issue of securities within the meaning of the 1933 Act except when it might technically be deemed to be an underwriter either (a) in connection with the disposition of a portfolio security, or (b) in 5 connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. 2. Purchase or sell real estate, except a Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate. 3. Purchase or sell commodities, except that a Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts. 4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions, and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more diversified management investment companies to the extent permitted by the 1940 Act and the rules and regulations thereunder. 5. Make loans, except to the extent permitted by the 1940 Act. 6. Borrow money, issue senior securities or mortgage, pledge or hypothecate its assets except to the extent permitted under the 1940 Act. 7. Except for the California Bond Fund, purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that (a) up to 25% of its total assets may be invested without regard to these limitations and (b) a Fund's assets may be invested in the securities of one or more diversified management investment companies to the extent permitted by the 1940 Act. Each of the International Equity Fund, International Value Fund and Emerging Markets Fund may not: 1. Underwrite any issue of securities within the meaning of the 1933 Act except when it might technically be deemed to be an underwriter either (a) in connection with the disposition of a portfolio security, or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Fund's ability to invest in securities issued by other registered investment companies. 2. Purchase or sell real estate, except a Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate. 3. Purchase or sell commodities, except that a Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts. 4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions, and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Funds. 5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Funds. 6 6. Borrow money, issue senior securities or mortgage, pledge or hypothecate its assets except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Funds. 7. Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that (a) up to 25% of its total assets may be invested without regard to these limitations and (b) a Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act. NFT and NFI Funds' Fundamental Policy Restrictions Prime Fund, Treasury Fund, Equity Income Fund, Strategic Growth Fund, Government Money Market Fund, Tax Exempt Fund, Managed Index Fund, SmallCap Index Fund, Value Fund, Capital Growth Fund, MidCap Growth Fund, LargeCap Index Fund, Aggressive Growth Fund, Short-Intermediate Government Fund, Short-Term Income Fund, Strategic Income Fund, Bond Fund, Municipal Income Fund, Short-Term Municipal Income Fund, Intermediate Municipal Bond Fund, the State Bond Funds and the State Intermediate Bond Funds may not: 1. Purchase any securities which would cause 25% or more of the value of the Fund's total assets at the time of such purchase to be invested in the securities of one or more issuers conducting their principal activities in the same industry, provided that this limitation does not apply to investments in U.S. Government Obligations. In addition, this limitation does not apply to investments by "money market funds" as that term is used under the 1940 Act, in obligations of domestic banks. 2. Make loans, except that a Fund may purchase and hold debt instruments (whether such instruments are part of a public offering or privately placed), may enter into repurchase agreements and may lend portfolio securities in accordance with its investment policies. 3. Except with respect to the State Bond Funds and State Intermediate Bond Funds, purchase securities of any one issuer (other than U.S. Government Obligations) if, immediately after such purchase, more than 5% of the value of such Fund's total assets would be invested in the securities of such issuer, except that up to 25% of the value of the Fund's total assets may be invested without regard to these limitations and with respect to 75% of such Fund's assets, such Fund will not hold more than 10% of the voting securities of any issuer. 4. Borrow money or issue senior securities as defined in the 1940 Act except that (a) a Fund may borrow money from banks for temporary purposes in amounts up to one-third of the value of such Fund's total assets at the time of borrowing, provided that borrowings in excess of 5% of the value of such Fund's total assets will be repaid prior to the purchase of additional portfolio securities by such Fund, (b) a Fund may enter into commitments to purchase securities in accordance with the Fund's investment program, including delayed delivery and when-issued securities, which commitments may be considered the issuance of senior securities, and (c) a Fund may issue multiple classes of shares in accordance with SEC regulations or exemptions under the 1940 Act. The purchase or sale of futures contracts and related options shall not be considered to involve the borrowing of money or issuance of senior securities. Each Fund may enter into reverse repurchase agreements or dollar roll transactions. The purchase or sale of futures contracts and related options shall not be considered to involve the borrowing of money or issuance of senior securities. 5. Purchase any securities on margin (except for such short-term credits as are necessary for the clearance of purchases and sales of portfolio securities) or sell any securities short (except against the box.) For purposes of this restriction, the deposit or payment by the Fund of initial or maintenance margin connection with futures contracts and related options and options on securities is not considered to be the purchase of a security on margin. 6. Underwrite securities issued by any other person, except to the extent that the purchase of securities and the later disposition of such securities in accordance with the Fund's investment program may be deemed an underwriting. This restriction shall not limit a Fund's ability to invest in securities issued by other registered investment companies. 7 7. Invest in real estate or real estate limited partnership interests. (A Fund may, however, purchase and sell securities secured by real estate or interests therein or issued by issuers which invest in real estate or interests therein.) This restriction does not apply to real estate limited partnerships listed on a national stock exchange (e.g., the NYSE). 8. Purchase or sell commodity contracts except that each Fund may, to the extent appropriate under its investment policies, purchase publicly traded securities of companies engaging in whole or in part in such activities, may enter into futures contracts and related options, may engage in transactions on a when-issued or forward commitment basis, and may enter into forward currency contracts in accordance with its investment policies. Small Company Fund may not: 1. Purchase any securities which would cause 25% or more of the value of the Fund's total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to (i) instruments issued or guaranteed by the United States, any state, territory or possession of the United States, the District of Columbia or any of their authorities, agencies, instrumentalities or political subdivisions and (ii) repurchase agreements secured by the instruments described in clause (i); (b) wholly-owned finance companies will be considered to be in the industries of their parents if their activities are primarily related to financing the activities of the parents; and (c) utilities will be divided according to their services, for example, gas, gas transmission, electric and gas, electric and telephone will each be considered a separate industry or (iii) with respect to the Small Company Fund, instruments issued by domestic branches of U.S. Banks. Purchase or sell real estate, except that the Fund may purchase securities of issuers which deal in real estate and may purchase securities which are secured by interest in real estate. 2. Make loans, except that a Fund may purchase and hold debt instruments (whether such instruments are part of a public offering or privately placed), may enter into repurchase agreements and may lend portfolio securities in accordance with its investment policies. 3. Purchase securities of any one issuer (other than securities issued or guaranteed by the U.S. Government, its agencies or instrumentalists or certificates of deposit for any such securities) if, immediately after such purchase, more than 5% of the value of the Fund's total assets would be invested in the securities of such issuer, or more than 10% of the issuer's outstanding voting securities would be owned by the Fund or the Company; except that up to 25% of the value of a Fund's total assets may be invested without regard to the foregoing limitations. For purposes of this limitation, (a) a security is considered to be issued by the entity (or entities) whose assets and revenues back the security and (b) a guarantee of a security shall not be deemed to be a security issued by the guarantor when the value of securities issued and guaranteed by the guarantor, and owned by the Fund, does not exceed 10% of the value of the Fund's total assets. Each Fund will maintain asset coverage of 300% or maintain a segregated account with its custodian bank in which it will maintain cash, U.S. Government Securities or other liquid high grade debt obligations equal in value to its borrowing. 4. Borrow money except as a temporary measure for extraordinary or emergency purposes or except in connection with reverse repurchase agreements and mortgage rolls; provided that the respective Fund will maintain asset coverage of 300% for all borrowings. 5. Purchase any securities on margin (except for such short-term credits as are necessary for the clearance of purchases and sales of portfolio securities) or sell any securities short (except against the box.) For purposes of this restriction, the deposit or payment by the Fund of initial or maintenance margin connection with futures contracts and related options and options on securities is not considered to be the purchase of a security on margin. 6. Underwrite securities issued by any other person, except to the extent that the purchase of securities and the later disposition of such securities in accordance with the Fund's investment program may be deemed an underwriting. This restriction shall not limit a Fund's ability to invest in securities issued by other registered investment companies. 8 7. Invest in real estate or real estate limited partnership interests. (A Fund may, however, purchase and sell securities secured by real estate or interests therein or issued by issuers which invest in real estate or interests therein.) This restriction does not apply to real estate limited partnerships listed on a national stock exchange (e.g., the NYSE). 8. Purchase or sell commodity contracts except that each Fund may, to the extent appropriate under its investment policies, purchase publicly traded securities of companies engaging in whole or in part in such activities, may enter into futures contracts and related options, may engage in transactions on a when-issued or forward commitment basis, and may enter into forward currency contracts in accordance with its investment policies. NFST's Fundamental Policy Restrictions Each Fund may not: 1. Underwrite any issue of securities within the meaning of the 1933 Act except when it might technically be deemed to be an underwriter either (a) in connection with the disposition of a portfolio security, or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Fund's ability to invest in securities issued by other registered investment companies. 2. Purchase or sell real estate, except a Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate. 3. Purchase or sell commodities, except that a Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts. 4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions, and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Funds. 5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Funds. 6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Funds. 7. Except for the Kansas Fund and Marsico Focused Equities Fund, purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that (a) up to 25% of its total assets may be invested without regard to these limitations and (b) a Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any exemptive relief obtained by the Funds. 9 NFT, NFI, NR and NFST's Non-Fundamental Policy Restrictions 1. Each Fund may invest in shares of other open-end management investment companies, subject to the limitations of the 1940 Act, the rules thereunder, and any orders obtained thereunder now or in the future. Funds in a master/feeder structure generally invest in the securities of one or more open-end management investment companies pursuant to various provisions of the 1940 Act. 2. Each Fund may not invest or hold more than 15% (10% in the case of a Money Market Fund) of the Fund's net assets in illiquid securities. For this purpose, illiquid securities include, among others, (a) securities that are illiquid by virtue of the absence of a readily available market or legal or contractual restrictions on resale, (b) fixed time deposits that are subject to withdrawal penalties and that have maturities of more than seven days, and (c) repurchase agreements not terminable within seven days. 3. Each Fund may invest in futures or options contracts regulated by the CFTC for (i) bona fide hedging purposes within the meaning of the rules of the CFTC and (ii) for other purposes if, as a result, no more than 5% of a Fund's net assets would be invested in initial margin and premiums (excluding amounts "in-the-money") required to establish the contracts. A Fund (i) will not hedge more than 50% of its total assets by selling futures contracts, buying put options, and writing call options (so called "short positions"), (ii) will not buy futures contracts or write put options whose underlying value exceeds 25% of the Fund's total assets, and (iii) will not buy call options with a value exceeding 5% of the Fund's total assets. 4. Each Fund may lend securities from its portfolio to brokers, dealers and financial institutions, in amounts not to exceed (in the aggregate) one-third of the Fund's total assets. Any such loans of portfolio securities will be fully collateralized based on values that are marked to market daily. 5. Each Fund may not make investments for the purpose of exercising control of management. (Investments by the Fund in entities created under the laws of foreign countries solely to facilitate investment in securities in that country will not be deemed the making of investments for the purpose of exercising control.) 6. Each Fund may not sell securities short, unless it owns or has the right to obtain securities equivalent in kind and amount to the securities sold short (short sales "against the box") or the Funds segregate assets in the amount at least equal to the underlying security or asset. 7. The State Bond Funds, Financial Services Fund and Marsico Focused Equities Fund may not purchase securities of any one issuer (other than U.S. Government Obligations) if, immediately after such purchase, more than 25% of the value of a Fund's total assets would be invested in the securities of one issuer, and with respect to 50% of such Fund's total assets, more than 5% of its assets would be invested in the securities of one issuer. Exemptive Orders In addition to the policies outlined above, the Nations Funds Family has received the following exemptive orders from the SEC which enable the Funds to participate in certain transactions beyond the investment limitations described above or otherwise applicable restrictions: 1. Pursuant to an exemptive order dated October 5, 1993, all current and future Funds advised by BA Advisors may, subject to certain conditions, pool their uninvested cash balances in one or more joint accounts and use the daily balance of such accounts to enter into repurchase agreements, including that such agreements have a maturity of not more than seven days. 2. Pursuant to an exemptive order dated July 23, 1997, the Funds may, subject to certain conditions, use cash reserves that have not been invested in portfolio securities to purchase shares of Money Market Funds in the Nations Funds Family in excess of the limits prescribed in Section 12(d)(1) of the 1940 Act. 3. Pursuant to an exemptive order dated December 27, 2000, the Funds may, subject to certain conditions, invest in shares of other affiliated Funds in the Nations Funds Family, in excess of the limits prescribed in Section 12(d)(1) of the 1940 Act, in addition to investing directly in portfolio securities. 10 Permissible Fund Investments and Investment Techniques A Fund's prospectus identifies and summarizes the types of securities in which a Fund invests as part of its principal investment strategies and the risks associated with such investments. The following provides further information and greater detail about these investments and their key associated risks. Subject to its fundamental and non-fundamental investment policies: >> Each Fund may borrow money, lend its securities (except for the Money Market Funds, which do not lend their securities) and invest in securities issued by other registered investment companies. See "Descriptions of Permissible Investments--Borrowings," "Descriptions of Permissible Investments--Securities Lending" and "Descriptions of Permissible Investments--Other Investment Companies." >> Each Fund permitted to use derivatives may do so for hedging purposes or for non-hedging purposes, such as seeking to enhance return. Each Government & Corporate Bond Fund (except the High Yield Bond Fund) and the fixed-income portion of the Asset Allocation Fund may utilize derivatives without limit (subject to certain limits imposed by the 1940 Act), provided that the use of derivatives will not alter the fundamental characteristics of the Fund, and the Fund will segregate assets (or as provided by applicable regulations, enter into certain offsetting positions) to cover its obligations. See "Descriptions of Permissible Investments--Derivatives." >> Each Fund may hold cash or money market instruments, which include bank obligations, guaranteed investment contracts, repurchase agreements, U.S. Government obligations and certain corporate debt securities, such as commercial paper. A Fund may invest in these securities without limit, when the Adviser: (i) believes that the market conditions are not favorable for more aggressive investing, (ii) is unable to locate favorable investment opportunities, or (iii) determines that a temporary defensive positions is advisable or necessary in order to meet anticipated redemption requests or for other reasons. Accordingly, each Fund will not always stay fully invested in equity securities or longer-term debt securities. See "Descriptions of Permissible Investments--Money Market Instruments." Money Market Funds Prime Fund, Treasury Fund, Tax Exempt Fund, Government Money Market Fund, Government Reserves, California Tax-Exempt Reserves, Cash Reserves, Treasury Reserves, Municipal Reserves and Money Market Reserves: In addition to the types of securities described in the prospectus for each of these Funds, and consistent with its investment policies, objective and strategies, each Fund may invest in the following type of security only in amounts of less than 10% of its total assets: reverse repurchase agreements. The Stock Funds Convertible Securities Fund, Asset Allocation Fund, Equity Income Fund, Classic Value Fund, Value Fund, Blue Chip Fund, Strategic Growth Fund, Capital Growth Fund, Aggressive Growth Fund, MidCap Growth Fund, Small Company Fund and Financial Services Fund: In addition to the types of securities described in the prospectus for each of these Funds, and consistent with its investment policies, objective and strategies, each Stock Fund (or the Master Portfolio in which a Feeder Fund invests its assets) may invest in the following types of securities only in amounts of less than 10% of its total assets: asset-backed securities, common stock, convertible securities; corporate debt securities (except for Convertible Securities and Equity Income Funds); derivatives, including futures, options, index- equity- commodity and currency-linked securities, stripped securities, warrants and swap contracts; dollar roll transactions; foreign securities, high yield/lower-rated debt securities; mortgage-backed securities; pass-through securities; preferred stock, private placement and other illiquid securities; REITs and master limited partnerships; reverse repurchase agreements; variable- and floating-rate instruments; when-issued purchases, delayed delivery and forward commitments; and zero-coupon, pay-in kind and step-coupon securities; provided however, that if any such security type is listed in a Fund's prospectus as part of a principal investment strategy, this 10% limitation shall not apply. Small Company Fund, Equity Income Fund, Value Fund, Capital Growth Fund, Strategic Growth Fund, MidCap Growth Fund, Aggressive Growth Fund and Convertible Securities Fund may each invest up to 20% of their assets in foreign securities, notwithstanding the general 10% limits discussed above. While these Funds reserve the right to so invest, investing in foreign securities is not considered a principal investment strategy of these Funds. 11 Marsico Growth & Income Fund, Marsico Focused Equities Fund and Marsico 21st Century Fund: In addition to the types of securities described in the prospectus for each of these Funds, and consistent with its investment policies, objective and strategies, each of these Funds (through the Master Portfolio in which a Feeder Fund invests its assets) may invest in the following types of securities only in amounts of less than 10% of its total assets: convertible securities; corporate debt securities; derivatives, including futures, options, index- equity- commodity and currency-linked securities, stripped securities, warrants and swap contracts; high yield/lower-rated debt securities; preferred stock; zero-coupon, pay-in-kind and step-coupon securities; provided however, that if any such security type is listed in a Fund's prospectus as part of a principal investment strategy, this 10% limitation shall not apply. Each Fund may invest up to 100% of its assets in index- equity- commodity and currency-linked securities, notwithstanding the 10% limits discussed above. While each Fund reserves the right to so invest, investing in these securities is not a principal investment strategy of the Funds. The International/Global Stock Funds Global Value Fund: In addition to the types of securities described in its prospectus, and consistent with its investment policies, objective and strategies, this Fund may invest in the following types of securities in amounts of less than 10% of its total assets: convertible securities; corporate debt securities; derivatives, including futures, options, index- equity- commodity and currency-linked securities, stripped securities, warrants and swap contracts; dollar roll transactions; high yield/lower-rated debt securities; pass-through securities; private placement and other illiquid securities; REITs and master limited partnerships; reverse repurchase agreements; variable- and floating-rate instruments; when-issued purchases, delayed delivery and forward commitments; and zero-coupon, pay-in kind and step-coupon securities. International Value Fund: In addition to the types of securities described in its prospectus, and consistent with its investment policies, objective and strategies, this Fund (through the Master Portfolio in which it invests all of its assets) may invest in the following types of securities in amounts of less than 10% of its total assets: corporate debt securities; derivatives, including futures and options; foreign securities (other than the types described in the prospectus); private placement and other illiquid securities; and REITs and master limited partnerships. International Equity Fund: In addition to the types of securities described in its prospectus, and consistent with its investment policies, objective and strategies, this Fund (through the Master Portfolio in which it invests all of its assets) may invest in the following types of securities in amounts of less than 10% of its total assets: corporate debt securities; derivatives, including futures, options, index- equity- commodity and currency-linked securities, stripped securities, warrants and swap contracts; foreign securities (other than the types described in the prospectus); preferred stocks; private placement and other illiquid securities; and REITs and master limited partnerships. Emerging Markets Fund: In addition to the types of securities described in its prospectus, and consistent with its investment policies, objective and strategies, this Fund may invest in the following types of securities in amounts of less than 10% of its total assets: corporate debt securities; derivatives, including futures and options; foreign securities (other than the types described in the prospectus); and REITs and master limited partnerships. Marsico International Opportunities Fund: In addition to the types of securities described in its prospectus, and consistent with its investment policies, objective and strategies, this Fund (through the Master Portfolio in which it invests all of its assets) may invest in the following types of securities in amounts of less than 10% of its total assets: convertible securities; corporate debt securities; derivatives, including futures, options, index- equity- commodity and currency-linked securities, stripped securities, warrants and swap contracts; dollar roll transactions; foreign securities (other than the types described in the prospectus); high yield/lower-rated debt securities; securities of other investment companies; pass-through securities; private placement and other illiquid securities; REITs and master limited partnerships; reverse repurchase agreements; variable- and floating-rate instruments; when-issued purchases, delayed delivery and forward commitments; and zero-coupon, pay-in kind and step-coupon securities. The Fund may invest up to 100% of its assets in index- equity- commodity and currency-linked securities, notwithstanding the 10% limits discussed above. While the Fund reserves the right to so invest, investing in these securities is not a principal investment strategy of the Fund. 12 The Index Funds The LargeCap Index Fund, MidCap Index Fund, SmallCap Index Fund and Managed Index Fund: In addition to the types of securities described in the prospectus for each of these Funds, and consistent with its investment policies, objective and strategies, each Fund may invest in the following types of securities only in amounts of less than 10% of its total assets: asset-backed securities, common stock, convertible securities; corporate debt securities; derivatives, including futures, options, index- equity- commodity and currency-linked securities, stripped securities, warrants and swap contracts; dollar roll transactions; foreign securities, high yield/lower-rated debt securities; mortgage-backed securities; pass-through securities; preferred stock, private placement and other illiquid securities; REITs and master limited partnerships; reverse repurchase agreements; variable- and floating-rate instruments; when-issued purchases, delayed delivery and forward commitments; and zero-coupon, pay-in kind and step-coupon securities; provided however, that if any such security type is listed in a Fund's prospectus as part of a principal investment strategy, this 10% limitation shall not apply. In addition, when consistent with the Index Funds' respective investment objectives, various techniques may be employed to manage capital gain distributions. These techniques include utilizing a share identification methodology whereby each lot of shares of Fund securities that a Fund holds will be specifically identified, which will allow the sale first of those specific securities with the highest tax basis in order to reduce the amount of realized capital gains as compared with a sale of identical Fund securities, if any, with a lower tax basis. The Adviser will sell first those shares with the highest tax basis only when it believes that it is in the best interest of a Fund to do so, and reserves the right to sell other securities when appropriate. In addition, the Adviser may, at times, sell a Fund's securities in order to realize capital losses. Subject to limitations, such capital losses could be used to offset realized capital gains thereby reducing capital gain distributions. Additionally, the Adviser may, consistent with the Fund construction process discussed above, employ a low Fund turnover strategy designed to defer the realization of capital gains. The LargeCap Index Fund, MidCap Index Fund and SmallCap Index Fund generally will try to match the composition of the S&P 500, S&P MidCap 400 and S&P SmallCap 600, respectively, as closely as possible. However, a Fund may not always invest in stocks that comprise a relatively small part of an index because it may be correspondingly more difficult and costly to do so. These Funds also may elect not to invest in a stock, or remove a stock from its portfolio, if the stock is not liquid enough, or for other reasons. These Funds also may invest in stocks that are not included in an index, if such stocks have similar characteristics. Like other Funds, the Index Funds incur transaction (brokerage) costs in connection with the purchase and sale of Fund securities. These costs can have a material negative impact on Index Fund performance. The Index Funds will attempt to minimize these transaction costs by utilizing program trades and computerized exchanges called "crossing networks." Government & Corporate Bond Funds Short-Term Income Fund, Short-Intermediate Government Fund, Government Securities Fund, Intermediate Bond Fund, Bond Fund and Strategic Income Fund: In addition to the types of securities described in the prospectus for each of these Funds, and consistent with its investment policies, objective and strategies, each Fund (or Master Portfolio in which a Feeder Fund invests its assets) may invest in the following types of securities only in amounts of less than 10% of its total assets: asset-backed securities, common stock, convertible securities; corporate debt securities; derivatives, including futures, options, index- equity- commodity and currency-linked securities, stripped securities, warrants and swap contracts; dollar roll transactions; foreign securities, high yield/lower-rated debt securities; mortgage-backed securities; pass-through securities; preferred stock, private placement and other illiquid securities; REITs and master limited partnerships; reverse repurchase agreements; engage in short sales; variable- and floating-rate instruments; when-issued purchases, delayed delivery and forward commitments; and zero-coupon, pay-in kind and step-coupon securities; provided however, that if any such security type is listed in a Fund's prospectus as part of a principal investment strategy, this 10% limitation shall not apply. High Yield Bond Fund: In addition to the types of securities described in its prospectus, and consistent with its investment policies, objective and strategies, this Fund (through the Master Portfolio in which it invests all of its assets) may invest in the following types of securities in amounts of less than 10% of its total assets: asset-backed securities, corporate debt securities, foreign securities and pass-through securities. 13 Municipal Bond Funds Short-Term Municipal Income Fund, Intermediate Municipal Income Fund, Municipal Income Fund, California Municipal Bond Fund, Florida Intermediate Municipal Bond Fund, Georgia Intermediate Municipal Bond Fund, Kansas Municipal Income Fund, Maryland Intermediate Municipal Bond Fund, North Carolina Intermediate Municipal Bond Fund, South Carolina Intermediate Municipal Bond Fund, Tennessee Intermediate Municipal Bond Fund, Texas Intermediate Municipal Bond Fund, Virginia Intermediate Municipal Bond Fund, Florida Municipal Bond Fund, Georgia Municipal Bond Fund, Maryland Municipal Bond Fund, North Carolina Municipal Bond Fund, South Carolina Municipal Bond Fund, Tennessee Municipal Bond Fund, Texas Municipal Bond Fund and Virginia Municipal Bond Fund: In addition to the types of securities described in the prospectus for each of these Funds, and consistent with its investment policies, objective and strategies, each Fund may invest in the following types of securities only in amounts of less than 10% of its total assets: asset-backed securities, common stock, convertible securities; corporate debt securities; derivatives, including futures, options, index- equity- commodity and currency-linked securities, stripped securities, warrants and swap contracts; dollar roll transactions; foreign securities, high yield/lower-rated debt securities; mortgage-backed securities; pass-through securities; preferred stock, private placement and other illiquid securities; REITs and master limited partnerships; reverse repurchase agreements; variable- and floating-rate instruments; when-issued purchases, delayed delivery and forward commitments; and zero-coupon, pay-in kind and step-coupon securities; provided however, that if any such security type is listed in a Fund's prospectus as part of a principal investment strategy, this 10% limitation shall not apply. LifeGoal Portfolios Nations LifeGoal Balanced Growth Portfolio, Nations LifeGoal Growth Portfolio, Nations LifeGoal Income and Growth Portfolio: The LifeGoal Portfolios invest in a mix of the Stock Funds, International/Global Stock Funds, Government & Corporate Bond Funds and Money Market Funds in the Nations Funds Family. The following table shows the underlying Nations Funds in which the LifeGoal Portfolios are currently permitted to invest. It also shows the expected total expense ratios for Primary A Shares of each of the selected underlying Funds appearing in each of the underlying Funds' prospectuses dated August 1, 2001.
(before fee (after fee waivers waivers and/or LifeGoal Portfolios' Underlying Funds and/or expense expense reimbursements) reimbursements) Value Fund 0.93% 0.93% Blue Chip Fund 0.98% 0.98% Strategic Growth Fund 0.97% 0.97% Marsico Focused Equities Fund 1.16% 1.16% MidCap Growth Fund 0.98% 0.98% Small Company Fund 1.15% 1.22% International Value Fund 1.23% 1.23% International Equity Fund 1.15% 1.15% Emerging Markets Fund 1.82% 1.82% International Bond Portfolio Bond Fund 0.67% 0.67% High Yield Bond Fund 0.93% 1.44% Short-Term Income Fund 0.51% 0.61% Prime Fund 0.30% 0.33%
The 1940 Act normally prohibits mutual funds from investing in other mutual funds beyond certain limits. Because each LifeGoal Portfolio is a "fund-of-funds" it takes advantage of a rule under the 1940 Act that allows it to exceed those limits subject to certain conditions. Accordingly, each LifeGoal Portfolio may: (i) own more than 3% of the total outstanding stock of a Fund, other than another LifeGoal Portfolio; (ii) invest more than 5% of its assets in any one such Fund; and (iii) invest more than 10% of its assets, collectively, in Fund shares of NFT, NR, NFI and NFST. Each LifeGoal Portfolio will concentrate more than 25% of its assets in the mutual fund industry. However, the underlying Funds in which the LifeGoal Portfolios invest will not concentrate 25% or more of their total assets in 14 any one industry unless they are permitted or required to do so in accordance with their own investment objective and principal investment strategies. Descriptions of Permissible Investments Additional information about individual types of securities (including key considerations and risks) in which the Funds may invest (as indicated either in their prospectuses and/or in this SAI under the heading "Permissible Investments and Techniques") is set forth below. Asset-Backed Securities Asset-backed securities are securities issued by trusts and special purpose entities that are backed by pools of assets, such as automobile and credit-card receivables and home equity loans, which pass through the payments on the underlying obligations to the security holders (less servicing fees paid to the originator or fees for any credit enhancement). Typically, the originator of the loan or accounts receivable paper transfers it to a specially created trust, which repackages it as securities with a minimum denomination and a specific term. The securities are then privately placed or publicly offered. Examples include certificates for automobile receivables (CARs) and so-called plastic bonds, backed by credit card receivables. The value of an asset-backed security is affected by, among other things, changes in the market's perception of the asset backing the security, the creditworthiness of the servicing agent for the loan pool, the originator of the loans and the financial institution providing any credit enhancement. Payments of principal and interest passed through to holders of asset-backed securities are frequently supported by some form of credit enhancement, such as a letter of credit, surety bond, limited guarantee by another entity or by having a priority to certain of the borrower's other assets. The degree of credit enhancement varies, and generally applies to only a portion of the asset-backed security's par value. Value is also affected if any credit enhancement has been exhausted. See also "Descriptions of Permissible Investments--Mortgage-Backed Securities." Key Considerations and Risks: The risks of investing in asset-backed securities are ultimately dependent upon payment of the underlying loans by the individual borrowers (i.e., the backing asset). For example, the underlying loans are subject to prepayments, which shorten the weighted average life of asset-backed securities and may lower their return, in the same manner as described under "Descriptions of Permissible Investments--Mortgage-Backed Securities" for prepayments of a pool of mortgage loans underlying mortgage-backed securities. However, asset-backed securities typically do not have the benefit of the same direct security interest in the underlying collateral as do mortgage-backed securities. In addition, as purchasers of an asset-backed security, the Funds generally will have no recourse to the entity that originated the loans in the event of default by a borrower. If the credit enhancement of an asset-backed security held by a Fund has been exhausted, and, if any required payments of principal and interest are not made with respect to the underlying loans, the Fund may experience losses or delays in receiving payment. Bank Obligations (Domestic and Foreign) Bank obligations include, as examples, certificates of deposit, bankers' acceptances, commercial paper, Yankee dollar certificates of deposit, Eurodollar certificates of deposit, time deposits and promissory notes. A certificate of deposit, or so-called CD, is a debt instrument issued by a bank that usually pays interest and which has maturities ranging from a few weeks to several years. A bankers acceptance is a time draft drawn on and accepted by a bank, a customary means of effecting payment for merchandise sold in import-export transactions and a general source of financing. A Yankee dollar certificate of deposit is a negotiable CD issued in the United States by branches and agencies of foreign banks. A Eurodollar certificate of deposit is a CD issued by a foreign (mainly European) bank with interest and principal paid in U.S. dollars. Such CDs typically have maturities of less than two years and the interest rate on which is usually pegged to the London Interbank Offered Rate or LIBOR. A time deposit can be either a savings account or CD that is an obligation of a financial institution for a fixed term with the understanding that the depositor can withdraw only by giving notice. Typically there are penalties for early withdrawal of a time deposit. A promissory note is a written commitment of the maker to pay the payee a specified sum of money either on demand or at a fixed or determinable future date, with or without interest. A bank obligation may be issued by: (i) a domestic branch of a domestic bank; (ii) a foreign branch of a domestic bank; (iii) a U.S. branch of a foreign bank; or (iv) a foreign branch of a foreign bank. 15 As a general matter, obligations of "domestic banks," are not subject to the Funds' fundamental investment policies regarding concentration limits. For this purpose, the staff also takes the position that domestic branches of foreign banks and foreign branches of domestic banks may, if certain conditions are met, be treated as "domestic banks." More specifically, "domestic banks" include: (a) domestic branches of domestic banks; (b) domestic branches of foreign banks, to the extent they are subject to comparable regulation as domestic banks; and (c) foreign branches of domestic banks with respect to which the domestic bank would be unconditionally liable in the event that the foreign branch failed to pay on its instruments for any reason. Key Considerations and Risks: Certain bank obligations, such as some CDs, are insured by the FDIC. Many other bank obligations, however, are neither guaranteed nor insured by the U.S. Government. These bank obligations are "backed" only by the creditworthiness of the issuing bank or parent financial institution. Obligations of foreign banks, including Yankee dollar and Eurodollar obligations, involve somewhat different investment risks than those affecting obligations of domestic banks, including, among others, the possibilities that their liquidity could be impaired because of political or economic developments, that the obligations may be less marketable than comparable obligations of domestic banks, that a foreign jurisdiction might impose withholding and other taxes on interest income payable on and cash realized on the sale of those obligations, that foreign deposits may be seized or nationalized, that foreign governmental restrictions such as exchange controls may be adopted, which might adversely affect the payment of principal or interest on those obligations, that the selection of the obligations may be based on less publicly available information concerning foreign banks or that the accounting, auditing and financial reporting standards, practices and requirements applicable to foreign banks may differ from those applicable to domestic banks. Foreign banks are not subject to examination by any U.S. Government agency or instrumentality. Borrowings Each Fund has a fundamental policy with respect to borrowing that can be found under the heading "Investment Policies and Limitations." The Funds participate in an uncommitted line of credit provided by The Bank of New York under an agreement (the "Uncommitted Line"). Any advance under the Uncommitted Line is contemplated primarily for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest on borrowings is payable at the federal funds rate plus 0.50% on an annualized basis. Under the Uncommitted Line, each participating Fund must maintain a ratio of net assets (not including funds borrowed under the Uncommitted Line) to the aggregate amount of indebtedness pursuant to the Uncommitted Line that is no less than 4 to 1. Information about specific borrowings, if any, by any particular Fund under the Uncommitted Line over the last fiscal year, if any, can be found its Annual Report to Shareholders for the year ended March 31, 2001. A Fund also may borrow money utilizing a reverse repurchase agreement transaction. See "Descriptions of Permissible Investments--Reverse Repurchase Agreements." Key Considerations and Risks: The Uncommitted Line is not a "committed" line of credit, which is to say that The Bank of New York is not obligated to lend money to a Fund. Accordingly, it is possible that a Fund may wish to borrow money for a temporary or emergency purpose but may not be able to do so. Common Stock Common stock are units of equitable ownership of a public company. Owners are typically entitled to vote on the selection of directors and other important matters as well as to receive dividends on their holdings. However, ownership of common stock does not entitle the owner to involvement in the day-to-day operations of the company. Common stock of domestic and foreign public corporations can be listed, and their shares traded, on domestic stock exchanges, like the NYSE, AMEX or the Nasdaq Stock Market. Domestic and foreign corporations also may instead choose to list their companies, and have their shares traded, on foreign exchanges, like the London FTSE or Tokyo Stock Exchange. Key Considerations and Risks: Investments by a Fund in common stocks are subject to stock market risk, which is the risk that the value of the stocks that the Fund holds, like the broader stock markets, may decline over short or even extended periods. Domestic and foreign stock markets tend to be cyclical, with periods when prices 16 generally rise and periods when prices generally decline. The value of individual stocks will rise and fall based on factors specific to them, like changes in earnings or management. With respect specifically to "common" stock, in the event that a corporation is liquidated, the claims of secured and unsecured creditors and owners of bonds and "preferred" stock take precedence over the claims of those who own common stock. On the other hand, common stock tends to have greater potential for appreciation. Common stock investments also present the risk of investing in a particular company. For example, stocks of smaller companies tend to have greater price swings than stocks of larger companies because, among other things, they trade less frequently and in lower volumes, are more susceptible to changes in economic conditions, are more reliant on singular products or services and are more vulnerable to larger competitors. Common stock of these companies may have a higher potential for gains but also carry more risk. For those Funds that invest primarily in these types of companies, such as the Small Company Fund, these risks can have a more acute effect on the value of the Fund's shares. Common stock investments also present the risks of investing in a particular industry, such as high technology, financial services, consumer goods or natural resources (e.g., oil and gas). To some extent, the prices of common stocks tend to move by industry sector, which is to say that when market conditions favorably affect, or are expected to favorably affect, an industry, the prices of the common stock of those companies in that industry sector tend to go up. Conversely, negative news or a poor outlook for a particular industry can cause the value of those companies' common stock to drop. For those Funds that focus their investments in a particular industry, such as the Financial Services Fund, these industry-related risks can have a significant effect on the value of these Funds' shares. See "Other Considerations--The High Technology Industry" and "Other Considerations--The Financial Services Industry." Convertible Securities Convertible securities are hybrid securities that combine the investment characteristics of bonds and common stocks. Convertible securities typically consist of debt securities or preferred stock that may be converted within a specified period of time (typically for the entire life of the security) into a certain amount of common stock or other equity security of the same or a different issuer at a predetermined price. They also include debt securities with warrants or common stock attached and derivatives combining the features of debt securities and equity securities. Convertible securities entitle the holder to receive interest paid or accrued on debt, or dividends paid or accrued on preferred stock, until the security matures or is redeemed, converted or exchanged. The market value of a convertible security generally is a function of its "investment value" and its "conversion value." A security's "investment value" represents the value of the security without its conversion feature (i.e., a comparable nonconvertible fixed-income security). The investment value is determined by, among other things, reference to its credit quality and the current value of its yield to maturity or probable call date. At any given time, investment value is dependent upon such factors as the general level of interest rates, the yield of similar nonconvertible securities, the financial strength of the issuer and the seniority of the security in the issuer's capital structure. A security's "conversion value" is determined by multiplying the number of shares the holder is entitled to receive upon conversion or exchange by the current price of the underlying security. If the conversion value of a convertible security is significantly below its investment value, the convertible security will trade like nonconvertible debt or preferred stock in the sense that its market value will not be influenced greatly by fluctuations in the market price of the underlying security into which it can be converted. Instead, the convertible security's price will tend to move in the opposite direction from interest rates. Conversely, if the conversion value of a convertible security is near or above its investment value, the market value of the convertible security will be more heavily influenced by fluctuations in the market price of the underlying stock. In that case, the convertible security's price may be as volatile as that of the common stock. Because both interest rate and market movements can influence its value, a convertible security is not generally as sensitive to interest rates as a similar fixed-income security, nor is it generally as sensitive to changes in share price as its underlying stock. A Fund's investments in convertible securities may at times include securities that have a mandatory conversion feature, pursuant to which the securities convert automatically into common stock or other equity securities (of the same or a different issuer) at a specified date and a specified conversion ratio, or that are convertible at the option of the issuer. For issues where the conversion of the security is not at the option of the 17 holder, the Fund may be required to convert the security into the underlying common stock even at times when the value of the underlying common stock or other equity security has declined substantially. The Funds may invest in convertible securities that are below investment-grade (e.g., rated "B" or below by S&P). See "Descriptions of Permissible Investments--High Yield/Lower-rated Securities" and "Descriptions of Permissible Investments--Warrants and Rights." Key Considerations and Risks: A Fund's investments in convertible securities, particularly securities that are convertible into securities of an issuer other than the issuer of the convertible security, may be illiquid--that is, a Fund may not be able to dispose of such securities in a timely fashion or for a fair price, which could result in losses to the Fund. In addition, some convertibles are often rated below investment-grade or are not rated, and therefore may to be considered speculative investments. Companies that issue convertible securities are usually small to medium size, and accordingly carry the capitalization risks described under "Descriptions of Permissible Investments--Common Stock." In addition, the credit rating of a company's convertible securities is generally lower than that of its conventional debt securities. Convertibles are normally considered "junior" securities--that is, the company usually must pay interest on its conventional corporate debt before it can make payments on its convertible securities. Some convertibles are particularly sensitive to interest rate changes when their predetermined conversion price is much higher than the issuing company's common stock. See also Key Considerations and Risks under "Descriptions of Permissible Investments--Common Stock." Corporate Debt Securities Corporate debt securities are fixed-income securities issued by businesses to finance their operations, although corporate debt instruments may also include bank loans to companies. Notes, bonds, debentures and commercial paper are the most common types of corporate debt securities, with the primary difference being their maturities and secured or un-secured status. Commercial paper has the shortest term and is usually unsecured. The broad category of corporate debt securities includes debt issued by domestic or foreign companies of all kinds, including those with small-, mid- and large-capitalizations. Corporate debt may be rated investment-grade or below investment-grade and may carry variable or floating rates of interest. See also "Descriptions of Permissible Investments--Foreign Securities," "Descriptions of Permissible Investments--Variable- and Floating-Interest Securities" and "Descriptions of Permissible Investments--Money Market Instruments." Key Considerations and Risks: Because of the wide range of types, and maturities, of corporate debt securities, as well as the range of creditworthiness of its issuers, corporate debt securities have widely varying potentials for return and risk profiles. For example, commercial paper issued by a large established domestic corporation that is rated investment-grade may have a modest return on principal, but carries relatively limited risk. On the other hand, a long-term corporate note issued by a small foreign corporation from an emerging market country that has not been rated by an NRSRO may have the potential for relatively large returns on principal, but carries a relatively high degree of risk. Corporate debt securities carry both credit risk and interest rate risk. Credit risk is the risk that a Fund could lose money if the issuer of a corporate debt security is unable to pay interest or repay principal when it's due. Some corporate debt securities that are rated below investment-grade are generally considered speculative because they present a greater risk of loss, including default, than higher quality debt securities. The credit risk of a particular issuer's debt security may vary based on its priority for repayment. For example, higher ranking (senior) debt securities have a higher priority than lower ranking (subordinated) securities. This means that the issuer might not make payments on subordinated securities while continuing to make payments on senior securities. In addition, in the event of bankruptcy, holders of higher-ranking senior securities may receive amounts otherwise payable to the holders of more junior securities. Interest rate risk is the risk that the value of certain corporate debt securities will tend to fall when interest rates rise. In general, corporate debt securities with longer terms tend to fall more in value when interest rates rise than corporate debt securities with shorter terms. Derivatives A derivative is a financial contract whose value is based on (or "derived" from) a traditional security (such as a stock or a bond), an asset (such as a commodity like gold), or a market index (such as the S&P 500). Some 18 forms of derivatives, such as exchange-traded futures and options on securities, commodities, or indexes, have been trading on regulated exchanges for more than two decades. These types of derivatives are standardized contracts that can easily be bought and sold, and whose market values are determined and published daily. Non-standardized derivatives, on the other hand, tend to be more specialized or complex, and may be harder to value. Derivatives afford leverage and, when used properly, can enhance returns and be useful in hedging portfolios. Some common types of derivatives include: futures, options, options on futures, forward foreign currency exchange contracts, index- equity- commodity and currency-linked securities, collateralized mortgage obligations, stripped securities, warrants and swap contracts. For more information about each type of derivative see those sections in this SAI discussing such securities. The Funds may use derivatives for a variety of reasons, including to: enhance a Fund's return, attempt to protect against possible changes in the market value of securities held in or to be purchased for a Fund's portfolio resulting from securities markets or currency exchange rate fluctuations (i.e., to hedge); protect the Fund's unrealized gains reflected in the value of its portfolios securities; facilitate the sale of such securities for investment purposes; and/or manage the effective maturity or duration of the Fund's portfolio. A Fund may use any or all of these investment techniques and different types of derivative securities may be purchased at any time and in any combination. There is no particular strategy that dictates the use of one technique rather than another, as use of derivatives is a function of numerous variables including market conditions. Key Considerations and Risks: A Fund's investments in derivatives can lead to large losses because of unexpected movements in the underlying financial asset, index, rate or other investment. The ability of a Fund to use derivatives successfully will depend on the ability to correctly predict pertinent market movements, which cannot be assured. Each derivative instrument identified in this SAI is discussed in a separate section addressing particular considerations and risks affecting those types of derivatives. See also "Descriptions of Permissible Investments--Futures and Options," "Descriptions of Permissible Investments--Index- Equity- Commodity and Currency-Linked Securities," "Descriptions of Permissible Investments--Stripped Securities," "Descriptions of Permissible Investments--Warrants" and "Descriptions of Permissible Investments--Swap Contracts." Dollar Roll Transactions Under a mortgage "dollar roll," a Fund sells mortgage-backed securities for delivery in a given month and simultaneously contracts to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. During the "roll" period, a Fund forgoes principal and interest paid on the mortgage-backed securities. A Fund is compensated by the difference between the current sales price and the lower forward price for the future purchase (the "drop") as well as by the interest earned on the cash proceeds of the initial sale. A Fund may only enter into covered rolls. A "covered roll" is a specific type of dollar roll for which there is an offsetting cash position which matures on or before the forward settlement date of the dollar roll transaction. At the time a Fund enters into a mortgage "dollar roll," it must establish a segregated account with its Custodian in which it will maintain cash, U.S. Government securities of other liquid debt or equity securities equal in value to its obligations with respect to dollar rolls, and accordingly, such dollar rolls are not considered borrowings. See also "Descriptions of Permissible Investments--Mortgage-Backed Securities." Key Considerations and Risks: Mortgage dollar rolls involve the risk that the market value of the securities the Fund is obligated to repurchase under an agreement may decline below the repurchase price. Also, these transactions involve some risk to the Fund if the other party should default on its obligation and the Fund is delayed or prevented from completing the transaction. In the event the buyer of securities under a mortgage dollar roll files for bankruptcy or becomes insolvent, the Fund's use of proceeds of the dollar roll may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. Foreign Securities Foreign securities are debt, equity or derivative securities of issuers based outside the United States. An issuer is generally considered to be based outside the United States if it is organized under the laws of, or has its principal office located in, another country or if the principal trading market for its securities is in another country. Securities will also be considered "foreign" if the currency in which such security is issued or based upon is not the U.S. dollar. 19 Forward foreign currency exchange contracts -- Forward foreign currency exchange contracts establish an exchange rate at a future date. A Fund may enter into a forward contract, for example, when it enters into a contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of the security (a "transaction hedge"). In addition, when a foreign currency suffers a substantial decline against the U.S. dollar, a Fund may enter into a forward sale contract to sell an amount of that foreign currency approximating the value of some or all of the Fund's securities denominated in such foreign currency; or when it is believed that the U.S. dollar may suffer a substantial decline against the foreign currency, it may enter into a forward purchase contract to buy that foreign currency for a fixed dollar amount (a "position hedge"). The Fund's custodian will segregate cash, U.S. Government securities or other high-quality debt securities having a value equal to the aggregate amount of the Fund's commitments under forward contracts entered into with respect to position hedges and cross-hedges. If the value of the segregated securities declines, additional cash or securities will be segregated on a daily basis so that the value of the segregated securities will equal the amount of the Fund's commitments with respect to such contracts. As an alternative to segregating all or part of such securities, the Fund may purchase a call option permitting the Fund to purchase the amount of foreign currency being hedged by a forward sale contract at a price no higher than the forward contract price, or the Fund may purchase a put option permitting the Fund to sell the amount of foreign currency subject to a forward purchase contract at a price as high or higher than the forward contract price. A Fund may, however, enter into a forward contract to sell a different foreign currency for a fixed U.S. dollar amount when it is believed that the U.S. dollar value of the currency to be sold pursuant to the forward contract will fall whenever there is a decline in the U.S. dollar value of the currency in which the securities are denominated (a "cross-hedge"). Foreign currency hedging transactions are attempts to protect a Fund against changes in foreign currency exchange rates between the trade and settlement dates of specific securities transactions or changes in foreign currency exchange rates that would adversely affect a portfolio position or an anticipated portfolio position. Although these transactions tend to minimize the risk of loss due to a decline in the value of the hedged currency, at the same time they tend to limit any potential gain that might be realized should the value of the hedged currency increase. Key Considerations and Risks: Foreign securities generally pose risks above those typically associated with an equity, debt or derivative security due to: (1) restrictions on foreign investment and repatriation of capital; (2) fluctuations in currency exchange rates, which can significantly affect a Fund's share price; (3) costs of converting foreign currency into U.S. dollars and U.S. dollars into foreign currencies; (4) greater price volatility and less liquidity; (5) settlement practices, including delays, which may differ from those customary in U.S. markets; (6) exposure to political and economic risks, including the risk of nationalization, expropriation of assets and war; (7) possible impositions of foreign taxes and exchange control and currency restrictions; (8) lack of uniform accounting, auditing and financial reporting standards; (9) less governmental supervision of securities markets, brokers and issuers of securities; (10) less financial information available to investors; and (11) difficulty in enforcing legal rights outside the United States. Certain of the risks associated with investments in foreign securities are heightened with respect to investments in emerging markets countries. Political and economic structures in many emerging market countries, especially those in Eastern Europe, the Pacific Basin, and the Far East, are undergoing significant evolutionary changes and rapid development, and may lack the social, political and economic stability of more developed countries. Investing in emerging markets securities also involves risks beyond the risks inherent in foreign investments. For example, some emerging market countries may have fixed or managed currencies that are not free-floating against the U.S. dollar. Further, certain currencies may not be traded internationally and some countries with emerging securities markets have sustained long periods of very high inflation or rapid fluctuation in inflation rates which can have negative effects on a country's economy and securities markets. As noted, foreign securities also involve currency risks. The U.S. dollar value of a foreign security tends to decrease when the value of the U.S. dollar rises against the foreign currency in which the security is denominated, and tends to increase when the value of the U.S. dollar falls against such currency. A Fund may purchase or sell forward foreign currency exchange contracts to attempt to minimize the risk to the Fund from adverse changes in the relationship between the U.S. dollar and foreign currencies. A Fund may also purchase and sell foreign currency futures contracts and related options. See "Descriptions of Permissible Investments--Futures and Options." 20 SPECIAL CONSIDERATIONS REGARDING EUROPE and the EURO: On January 1, 1999, eleven of the fifteen member countries of the European Union fixed their currencies irrevocably to the euro, the new unit of currency of the European Economic and Monetary Union. At that time each member's currency was converted at a fixed rate to the euro. Initially, use of the euro will be confined mainly to the wholesale financial markets, while its broader use in the retail sector will follow the circulation of euro banknotes and coins on January 1, 2002. At that time, the national banknotes and coins of participating member countries will cease to be legal tender. In addition to adopting a single currency, member countries will no longer control their own monetary policies. Instead, the authority to direct monetary policy will be exercised by the new European Central Bank. While economic and monetary convergence in the European Union may offer new opportunities for those investing in the region, investors should be aware that the success and future prospects of the union cannot be predicted with certainty. Europe must grapple with a number of challenges, any one of which could threaten the success and prospects of this monumental undertaking. For example, eleven disparate economies must adjust to a unified monetary system, the absence of exchange rate flexibility, and the loss of economic sovereignty. The continent's economies are diverse, its governments are decentralized, and its cultures differ widely. In addition, one or more member countries might exit the union, placing the currency and banking system in jeopardy. For those Funds that invest in euro-denominated securities (including currency contracts) there is the additional risk of being exposed to a new currency that may not fully reflect the strengths and weaknesses of the disparate economies that make up the Union. This has been true of late, when the exchange rates of the euro versus many of the world's major currencies steadily declined. As of July 2001, the euro is trading near or at an all time low against the U.S. dollar. In this environment, U.S. and other foreign investors may experience erosion of their investment returns in the region. In addition, many European countries rely heavily upon export dependent businesses and any strength in the exchange rate between the euro and the dollar can have either a positive or a negative effect upon corporate profits. Futures and Options Futures and options contracts are derivative instruments that the Funds may utilize for a variety of reasons including, for hedging purposes, risk reduction, securities exposure, to enhance a Fund's return, to enhance a Fund's liquidity, to reduce transaction costs or other reasons. See generally "Descriptions of Permissible Investments--Derivatives." Futures - Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of a specific security or index at a specified future time and at a specified price. Futures contracts, which are standardized as to maturity date and underlying financial instrument, are traded on national futures exchanges. Futures exchanges and trading are regulated under the Commodity Exchange Act by the CFTC, a U.S. Government agency. Assets committed by a Fund to a futures contract will be segregated to the extent required by law. Although many fixed-income futures contracts call for actual delivery or acceptance of the underlying securities at a specified date (stock index futures contracts do not permit delivery of securities), the contracts are normally closed out before the settlement date without the making or taking of delivery. Closing out an open futures position is done by taking an opposite position ("buying" a contract which has previously been "sold," "selling" a contract previously "purchased") in an identical contract to terminate the position. Brokerage commissions are incurred when a futures contract is bought or sold. Futures traders are required to make a good faith margin deposit in cash or government securities with a broker or custodian to initiate and maintain open positions in futures contracts. A margin deposit is intended to assure completion of the contract (delivery or acceptance of the underlying security) if it is not terminated prior to the specified delivery date. Minimal initial margin requirements are established by the futures exchange and may be changed. Brokers may establish deposit requirements which are higher than the exchange minimum's. Futures contracts are customarily purchased and sold on margin which may range upward from less than 5% of the value of the contract being traded. After a futures contract position is opened, the value of the contract is marked to market daily. If the futures contract price changes to the extent that the margin on deposit does not satisfy margin requirements, payment of additional "variation" margin will be required. Conversely, a change in the contract value may reduce the required margin, resulting in a repayment of excess margin to the contract holder. Variation margin payments are made to and from the futures broker for as long as the contract remains open. The Funds expect to earn interest income on their margin deposits. 21 Traders in futures contracts may be broadly classified as either "hedgers" or "speculators." Hedgers use the futures markets primarily to offset unfavorable changes (anticipated or potential) in the value of securities currently owned or expected to be acquired by them. Speculators are less inclined to own the securities underlying the futures contracts which they trade, and use futures contracts with the expectation of realizing profits from fluctuations in the value of the underlying securities. Regulations of the CFTC applicable to the Funds require that all of their futures transactions constitute bona fide hedging transactions except to the extent that the aggregate initial margins and premiums required to establish any non-hedging positions do not exceed five percent of the value of the respective Fund's portfolio. Options - Each Fund may purchase and write (i.e., sell) put and call options. Such options may relate to particular securities or stock indices, and may or may not be listed on a domestic or foreign securities exchange and may or may not be issued by the Options Clearing Corporation. A call option for a particular security gives the purchaser of the option the right to buy, and the writer (seller) the obligation to sell, the underlying security at the stated exercise price at any time prior to the expiration of the option, regardless of the market price of the security. The premium paid to the writer is in consideration for undertaking the obligation under the option contract. A put option for a particular security gives the purchaser the right to sell the security at the stated exercise price at any time prior to the expiration date of the option, regardless of the market price of the security. Stock index options are put options and call options on various stock indexes. In most respects, they are identical to listed options on common stocks. A primary difference between stock options and index options becomes evident when index options are exercised. In the case of stock options, the underlying security, common stock, is delivered. However, upon the exercise of an index option, settlement does not occur by delivery of the securities comprising the index. The option holder who exercises the index option receives an amount of cash if the closing level of the stock index upon which the option is based is greater than (in the case of a call) or less than (in the case of a put) the exercise price of the option. This amount of cash is equal to the difference between the closing price of the stock index and the exercise price of the option expressed in dollars times a specified multiple. A stock index fluctuates with changes in the market value of the stocks included in the index. For example, some stock index options are based on a broad market index, such as the S&P 500 Index or a narrower market index, such as the S&P 100. Indexes may also be based on an industry or market segment, such as the AMEX Oil and Gas Index or the Computer and Business Equipment Index. Options on stock indexes are currently traded on the following exchanges: the Chicago Board Options Exchange, the NYSE, the AMEX, the Pacific Stock Exchange, and the Philadelphia Stock Exchange. A Fund's obligation to sell an instrument subject to a call option written by it, or to purchase an instrument subject to a put option written by it, may be terminated prior to the expiration date of the option by the Fund's execution of a closing purchase transaction, which is effected by purchasing on an exchange an option of the same series (i.e., same underlying instrument, exercise price and expiration date) as the option previously written. A closing purchase transaction will ordinarily be effected to realize a profit on an outstanding option, to prevent an underlying instrument from being called, to permit the sale of the underlying instrument or to permit the writing of a new option containing different terms on such underlying instrument. The cost of such a liquidation purchase plus transactions costs may be greater than the premium received upon the original option, in which event the Fund will have incurred a loss in the transaction. Options on Futures - The Funds may purchase options on the futures contracts described above. A futures option gives the holder, in return for the premium paid, the right to buy (call) from or sell (put) to the writer of the option a futures contract at a specified price at any time during the period of the option. Upon exercise, the writer of the option is obligated to pay the difference between the cash value of the futures contract and the exercise price. Like the buyer or seller of a futures contract, the holder, or writer, of an option has the right to terminate its position prior to the scheduled expiration of the option by selling, or purchasing, an option of the same series, at which time the person entering into the closing transaction will realize a gain or loss. Investments in futures options involve some of the same considerations that are involved in connection with investments in futures contracts (for example, the existence of a liquid secondary market). In addition, the purchase of an option also entails the risk that changes in the value of the underlying futures contract will not be fully reflected in the value of the option purchased. Depending on the pricing of the option compared to either the futures contract upon which it is based, or upon the price of the securities being hedged, an option may or may not be less risky than ownership of the futures contract or such securities. In general, the market prices of options can be expected to be more volatile than the market prices on the underlying futures contract. Compared to the purchase or sale of futures 22 contracts, however, the purchase of call or put options on futures contracts may frequently involve less potential risk to a Fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). Key Considerations and Risks: Futures and options investing are highly specialized activities that entail greater than ordinary investment risks. For example, futures and options may be more volatile than the underlying instruments, and therefore, on a percentage basis, an investment in a future or an option may be subject to greater fluctuation than an investment in the underlying instruments themselves. With regard to futures, the risk of loss in trading futures contracts in some strategies can be substantial, due both to the relatively low margin deposits required, and the potential for an extremely high degree of leverage involved in futures contracts. As a result, a relatively small price movement in a futures contract may result in an immediate and substantial loss (or gain) to the investor. For example, if at the time of purchase, 10% of the value of the futures contract is deposited as margin, a subsequent 10% decrease in the value of the futures contract would result in a total loss of the margin deposit, before any deduction for the transaction costs, if the account were then closed out. A 15% decrease would result in a loss equal to 150% of the original margin deposit if the contract were closed out. Thus, a purchase or sale of a futures contract may result in losses in excess of the amount posted as initial margin for the contract. With regard to options, an option writer, unable to effect a closing purchase transaction, will not be able to sell the underlying instrument or liquidate the assets held in a segregated account, as described below, until the option expires or the optioned instrument is delivered upon exercise with the result that the writer in such circumstances will be subject to the risk of market decline or appreciation in the instrument during such period. If an option purchased by a Fund expires unexercised, the Fund realizes a loss equal to the premium paid. If a Fund enters into a closing sale transaction on an option purchased by it, the Fund will realize a gain if the premium received by the Fund on the closing transaction is more than the premium paid to purchase the option, or a loss if it is less. If an option written by a Fund expires on the stipulated expiration date or if a Fund enters into a closing purchase transaction, it will realize a gain (or loss if the cost of a closing purchase transaction exceeds the net premium received when the option is sold). If a call option written by a Fund is exercised, the proceeds of the sale of the underlying instrument will be increased by the net premium received when the option was written and the Fund will realize a gain or loss on the sale of the underlying instrument. If a put option written by a Fund is exercised, the Fund's basis in the underlying instrument will be reduced by the net premium received when the option was written. With regard to both futures and options contracts, positions may be closed out only on an exchange which provides a secondary market for such contracts. However, there can be no assurance that a liquid secondary market will exist for any particular contract at any specific time. Thus, it may not be possible to close a position. In the case of a futures contract, for example, in the event of adverse price movements, a Fund would continue to be required to make daily cash payments to maintain its required margin. In such a situation, if the Fund has insufficient cash, it may have to sell portfolio securities to meet daily margin requirements at a time when it may be disadvantageous to do so. The inability to close the futures position also could have an adverse impact on the ability to hedge effectively. Each Fund generally will minimize the risk that it will be unable to close out a contract by only entering into those contracts which are traded on national exchanges and for which there appears to be a liquid secondary market. In addition, there is also the risk of loss by a Fund of margin deposits in the event of bankruptcy of a broker with whom the Fund has an open position in a futures contract or related option. Most futures exchanges limit the amount of fluctuation permitted in some contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of future positions and subjecting some futures traders to substantial losses. The successful use by the Funds of futures and options on stock indexes will be subject to the ability to correctly predict movements in the directions of the stock market. This requires different skills and techniques than predicting changes in the prices of individual securities. The Funds therefore bear the risk that future market trends will be incorrectly predicted. In addition, a Fund's ability to effectively hedge all or a portion of the securities in its 23 portfolio, in anticipation of or during a market decline, through transactions in futures or put options on stock indexes, depends on the degree to which price movements in the underlying index correlate with the price movements of the securities held by a Fund. Inasmuch as a Fund's securities will not duplicate the components of an index, the correlation will not be perfect. Consequently, each Fund will bear the risk that the prices of its securities being hedged will not move in the same amount as the prices of its put options on the stock indexes. Each Fund will comply with SEC guidelines regarding coverage for these instruments and, if the guidelines so require, maintain cash or liquid securities with its Custodian in the prescribed amount. Under current SEC guidelines, the Funds will maintain or "segregate" assets with their Custodians to cover transactions in which the Funds write or sell options. Assets used as cover cannot be sold while the position in the corresponding option is open, unless they are replaced with similar assets. As a result, the commitment of a large portion of a Fund's assets to cover option obligations could affect portfolio management or the Fund's ability to meet redemption requests or other current obligations. Guaranteed Investment Contracts Guaranteed investment contracts, investment contracts or funding agreements ("GICs") are short-term money market instruments issued by highly-rated insurance companies. Pursuant to such contracts, a Fund may make cash contributions to a deposit fund of the insurance company's general or separate accounts. Key Considerations and Risks: A Fund will only purchase GICs from issuers which, at the time of purchase, meet certain credit and quality standards. Generally, GICs are not assignable or transferable without the permission of the issuing insurance companies, and an active secondary market in GICs does not currently exist. In addition, the issuer may not be able to return the principal amount of a GIC to a Fund on seven days' notice or less, at which point the GIC may be considered to be an illiquid investment. Unlike certain types of money market instruments, there is no government guarantee on the payment of principal or interest; only the insurance company backs the GIC. High Yield/Lower-Rated Debt Securities A high yield/lower-rated debt security (also known as a "junk" bond) is generally rated by an NRSRO to be non investment-grade (e.g., BB or lower by S&P). These types of bonds are issued by companies without long track records of sales and earnings, or by companies or municipalities that have questionable credit strength. High yield/lower-rated debt and comparable unrated securities: (a) will likely have some quality and protective characteristics that, in the judgment of the NRSRO, are outweighed by large uncertainties or major risk exposures to adverse conditions; and (b) are predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. See also "Descriptions of Permissible Investments--Corporate Debt Securities" and "Descriptions of Permissible Investments--Municipal Securities." The Funds may invest in high yield/lower-rated securities that are also convertible securities. See "Descriptions of Permissible Investments--Convertible Securities." Key Considerations and Risks: The yields on high yield/lower-rated debt and comparable unrated debt securities generally are higher than the yields available on investment-grade debt securities. However, investments in high yield/lower-rated debt and comparable unrated debt generally involve greater volatility of price and risk of loss of income and principal, including the possibility of default by or insolvency of the issuers of such securities. Since the risk of default is higher for high yield/lower-rated debt securities, the Fund will try to minimize the risks inherent in investing in these securities by engaging in credit analysis, diversification, and attention to current developments and trends affecting interest rates and economic conditions. The Funds will attempt to identify those issuers of high-yielding securities whose financial condition is adequate to meet future obligations, has improved, or is expected to improve in the future. Accordingly, with respect to these types of securities, a Fund may be more dependent on credit analysis than is the case for higher quality bonds. The market values of certain high yield/lower-rated debt and comparable unrated securities tend to be more sensitive to individual corporate developments and changes in economic conditions than higher-rated securities. In addition, issuers of high yield/lower-rated debt and comparable unrated securities often are highly leveraged and may not have more traditional methods of financing available to them so that their ability to service their debt obligations during an economic downturn or during sustained periods of rising interest rates may be impaired. 24 The risk of loss due to default by such issuers is significantly greater because high yield/lower-rated debt and comparable unrated securities generally are unsecured and frequently are subordinated to senior indebtedness. A Fund may incur additional expenses to the extent that it is required to seek recovery upon a default in the payment of principal or interest on its portfolio holdings. The existence of limited markets for high yield/lower-rated debt and comparable unrated securities may diminish a Fund's ability to: (a) obtain accurate market quotations for purposes of valuing such securities and calculating its net asset value; and (b) sell the securities at fair value either to meet redemption requests or to respond to changes in the economy or in financial markets. Although the general market for high yield/lower-rated debt and comparable unrated securities is no longer new, the market for such securities has not yet weathered a major sustained economic recession. The effect that such a recession might have on such securities is not known. Any such recession, however, could disrupt severely the market for such securities and adversely affect the value of such securities. Any such economic downturn also could severely and adversely affect the ability of the issuers of such securities to repay principal and pay interest thereon. Because certain high yield/lower-rated debt securities also may be foreign securities, some of which may be considered debt securities from emerging markets countries, there are certain additional risks associated with such investments. See "Descriptions of Permissible Investments--Foreign Securities." Index-, Equity-, Commodity- and Currency-Linked Securities Index-linked securities, commodity-linked securities, equity-linked securities and currency-linked securities are types of derivative securities. See generally "Descriptions of Permissible Investments--Derivatives." Index-linked, commodity-linked and equity-linked securities can be either equity or debt securities that call for interest payments and/or payment at maturity in different terms than the typical note where the borrower agrees to make fixed interest payments and to pay a fixed sum at maturity. Principal and/or interest payments depend on the performance of an underlying stock, index, or a weighted index of commodity futures such as crude oil, gasoline and natural gas. With respect to equity-linked securities, at maturity, the principal amount of the debt is exchanged for common stock of the issuer or is payable in an amount based on the issuer's common stock price at the time of maturity. Currency-linked debt securities are short-term or intermediate-term instruments that have a value at maturity, and/or an interest rate, determined by reference to one or more foreign currencies. Payment of principal or periodic interest may be calculated as a multiple of the movement of one currency against another currency, or against an index. One common type of index-linked security is a S&P Depositary Receipt, or SPDR, which is an interest in a unit investment trust holding a portfolio of securities linked to the S&P 500 Index. Because a unit investment trust is an investment company under the 1940 Act, a Fund's investments in SPDRs are subject to the limitations set forth in Section 12(d)(1)(A) of the 1940 Act. See also "Descriptions of Permissible Investments--Other Investment Companies." SPDRs closely track the underlying portfolio of securities, trade like a share of common stock and pay periodic dividends proportionate to those paid by the portfolio of stocks that comprise the S&P 500 Index. As a holder of interests in a unit investment trust, a Fund would indirectly bear its ratable share of that unit investment trust's expenses. At the same time, the Fund would continue to pay its own management and advisory fees and other expenses, as a result of which the Fund and its shareholders in effect will be absorbing duplicate levels of fees with respect to investments in such unit investment trusts. Key Considerations and Risks: Like all derivatives, a Fund's investments in "linked" securities can lead to large losses because of unexpected movements in the underlying financial asset, index, currency or other investment. The ability of the Fund to utilize linked-securities successfully will depend on its ability to correctly predict pertinent market movements, which cannot be assured. Because currency-linked securities usually relate to foreign currencies, some of which may be currency from emerging markets countries, there are certain additional risks associated with such investments. See "Descriptions of Permissible Investments--Foreign Securities." In particular, SPDRs are subject to the risks of an investment in a broadly based portfolio of common stocks, including the risk that the general level of stock prices may decline, thereby adversely affecting the value of such investment. In addition, because individual investments in SPDRs are not redeemable, except upon termination of the unit investment trust, the liquidity of small holdings of SPDRs will depend upon the existence of a secondary market. Large holdings of SPDRs are called "creation unit size" and are redeemable in kind only and are not 25 redeemable for cash from the unit investment trust. The price of a SPDR is derived and based upon the securities held by the unit investment trust. Accordingly, the level of risk involved in the purchase or sale of a SPDR is similar to the risk involved in the purchase or sale of traditional common stock, with the exception that the pricing mechanism for SPDRs is based on a basket of stocks. Disruptions in the markets for the securities underlying SPDRs purchased or sold by a Fund could result in losses on SPDRs. Money Market Instruments Money market instruments are high-quality, short-term debt obligations, which include bank obligations, guaranteed investment contracts, repurchase agreements, U.S. Government obligations and certain corporate debt securities, such as commercial paper. Such instruments also may be structured to be, what would not otherwise be, a money market instrument by modifying the maturity of a security or interest rate adjustment feature to come within permissible limits. What these instruments have in common are low risk and liquidity. Money market mutual funds (i.e., funds that comply with Rule 2a-7 of the 1940 Act) are permitted to purchase most money market instruments, subject to certain credit quality, maturity and other restrictions. See "Descriptions of Permissible Investments--Bank Obligations," "Descriptions of Permissible Investments--Corporate Debt Securities," "Descriptions of Permissible Investments--Guaranteed Investment Contracts," "Descriptions of Permissible Investments--Repurchase agreements" and "Descriptions of Permissible Investments--U.S. Government Obligations." Key Considerations and Risks: Money market instruments (other than certain U.S. Government obligations) are not backed or insured by the U.S. Government, its agencies or instrumentalities. Accordingly, only the creditworthiness of an issuer, or guarantees of that issuer, support the instrument. Mortgage-Backed Securities A mortgage-backed security is a type of pass-through security, which is a security representing pooled debt obligations repackaged as interests that pass income through an intermediary to investors. In the case of mortgage-backed securities, the ownership interest is in a pool of mortgage loans. See "Descriptions of Permissible Investments--Pass-Through Securities." Mortgage-backed securities are most commonly issued or guaranteed by the Government National Mortgage Association ("Ginnie Mae" or "GNMA"), Federal National Mortgage Association ("Fannie Mae" or "FNMA") or Federal Home Loan Mortgage Corporation ("Freddie Mac" or "FHLMC"), but may also be issued or guaranteed by other private issuers. GNMA is a government-owned corporation that is an agency of the U.S. Department of Housing and Urban Development. It guarantees, with the full faith and credit of the United States, full and timely payment of all monthly principal and interest on its mortgage-backed securities. FNMA is a publicly owned, government-sponsored corporation that mostly packages mortgaged backed by the Federal Housing Administration, but also sells some nongovernmentally backed mortgages. Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest only by FNMA. The FHLMC is a publicly chartered agency that buys qualifying residential mortgages from lenders, re-packages them and provide certain guarantees. The corporation's stock is owned by savings institutions across the United States and is held in trust by the Federal Home Loan Bank System. Pass-through securities issued by the FHLMC are guaranteed as to timely payment of principal and interest only by the FHLMC. Mortgage-backed securities issued by private issuers, whether or not such obligations are subject to guarantees by the private issuer, may entail greater risk than obligations directly or indirectly guaranteed by the U.S. Government. The average life of a mortgage-backed security is likely to be substantially less than the original maturity of the mortgage pools underlying the securities. Prepayments of principal by mortgagors and mortgage foreclosures will usually result in the return of the greater part of principal invested far in advance of the maturity of the mortgages in the pool. Collateralized mortgage obligations ("CMOs") are debt obligations collateralized by mortgage loans or mortgage pass-through securities (collateral collectively hereinafter referred to as "Mortgage Assets"). Multi-class pass-through securities are interests in a trust composed of Mortgage Assets and all references in this section to CMOs include multi-class pass-through securities. Principal prepayments on the Mortgage Assets may cause the CMOs to be retired substantially earlier than their stated maturities or final distribution dates, resulting in a loss of all or part of the 26 premium if any has been paid. Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly or semiannual basis. The principal and interest payments on the Mortgage Assets may be allocated among the various classes of CMOs in several ways. Typically, payments of principal, including any prepayments, on the underlying mortgages are applied to the classes in the order of their respective stated maturities or final distribution dates, so that no payment of principal is made on CMOs of a class until all CMOs of other classes having earlier stated maturities or final distribution dates have been paid in full. Stripped mortgage-backed securities ("SMBS") are derivative multi-class mortgage securities. A Fund will only invest in SMBS that are obligations backed by the full faith and credit of the U.S. Government. SMBS are usually structured with two classes that receive different proportions of the interest and principal distributions from a pool of mortgage assets. A Fund will only invest in SMBS whose mortgage assets are U.S. Government obligations. A common type of SMBS will be structured so that one class receives some of the interest and most of the principal from the mortgage assets, while the other class receives most of the interest and the remainder of the principal. If the underlying mortgage assets experience greater than anticipated prepayments of principal, a Fund may fail to fully recoup its initial investment in these securities. The market value of any class which consists primarily or entirely of principal payments generally is unusually volatile in response to changes in interest rates. Key Considerations and Risks: Investment in mortgage-backed securities poses several risks, including among others, prepayment, market and credit risk. Prepayment risk reflects the risk that borrowers may prepay their mortgages faster than expected, thereby affecting the investment's average life and perhaps its yield. Whether or not a mortgage loan is prepaid is almost entirely controlled by the borrower. Borrowers are most likely to exercise prepayment options at the time when it is least advantageous to investors, generally prepaying mortgages as interest rates fall, and slowing payments as interest rates rise. Besides the effect of prevailing interest rates, the rate of prepayment and refinancing of mortgages may also be affected by home value appreciation, ease of the refinancing process and local economic conditions. Market risk reflects the risk that the price of a security may fluctuate over time. The price of mortgage-backed securities may be particularly sensitive to prevailing interest rates, the length of time the security is expected to be outstanding, and the liquidity of the issue. In a period of unstable interest rates, there may be decreased demand for certain types of mortgage-backed securities, and a Fund invested in such securities wishing to sell them may find it difficult to find a buyer, which may in turn decrease the price at which they may be sold. 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 obligations. Obligations issued by U.S. Government-related entities are guaranteed as to the payment of principal and interest, but are not backed by the full faith and credit of the U.S. Government. The performance of private label mortgage-backed securities, issued by private institutions, is based on the financial health of those institutions. With respect to GNMA certificates, although GNMA guarantees timely payment even if homeowners delay or default, tracking the "pass-through" payments may, at times, be difficult. Municipal Securities Municipal Bonds - Municipal bonds are debt obligations issued by the states, territories and possessions of the United States and the District of Columbia, and also by their political subdivisions, duly constituted offering authorities and instrumentalities. States, territories, possessions and municipalities may issue municipal bonds for a variety of reasons, including for example, to raise funds for various public purposes such as airports, housing, hospitals, mass transportation, schools, water and sewer works. They may also issue municipal bonds to refund outstanding obligations and to meet general operating expenses. Public authorities also issue municipal bonds to obtain funding for privately operated facilities, such as housing and pollution control facilities, industrial facilities or for water supply, gas, electricity or waste disposal facilities. Municipal bonds generally are classified as "general obligation" or "revenue" bonds. There are, of course, variations in the security of municipal bonds, both within a particular classification and between classifications, depending on numerous factors. General obligation bonds are secured by the issuer's pledge of its good faith, credit and taxing power for the payment of principal and interest. The payment of the principal of and interest on such bonds may be dependent upon an appropriation by the issuer's legislative body. The characteristics and enforcement of general obligation bonds vary according to the law applicable to the particular issuer. Revenue bonds are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise or other specific revenue source. Municipal bonds may include "moral obligation" bonds, which are normally issued by special purpose public authorities. If the issuer of moral obligation bonds is unable to meet its 27 debt service obligations from current revenues, it may draw on a reserve fund, the restoration of which is a moral commitment but not a legal obligation of the state or municipality which created the issuer. Private activity bonds (such as an industrial development or industrial revenue bond) held by a Fund are in most cases revenue securities and are not payable from the unrestricted revenues of the issuer. Consequently, the credit quality of private activity bonds is usually directly related to the credit standing of the corporate user of the facility involved. Private activity bonds have been or are issued to obtain funds to provide, among other things, privately operated housing facilities, pollution control facilities, convention or trade show facilities, mass transit, airport, port or parking facilities, and certain local facilities for water supply, gas, electricity, or sewage or solid waste disposal. Private activity bonds are also issued for privately held or publicly owned corporations in the financing of commercial or industrial facilities. Most governments are authorized to issue private activity bonds for such purposes in order to encourage corporations to locate within their communities. The principal and interest on these obligations may be payable from the general revenues of the users of such facilities. Municipal Notes - Municipal notes are issued by states, municipalities and other tax-exempt issuers to finance short-term cash needs or, occasionally, to finance construction. Most municipal notes are general obligations of the issuing entity payable from taxes or designated revenues expected to be received within the related fiscal period. Municipal obligation notes generally have maturities of one year or less. Municipal notes are subdivided into three categories of short-term obligations: municipal notes, municipal commercial paper and municipal demand obligations. Municipal commercial paper typically consists of very short-term unsecured negotiable promissory notes that are sold to meet seasonal working capital or interim construction financing needs of a municipality or agency. While these obligations are intended to be paid from general revenues or refinanced with long-term debt, they frequently are backed by letters of credit, lending agreements, note repurchase agreements or other credit facility agreements offered by banks or institutions. Municipal demand obligations are subdivided into two general types: variable rate demand notes and master demand obligations. Variable rate demand notes are tax-exempt municipal obligations or participation interests that provide for a periodic adjustment in the interest rate paid on the notes. They permit the holder to demand payment of the notes, or to demand purchase of the notes at a purchase price equal to the unpaid principal balance, plus accrued interest either directly by the issuer or by drawing on a bank letter of credit or guaranty issued with respect to such note. The issuer of the municipal obligation may have a corresponding right to prepay at its discretion the outstanding principal of the note plus accrued interest upon notice comparable to that required for the holder to demand payment. The variable rate demand notes in which the Fund may invest are payable, or are subject to purchase, on demand usually on notice of seven calendar days or less. The terms of the notes provide that interest rates are adjustable at intervals ranging from daily to six months, and the adjustments are based upon the prime rate of a bank or other appropriate interest rate index specified in the respective notes. Variable rate demand notes are valued at amortized cost; no value is assigned to the right of the Fund to receive the par value of the obligation upon demand or notice. Master demand obligations are tax-exempt municipal obligations that provide for a periodic adjustment in the interest rate paid and permit daily changes in the amount borrowed. The interest on such obligations is, in the opinion of counsel for the borrower, excluded from gross income for federal income tax purposes. Although there is no secondary market for master demand obligations, such obligations are considered by the Fund to be liquid because they are payable upon demand. The Fund has no specific percentage limitations on investments in master demand obligations. Municipal Leases - Municipal securities also may include participations in privately arranged loans to state or local government borrowers, some of which may be referred to as "municipal leases." Generally such loans are unrated, in which case they will be determined by the Adviser to be of comparable quality at the time of purchase to rated instruments that may be acquired by a Fund. Frequently, privately arranged loans have variable interest rates and may be backed by a bank letter of credit. In other cases, they may be unsecured or may be secured by assets not easily liquidated. Moreover, such loans in most cases are not backed by the taxing authority of the issuers and may have limited marketability or may be marketable only by virtue of a provision requiring repayment following demand by the lender. Such loans made by a Fund may have a demand provision permitting the Fund to require payment within seven days. Participations in such loans, however, may not have such a demand provision and may not be otherwise marketable. 28 Although lease obligations do not constitute general obligations of the municipal issuer to which the government's taxing power is pledged, a lease obligation is ordinarily backed by the government's covenant to budget for, appropriate, and make the payments due under the lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the government has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. In addition to the "non-appropriation" risk, these securities represent a relatively new type of financing that has not yet developed the depth of marketability associated with more conventional bonds. In the case of a "non-appropriation" lease, a Fund's ability to recover under the lease in the event of non-appropriation or default will be limited solely to the repossession of the leased property in the event foreclosure might prove difficult. For a detailed discussion of the economic conditions, relevant legal matters and key risks associated with investments in each of Florida, Georgia, Kansas, Maryland, North Carolina, South Carolina, Tennessee, Texas and Virginia, see "Appendix C" to the SAI. Key Considerations and Risks: There are variations in the quality of municipal securities, both within a particular classification and between classifications, and the yields on municipal securities depend upon a variety of factors, including general money market conditions, the financial condition of the issuer, general conditions of the municipal bond market, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The ratings of NRSROs represent their opinions as to the quality of municipal securities. It should be emphasized, however, that these ratings are general and are not absolute standards of quality, and municipal securities with the same maturity, interest rate, and rating may have different yields while municipal securities of the same maturity and interest rate with different ratings may have the same yield. Subsequent to its purchase by a Fund, an issue of municipal securities may cease to be rated, or its rating may be reduced below the minimum rating required for purchase by that Fund. The Adviser will consider such an event in determining whether a Fund should continue to hold the obligation. The payment of principal and interest on most securities purchased by a Fund will depend upon the ability of the issuers to meet their obligations. Each state, each of their political subdivisions, municipalities, and public authorities, as well as the District of Columbia, Puerto Rico, Guam, and the Virgin Islands, are a separate "issuer." An issuer's obligations under its municipal securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Code. The power or ability of an issuer to meet its obligations for the payment of interest on and principal of its municipal securities may be materially adversely affected by litigation or other conditions. There are particular considerations and risks relevant to investing in a portfolio of a single state's municipal securities, such as the greater risk of the concentration of a Funds versus the greater relative safety that comes with a less concentrated investment portfolio and should compare yields available on portfolios of a state's issues with those of more diversified portfolios, including other states' issues, before making an investment decision. In addition, from time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on municipal securities. Moreover, with respect to municipal securities issued by Florida, Georgia, Kansas, Maryland, North Carolina, South Carolina, Tennessee, Texas, or Virginia issuers, the Adviser cannot predict which legislation, if any, may be proposed in the state legislatures or which proposals, if any, might be enacted. Such proposals, while pending or if enacted, might materially and adversely affect the availability of municipal securities generally, or Florida, Georgia, Kansas, Maryland, North Carolina, South Carolina, Tennessee, Texas, or Virginia municipal securities specifically, for investment by one of these Funds and the liquidity and value of such portfolios. In such an event, a Fund impacted would re-evaluate its investment objective and policies and consider possible changes in its structure or possible dissolution. Other Investment Companies In seeking to attain their investment objectives, certain Funds may invest in securities issued by other investment companies within the limits prescribed by the 1940 Act, its rules and regulations and any exemptive orders obtained by the Funds from the SEC. See also "Investment Policies and Limitations--Exemptive Orders." The 1940 Act generally requires that each Fund limit its investments in another investment company or series thereof so that, as determined immediately after a securities purchase is made: (a) not more than 5% of the 29 value of its total assets will be invested in the securities of any one investment company; (b) not more than 10% of the value of its total assets will be invested in the aggregate in securities of other investment companies; and (c) not more than 3% of the outstanding voting stock of any one investment company or series thereof will be owned by the Fund or by the company as a whole. Each Fund has obtained permission from the SEC (via an exemptive order) to purchase shares of other mutual funds in the Nations Funds Family. The SEC order is subject to certain conditions, including that a Board, before approving an advisory contract (including the advisory fee) applicable to a Fund, will find that the advisory fees applicable to the Fund relying on the order are for services in addition to, rather than duplicative of, services provided pursuant to the "investee" Fund's advisory contract. Each Fund also has obtained separate permission from the SEC (via exemptive order) to purchase shares of Money Market Funds. To seek to achieve a return on uninvested cash or for other reasons, investing Funds may invest up to 25% of their assets in any Money Market Fund. These investments are generally on a short-term basis. BA Advisors and its affiliates are entitled to receive fees from the Money Market Funds for providing advisory and other services in addition to the fees which they are entitled to receive from the Funds for services provided directly. One condition of the SEC order is that a Money Market Fund may not acquire securities of any other investment company in excess of the limits stated in the second paragraph (above) of this section. Although this relief is generally relied upon by the Non-Money Market Funds, the Government Money Market Fund may invest up to five percent of its assets in Government Reserves. To the extent that Government Money Market Fund invests in Government Reserves, BA Advisors has agreed to waive its advisory fee with respect to those assets of Government Money Market Fund that are invested in Government Reserves Key Considerations and Risks: There are certain advantages for a Fund to be able invest in shares of other investment companies; for example, it may allow a Fund to gain exposure to a type of security. It also may facilitate a Fund being fully invested. However, there may be certain disadvantages; for example, it may cost more in terms of fees. That is to say, a shareholder may be charged fees not only on the Fund shares he holds directly, but also on the mutual fund shares that his Fund purchases. Whether any anticipated return from such an investment will outweigh the costs of purchasing such mutual fund shares when deciding to invest will be considered by the Funds. Feeder Funds and Master Portfolios - The 1940 Act also permits, under certain conditions, a Fund to invest all of its assets in another mutual fund. Under this structure, called a master/feeder structure, which is described above, the Feeder Funds (which are identified on p. 2 of this SAI) invest all of their assets in a corresponding Master Portfolio with the same investment objective, principal investment strategies and risks. The Master Portfolios are separate series of NMIT, which is organized as a business trust under the laws of Delaware, and is itself a registered investment company in the Nations Funds Family. Other entities (e.g., other investment companies, commingled trust funds, institutional and certain individual investors), along with the Master Portfolios, may invest in the Master Portfolios from time to time. Accordingly, there may also be other investment companies, as well as other investment vehicles, through which you can invest in the Master Portfolio which may have higher or lower fees and expenses than those of its corresponding Fund, and which may therefore have different performance results than the Feeder Fund. The primary advantages of such a structure are expected economies of scale--that is to say, the larger asset size of the Master Portfolio may allow it to purchase securities and engage in brokerage transactions on more favorable terms than might otherwise be available to a Feeder Fund alone, as well as to, over time, enjoy other benefits associated with achieving economies of scale. However, there are certain considerations and risks that are inherent in the master/feeder structure. For example, each Feeder Fund is potentially liable for certain legal obligations of the Master Portfolio in which it invests. The risk of the Feeder Fund's incurring financial loss on account of such liability is limited to circumstances in which both inadequate insurance exists and a Master Portfolio itself is unable to meet its obligations. Accordingly, the Companies' Boards believe that neither a Feeder Fund nor its shareholders should be adversely affected by reason of the Feeder Fund's investing in a Master Portfolio. As with any mutual fund, other investors in the Master Portfolios could control the results of voting at the Master Portfolio level in certain instances (e.g., a change in fundamental policies by the Master Portfolio which was not approved by the Fund's shareholders). This could lead a Feeder Fund to decide to withdraw its investment in the Master Portfolio. A Feeder Fund also may withdraw its investment in a Master Portfolio at any time if the Board determines that it is in the best interest of the Feeder Fund to do so. Upon such withdrawal, the Board would consider what action might be taken, including the 30 investment of all of the assets of the Feeder Fund in another pooled investment entity having the same (or similar) investment objective, principal investment strategies and risks as the Feeder Fund or the hiring of an investment adviser to manage the Feeder Fund's assets in accordance with its investment objective and principal investment strategies. Further, the withdrawal of other entities that may from time to time invest in the Master Portfolios could have an adverse effect on the performance of such Master Portfolios and their corresponding Feeder Fund, such as decreased economies of scale, and increased per share operating expenses. When a Feeder Fund is required to vote as an interest holder of the Master Portfolio, current regulations provide that in those circumstances the Feeder Fund may either pass-through the vote to its shareholders or the Feeder Fund may vote its shares in the Master Portfolio in the same proportion of all other security holders in the Master Portfolio. Pass Through Securities (Participation Interests and Company Receipts) A pass-through security is a share or certificate of interest in a pool of debt obligations that have been repackaged by an intermediary, such as a bank or broker-dealer. The purchaser of a pass-through security receives an undivided interest in the underlying pool of securities. The issuers of the underlying securities make interest and principal payments to the intermediary which are passed through to purchasers, such as the Funds. The most common type of pass-through securities are mortgage-backed securities. GNMA Certificates are mortgage-backed securities that evidence an undivided interest in a pool of mortgage loans. GNMA Certificates differ from bonds in that principal is paid back monthly by the borrowers over the term of the loan rather than returned in a lump sum at maturity. A Fund may purchase modified pass-through GNMA Certificates, which entitle the holder to receive a share of all interest and principal payments paid and owned on the mortgage pool, net of fees paid to the issuer and GNMA, regardless of whether or not the mortgagor actually makes the payment. GNMA Certificates are backed as to the timely payment of principal and interest by the full faith and credit of the U.S. Government. FHLMC issues two types of mortgage pass-through securities: mortgage participation certificates and guaranteed mortgage certificates. Participation certificates resemble GNMA Certificates in that the participation certificates represent a pro rata share of all interest and principal payments made and owned on the underlying pool. FHLMC guarantees timely payments of interest on the participation certificates and the full return of principal. Guaranteed mortgage certificates also represent a pro rata interest in a pool of mortgages. However, these instruments pay interest semi-annually and return principal once a year in guaranteed minimum payments. This type of security is guaranteed by FHLMC as to timely payment of principal and interest but is not backed by the full faith and credit of the U.S. Government. FNMA issues guaranteed mortgage pass-through certificates. FNMA Certificates resemble GNMA Certificates in that each FNMA Certificate represents a pro rata share of all interest and principal payments made and owned on the underlying pool. This type of security is guaranteed by the FNMA as to timely payment of principal and interest but is not backed by the full faith and credit of the U.S. Government. Key Considerations and Risks: Except for guaranteed mortgage certificates, each of the mortgage-backed securities described above is characterized by monthly payments to the holder, reflecting the monthly payments made by the borrowers who received the underlying mortgage loans. The payments to the securities holders, such as the Funds, like the payments on the underlying loans, represent both principal and interest. Although the underlying mortgage loans are for specified periods of time, such as 20 or 30 years, the borrowers can, and typically do, pay them off sooner. Thus, the security holders frequently receive prepayments of principal in addition to the principal that is part of the regular monthly payments. Estimated prepayment rates will be a factor considered in calculating the average weighted maturity of a Fund which owns these securities. A borrower is more likely to prepay a mortgage that bears a relatively high rate of interest. This means that in times of declining interest rates, higher yielding mortgage-backed securities held by a Fund might be converted to cash and the Fund will be forced to accept lower interest rates when that cash is used to purchase additional securities in the mortgage-backed securities sector or in other investment sectors. Additionally, prepayments during such periods will limit a Fund's ability to participate in as large a market gain as may be experienced with a comparable security not subject to prepayment. Preferred Stock Preferred stock are units of ownership of a public corporation that pay dividends at a specified rate and have preference over common stock in the payment of dividends and the liquidation of assets. Preferred stock does 31 not ordinarily carry voting rights. Most preferred stock is cumulative; if dividends are passed (i.e., not paid for any reason), they accumulate and must be paid before common stock dividends. A passed dividend on noncumulative preferred stock is generally gone forever. Participating preferred stock entitles its holders to share in profits above and beyond the declared dividend, along with common shareholders, as distinguished from nonparticipating preferred stock, which is limited to the stipulated dividend. Convertible preferred stock is exchangeable for a given number of common shares and thus tends to be more volatile than nonconvertible preferred stock, which generally behaves more like a fixed-income bond. Key Considerations and Risks: See Key Considerations and Risks under "Descriptions of Permissible Investments--Common Stock" and "Descriptions of Permissible Investments--Convertible Securities," many of which are applicable to a preferred stock investment. Private Placement Securities and Other Restricted Securities Although many securities are offered publicly, some are offered privately only to certain qualified investors. Private placements may often offer attractive opportunities for investment not otherwise available on the open market. However, the securities so purchased are often "restricted," i.e., they cannot be sold to the public without registration under the 1933 Act or the availability of an exemption from registration (such as Rules 144 or 144A), or they are "not readily marketable" because they are subject to other legal or contractual delays in or restrictions on resale. Generally speaking, private placements may be sold only to qualified institutional buyers, or in a privately negotiated transaction to a limited number of purchasers, or in limited quantities after they have been held for a specified period of time and other conditions are met pursuant to an exemption from registration. Private placements are considered illiquid securities. The term "illiquid securities" for this purpose means securities that cannot be disposed of within seven days in the ordinary course of business at approximately the amount at which the Fund has valued the securities. Illiquid securities are considered to include, among other things, written over-the-counter options, securities or other liquid assets being used as cover for such options, repurchase agreements with maturities in excess of seven days, certain loan participation interests, fixed time deposits which are not subject to prepayment or provide for withdrawal penalties upon prepayment (other than overnight deposits), and other securities whose disposition is restricted under the federal securities laws (other than securities issued pursuant to Rule 144A under the 1933 Act and certain commercial paper that has been determined to be liquid under procedures approved by the Board). Illiquid securities may include privately placed securities, which are sold directly to a small number of investors, usually institutions. Key Considerations and Risks: Private placements are generally subject to restrictions on resale as a matter of contract or under federal securities laws. Because there may be relatively few potential purchasers for such investments, especially under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, a Fund could find it more difficult to sell such securities when it may be advisable to do so or it may be able to sell such securities only at prices lower than if such securities were more widely held. At times, it may also be more difficult to determine the fair value of such securities for purposes of computing the Fund's net asset value due to the absence of a trading market. Unlike public offerings, restricted securities are not registered under the federal securities laws. Although certain of these securities may be readily sold, others may be illiquid, and their sale may involve substantial delays and additional costs. REITs and Master Limited Partnerships A real estate investment trust, or REIT, is a managed portfolio of real estate investments which may include office buildings, apartment complexes, hotels and shopping malls. An equity REIT holds equity positions in real estate, and it seeks to provide its shareholders with income from the leasing of its properties, and with capital gains from any sales of properties. A mortgage REIT specializes in lending money to developers of properties, and passes any interest income it may earn to its shareholders. Partnership units of real estate and other types of companies are sometimes organized as master limited partnerships in which ownership interests are publicly traded. Master limited partnerships often own several properties or businesses (or directly own interests) that are related to real estate development and oil and gas 32 industries, but they also may finance motion pictures, research and development and other projects. Generally, a master limited partnership is operated under the supervision of one or more managing general partners. Limited partners (like a Fund that invests in a master limited partnership) are not involved in the day-to-day management of the partnership. They are allocated income and capital gains associated with the partnership project in accordance with the terms established in the partnership agreement. Key Considerations and Risks: REITs may be affected by changes in the value of the underlying property owned or financed by the REIT; Mortgage REITs also may be affected by the quality of credit extended. Both equity and mortgage REITs are dependent upon management skill and may not be diversified. REITs also may be subject to heavy cash flow dependency, defaults by borrowers, self-liquidation, and the possibility of failing to qualify for preferential treatment under the Code. The real estate industry is particularly sensitive to economic downturns. The value of securities of issuers in the real estate industry is sensitive to changes in real estate values and rental income, property taxes, interest rates, tax and regulatory requirements, overbuilding, extended vacancies of properties, and the issuer's management skill. In addition, the value of a REIT can depend on the structure of and cash flow generated by the REIT. REITs are subject to the risk that mortgagors may not meet their payment obligations. Each investment also has its unique interest rate and payment priority characteristics. In addition, REITs are subject to unique tax requirements which, if not met, could adversely affect dividend payments. Also, in the event of a default of an underlying borrower or lessee, a REIT could experience delays in enforcing its rights as a mortgagee or lessor and may incur substantial costs associated with protecting its investments. The risks of investing in a master limited partnership are generally those involved in investing in a partnership as opposed to a corporation. For example, state law governing partnerships is often less restrictive than state law governing corporations. Accordingly, there may be less protections afforded investors in a master limited partnership than investors in a corporation. Additional risks involved with investing in a master limited partnership are risks associated with the specific industry or industries in which the partnership invests, such as the risks of investing in real estate, or oil and gas industries. Repurchase Agreements A repurchase agreement is a money market instrument that is a contract under which a Fund acquires a security for a relatively short period (usually not more than one week) subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). Repurchase agreements may be viewed, in effect, as loans made by a Fund which are collateralized by the securities subject to repurchase. Typically, the Funds will enter into repurchase agreements only with commercial banks and registered broker/dealers and only with respect to the highest quality securities, such as U.S. Government obligations. Such transactions are monitored to ensure that the value of the underlying securities will be at least equal at all times to the total amount of the repurchase obligation, including any accrued interest. See "Descriptions of Permissible Investments--Money Market Instruments." Key Considerations and Risks: Repurchase Agreements are generally subject to counterparty risks, which is the risk that the counterparty to the agreement could default on the agreement. If a seller defaults, a Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of the sale including accrued interest are less than the resale price provided in the agreement, including interest. In addition, if the seller becomes involved in bankruptcy or insolvency proceedings, the Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if, for example, the Fund is treated as an unsecured creditor and required to return the underlying collateral to the seller or its assigns. Pursuant to an exemptive order issued by the SEC, the Funds may "combine" uninvested cash balances into a joint account, which may be invested in one or more repurchase agreements. Reverse Repurchase Agreements A reverse repurchase agreement is a contract under which a Fund sells a security for cash for a relatively short period (usually not more than one week) subject to the obligation of the Fund to repurchase such security at a fixed time and price (representing the seller's cost plus interest). Reverse repurchase agreements may be viewed as borrowings made by a Fund. At the time a Fund enters into a reverse repurchase agreement, it may establish a 33 segregated account with its Custodian in which it will maintain cash, U.S. Government securities or other liquid debt or equity securities equal in value to its obligations in respect of reverse repurchase agreements. Key Considerations and Risks: Reverse repurchase agreements involve the risk that the market value of the securities the Funds are obligated to repurchase under the agreement may decline below the repurchase price. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, the Funds' use of proceeds of the agreement may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Funds' obligation to repurchase the securities. In addition, reverse repurchase agreements are techniques involving leverage, and are subject to asset coverage requirements if the Funds do not establish and maintain a segregated account. Under the requirements of the 1940 Act, the Funds are required to maintain an asset coverage (including the proceeds of the borrowings) of at least 300% of all borrowings. Depending on market conditions, the Funds' asset coverage and other factors at the time of a reverse repurchase, the Funds may not establish a segregated account when the Adviser believes it is not in the best interests of the Funds to do so. In this case, such reverse repurchase agreements will be considered borrowings subject to the asset coverage described above. Securities Lending For various reasons, including to enhance a Fund's return, a Fund may lend its portfolio securities to broker/dealers and other institutional investors. Loans are typically made pursuant to agreements that require the loans be continuously secured by collateral equal at all times in value to at least the market value of the securities loaned. Such loans may not be made if, as a result, the aggregate amount of all outstanding securities loans for a Fund exceed one-third of the value of the Fund's total assets. A Fund will continue to receive interest on the loaned securities while simultaneously earning interest on the investment of the collateral. However, a Fund will normally pay lending fees to such broker/dealers and related expenses from the interest earned on invested collateral. The Money Market Funds do not engage in securities lending. Key Considerations and Risks: Securities lending transactions are generally subject to counterparty risks, which is the risk that the counterparty to the transaction could default. In other words, the risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. However, loans are made only to borrowers deemed to be of good standing and when, in its judgment, the income to be earned from the loan justifies the attendant risks. Short Sales Selling a security short is the sale of a security or commodity futures contract not owned by the seller. The technique is used to take advantage of an anticipated decline in the price or to protect a profit in a long-term position. To complete such a transaction, the Fund must borrow the security to make delivery to the buyer. The Fund then is obligated to replace the security borrowed by purchasing the security at the market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by the Fund. Until the security is replaced, the Fund is required to pay to the lender amounts equal to any dividends or interest which accrue during the period of the loan. To borrow the security, the Fund also may be required to pay a premium, which would increase the cost of the security sold. The proceeds of the short sale will be retained by the broker, to the extent necessary to meet the margin requirements, until the short position is closed out. Until the Fund closes its short position or replaces the borrowed security, the Fund will cover its position with an offsetting position or maintain a segregated account containing cash or liquid instruments at such a level that the amount deposited in the account plus the amount deposited with the broker as collateral will equal the current value of the security sold short. Key Considerations and Risks: The successful use by the Funds of short sales will be subject to the ability of the Adviser to correctly predict movements in the directions of the relevant market. The Funds therefore bear the risk that the Adviser will incorrectly predict future price directions. In addition, if a Fund sells a security short, and that security's price goes up, the Fund will have to make up the margin on its open position (i.e., purchase more securities on the market to cover the position). It may be unable to do so and thus its position may be not be closed out. There can be no assurance that the Fund will not incur significant losses in such a case. 34 Stripped Securities Stripped securities are derivatives. See generally "Descriptions of Permissible Investments--Derivatives." They are securities where an instrument's coupon (or interest ) is separated from its corpus (or principal) and then are re-sold separately, usually as zero-coupon bonds. Because stripped securities are typically products of brokerage houses and the U.S. Government, they are many different types and variations. For example, separately traded interest and principal securities, or STRIPS, are component parts of a U.S. Treasury security where the principal and interest components are traded independently through the Federal Book-Entry System. Stripped mortgage-backed securities , or SMBS, are also issued by the U.S. Government or an agency. TIGERS are Treasury securities stripped by brokers. See also "Descriptions of Permissible Investments--Zero-coupon Securities." The Adviser will only purchase stripped securities for Money Market Funds where the securities have a remaining maturity of 397 days or less; therefore, the Money Market Funds may only purchase the interest component parts of U.S. Treasury securities. Key Considerations and Risks: If the underlying obligations experience greater than anticipated prepayments of principal, the Fund may fail to fully recover its initial investment. The market value of the class consisting entirely of principal payments can be extremely volatile in response to changes in interest rates. The yields on a class of SMBS that receives all or most of the interest are generally higher than prevailing market yields on other mortgage-backed obligations because their cash flow patterns are also volatile and there is a greater risk that the initial investment will not be fully recovered. SMBS issued by the U.S. Government (or a U.S. Government agency or instrumentality) may be considered liquid under guidelines established by a Company's Board if they can be disposed of promptly in the ordinary course of business at a value reasonably close to that used in the calculation of the Fund's per share net asset value. Swap Contracts Swap agreements are derivative instruments. See generally "Descriptions of Permissible Investments--Derivatives." They can be individually negotiated and structured to include exposure to a variety of different types of investments or market factors. Depending on their structure, swap agreements may increase or decrease a Fund's exposure to long- or short-term interest rates, foreign currency values, mortgage securities, corporate borrowing rates, or other factors such as security prices or inflation rates. Swap agreements can take many different forms and are known by a variety of names and include interest rate, index, credit, credit default and currency exchange rate swap agreements. In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed-upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed-upon level. An interest rate collar combines elements of buying a cap and selling a floor. Swap agreements will tend to shift a Fund's investment exposure from one type of investment to another. For example, if the Fund agreed to pay fixed rates in exchange for floating rates while holding fixed-rate bonds, the swap would tend to decrease the Fund's exposure to long-term interest rates. Caps and floors have an effect similar to buying or writing options. Key Considerations and Risks: Depending on how they are used, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield. Additionally, whether a Fund's use of swap contracts will be successful in furthering its investment objective will depend on the Adviser's ability to correctly predict whether certain types of investments are likely to produce greater returns than other investments. Because they are two party contracts and because they may have terms of greater than seven days, swap agreements may be considered to be illiquid. Moreover, a Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. The most significant factor in the performance of swap agreements is the change in the specific interest rate, currency, or other factor that determines the amounts of payments due to and from a Fund. If a swap agreement calls for payments by a Fund, the Fund must be prepared to make such payments when due. In addition, if the counterparty's creditworthiness declines, the value of a swap agreement would likely decline, potentially resulting in losses. However, a Fund will closely monitor the credit of a swap contract counterparty in order to minimize this risk. A Fund may be able to eliminate its exposure under a swap agreement either by assignment or other disposition, or by entering into an offsetting swap agreement with the same party or a similarly creditworthy party. 35 The Adviser does not believe that a Fund's obligations under swap contracts are senior securities and, accordingly, a Fund will not treat them as being subject to its borrowing restrictions. U.S. Government Obligations U.S. Government obligations are money market instruments. They include securities that are issued or guaranteed by the United States Treasury, by various agencies of the United States Government, or by various instrumentalities which have been established or sponsored by the United States Government. U.S. Treasury securities are backed by the "full faith and credit" of the United States. Securities issued or guaranteed by federal agencies and the U.S. Government sponsored instrumentalities may or may not be backed by the full faith and credit of the United States. Some of the U.S. Government agencies that issue or guarantee securities include the Export-Import Bank of the United States, Farmers Home Administration, Federal Housing Administration, Maritime Administration, Small Business Administration, and The Tennessee Valley Authority. An instrumentality of the U.S. Government is a government agency organized under Federal charter with government supervision. Instrumentalities issuing or guaranteeing securities include, among others, Federal Home Loan Banks, the Federal Land Banks, Central Bank for Cooperatives, Federal Intermediate Credit Banks and FNMA. Because of their relative liquidity and high credit quality, U.S. Government obligations are often purchased by the Money Market Funds, and can in some instances, such as for the Government Money Market Fund or Treasury Reserves, comprise almost all of their portfolios. Key Considerations and Risks: In the case of those U.S. Government obligations not backed by the full faith and credit of the United States, the investor must look principally to the agency or instrumentality issuing or guaranteeing the obligation for ultimate repayment, and may not be able to assert a claim against the United States itself in the event the agency or instrumentality does not meet its commitment. Variable- and Floating-Rate Instruments These types of securities have variable- or floating-rates of interest and, under certain limited circumstances, may have varying principal amounts. Unlike a fixed interest rate, a variable or floating interest rate is one that rises and falls based on the movement of an underlying index of interest rates. For example, many credit cards charge variable interest rates, based on a specific spread over the prime rate. Most home equity loans charge variable rates tied to the prime rate. Variable- and floating-rate instruments pay interest at rates that are adjusted periodically according to a specified formula; for example, some adjust daily and some adjust every six months. The variable- or floating-rate tends to decrease the security's price sensitivity to changes in interest rates. These types of securities are relatively long-term instruments that often carry demand features permitting the holder to demand payment of principal at any time or at specified intervals prior to maturity. Key Considerations and Risks: In order to most effectively use these investments, the Adviser must correctly assess probable movements in interest rates. This involves different skills than those used to select most portfolio securities. If the Adviser incorrectly forecasts such movements, a Fund could be adversely affected by the use of variable- or floating-rate obligations. Warrants and Rights A warrant is a type of security, usually issued together with a bond or preferred stock, that entitles the holder to buy a proportionate amount of common stock at a specified price, usually higher than the market price at the time of issuance, for a period of years or to perpetuity. In contrast, rights, which also represent the right to buy common stock, normally have a subscription price lower than the current market value of the common stock and a life of two to four weeks. A warrant is usually issued as a sweetener, to enhance the marketability of the accompanying fixed-income securities. Warrants are freely transferable and are traded on major exchanges. The prices of warrants do not necessarily correlate with the prices of the underlying securities and are, therefore, generally considered speculative investments. Key Considerations and Risks: The purchase of warrants involves the risk that the purchaser could lose the purchase value of the warrant if the right to subscribe to additional shares is not exercised prior to the warrant's expiration, if any. Also, the purchase of warrants involves the risk that the effective price paid for the warrant added 36 to the subscription price of the related security may exceed the value of the subscribed security's market price such as when there is no movement in the level of the underlying security. When-Issued Purchases, Delayed Delivery and Forward Commitments A Fund may agree to purchase securities on a when-issued or delayed delivery basis or enter into a forward commitment to purchase securities. These types of securities are those where the date for delivery of and payment for the securities is not fixed at the date of purchase, but is set after the securities are issued (normally within forty-five days after the date of the transaction). The payment obligation and, if applicable, the interest rate that will be received on the securities are fixed at the time the buyer enters into the commitment. When a Fund engages in these transactions, its Custodian will segregate cash, U.S. Government securities or other high-quality debt obligations equal to the amount of the commitment. Normally, the Custodian will segregate portfolio securities to satisfy a purchase commitment, and in such a case a Fund may be required subsequently to segregate additional assets in order to ensure that the value of the segregated assets remains equal to the amount of the Fund's commitment. A Fund will make commitments to purchase securities on a when-issued or delayed delivery basis or to purchase or sell securities on a forward commitment basis only with the intention of completing the transaction and actually purchasing or selling the securities. If deemed advisable as a matter of investment strategy, however, a Fund may dispose of or renegotiate a commitment after it is entered into, and may sell securities it has committed to purchase before those securities are delivered to the Fund on the settlement date. In these cases the Fund may realize a capital gain or loss. The value of the securities underlying a when-issued purchase or a forward commitment to purchase securities, and any subsequent fluctuations in their value, is taken into account when determining the net asset value of a Fund starting on the date the Fund agrees to purchase the securities. The Fund does not earn dividends on the securities it has committed to purchase until they are paid for and delivered on the settlement date. When the Fund makes a forward commitment to sell securities it owns, the proceeds to be received upon settlement are included in the Fund's assets. Fluctuations in the value of the underlying securities are not reflected in the Fund's net asset value as long as the commitment remains in effect. Risks and Other Considerations: Investment in securities on a when-issued or delayed delivery basis may increase the Fund's exposure to market fluctuation and may increase the possibility that the Fund's shareholders will suffer adverse federal income tax consequences if the Fund must engage in portfolio transactions in order to honor a when-issued or delayed delivery commitment. In a delayed delivery transaction, the Fund relies on the other party to complete the transaction. If the transaction is not completed, the Fund may miss a price or yield considered to be advantageous. The Fund will employ techniques designed to reduce such risks. If the Fund purchases a when-issued security, the Fund's Custodian will segregate liquid assets in an amount equal to the when-issued commitment. If the market value of such segregated assets declines, additional liquid assets will be segregated on a daily basis so that the market value of the segregated assets will equal the amount of the Fund's when-issued commitments. To the extent that liquid assets are segregated, they will not be available for new investments or to meet redemptions. Securities purchased on a delayed delivery basis may require a similar segregation of liquid assets. In delayed delivery transactions, delivery of the securities occurs beyond normal settlement periods, but a Fund would not pay for such securities or start earning interest on them until they are delivered. However, when a Fund purchases securities on such a delayed delivery basis, it immediately assumes the risk of ownership, including the risk of price fluctuation. Failure by a counterparty to deliver a security purchased on a delayed delivery basis may result in a loss or missed opportunity to make an alternative investment. Depending upon market conditions, a Fund's delayed delivery purchase commitments could cause its net asset value to be more volatile, because such securities may increase the amount by which the Fund's total assets, including the value of when-issued and delayed delivery securities held by the Fund, exceed its net assets. Zero-Coupon, Pay-In-Kind and Step-Coupon Securities A zero-coupon security is one that makes no periodic interest payments but instead is sold at a deep discount from its face value. There are many different kinds of zero-coupon securities. The most commonly known is the zero-coupon bond, which either may be issued at a deep discount by a corporation or government entity or may be created by a brokerage firm when it strips the coupons off a bond and sells the bond of the note and the coupon separately. This technique is used frequently with U.S. Treasury bonds, and the zero-coupon issue is 37 marketed under such names as CATS (Certificate of Accrual on Treasury Securities), TIGER (Treasury Investor Growth Receipt) or STRIPS (Separate Trading of Registered Interest and Principal of Securities). Zero-coupon bonds are also issued by municipalities. Buying a municipal zero-coupon bond frees its purchaser of the worry about paying federal income tax on imputed interest, since the interest is tax-exempt for federal income tax purposes. Zero-coupon certificates of deposit and zero-coupon mortgages also exists; they work on the same principle as zero-coupon bonds--the CD holder or mortgage holder receives face value at maturity, and no payments until then. See "Descriptions of Permissible Investments--Stripped Securities." Step-coupon bonds trade at a discount from their face value and pay coupon interest. The coupon rate is low for an initial period and then increases to a higher coupon rate thereafter. The discount from the face amount or par value depends on the time remaining until cash payments begin, prevailing interest rates, liquidity of the security and the perceived credit quality of the issue. Pay-in-kind bonds normally give the issuer an option to pay cash at a coupon payment date or give the holder of the security a similar bond with the same coupon rate and a face value equal to the amount of the coupon payment that would have been made. In general, owners of zero-coupon, step-coupon and pay-in-kind bonds have substantially all the rights and privileges of owners of the underlying coupon obligations or principal obligations. Owners of these bonds have the right upon default on the underlying coupon obligations or principal obligations to proceed directly and individually against the issuer, and are not required to act in concert with other holders of such bonds. Key Considerations and Risks: Generally, the market prices of zero-coupon, step-coupon and pay-in-kind securities are more volatile than the prices of securities that pay interest periodically and in cash and are likely to respond to changes in interest rates to a greater degree than other types of debt securities. Because zero-coupon securities bear no interest, they are the most volatile of all fixed-income securities. Since zero-coupon bondholders do not receive interest payments, zeros fall more dramatically than bonds paying out interest on a current basis when interest rates rise. However, when interest rates fall, zero-coupon securities rise more rapidly in value than full-coupon bonds, because the bonds have locked in a particular rate of reinvestment that becomes more attractive the further rates fall. The greater the number of years that a zero-coupon security has until maturity, the less an investor has to pay for it, and the more leverage is at work for the investor. For example, a bond maturing in 5 years may double, but one maturing in 25 years may increase in value 10 times, depending on the interest rate of the bond. Other Considerations Temporary Defensive Purposes Each Fund may hold cash or money market instruments. It may invest in these securities without limit, when the Adviser: (i) believes that the market conditions are not favorable for profitable investing, (ii) is unable to locate favorable investment opportunities, or (iii) determines that a temporary defensive positions advisable or necessary in order to meet anticipated redemption requests, or for other reasons. When a Fund engages in such strategies, it may not achieve its investment objective. Portfolio Turnover The length of time a Fund has held a particular security is not generally a consideration in investment decisions. A change in the securities held by a Fund is known as "portfolio turnover." A Fund may engage in frequent and active trading of portfolio securities to achieve its investment objective, particularly during periods of volatile market movements. High portfolio turnover (e.g., over 100%) involves correspondingly greater expenses to the Fund, including brokerage commissions or dealer mark-ups and other transaction costs on the sale of securities and reinvestments in other securities. Such sales may also result in adverse tax consequences to a Fund's shareholders. The trading costs and tax effects associated with portfolio turnover may adversely affect the Fund's performance. For each Fund's portfolio turnover rate, see the "Financial Highlights" in the prospectus for that Fund. The portfolio turnover rate for certain Funds this year was significantly higher than in past years. The portfolio turnover rates for the Aggressive Growth Fund, Capital Growth Fund, Equity Income Fund, Managed Index Fund, Value Fund and Convertible Securities Fund were higher this year due to the prolonged market correction, 38 generally volatile economy and changing market environment, which forced the Adviser to reposition Fund holdings. In addition, the Aggressive Growth Fund changed to an aggressive growth style on April 1, 2000 from the generally more conservative disciplined equity style, which also resulted in the Adviser repositioning the Fund's holdings. The portfolio turnover rates for the Bond Fund and Strategic Income Fund were higher this year due to the fact that dollar roll transactions are now considered by the Funds as "positions held" rather than financing transactions. In addition, the fact that the Funds now invest a portion of their assets in the High Yield Portfolio and International Bond Portfolio (as described in the Fund's prospectus) has resulted in the Adviser having to reposition Fund holdings. The portfolio turnover rate for the Emerging Markets Fund was higher this year to due increased volatility across markets both in terms of country and sector performance. The High Technology Industry Certain Funds invest in companies that are considered part of the high technology industry. Investing in issuers of stock or debt in this industry is subject to additional risk. Many companies in the technology industry are new companies without long operating histories. Certain of these companies have yet to earn a profit. In addition, the Nasdaq Stock Market, which is the stock exchange on which the shares of many high technology companies trade, has recently experienced dramatic volatility. Investments in certain types of high technology companies also include the risk that the economic prospects, and the share prices, of such companies may fluctuate dramatically due to changes in the regulatory environment. Certain high technology products and services may be subject to acute competitive pressures and aggressive pricing. Similarly, new products of high technology companies are subject to risk of rapid obsolescence caused by scientific developments and technological advances and may not meet expectations or even reach the marketplace. These types of risks have manifested for many high technology companies in 2001. The Financial Services Industry Certain Funds, including the Marsico Financial Services Fund, invest in companies that are part of the financial services industry. These companies may include, among others, banks, brokerage firms, investment banking firms, investment advisers, securities underwriters and insurance companies. Investing in issuers of stock or debt in this industry is subject to additional risk. Some of these companies are subject to extensive regulation, rapid business changes, volatile performance dependent upon the availability and cost of capital and prevailing interest rates, significant competition and the risks inherent in securities trading and underwriting activities. In addition, the recently enacted Gramm-Leach-Bliely Act, which generally has modernized financial services law, has and may continue to lead to industry-wide changes in the way that banks, broker/dealers, insurance companies and other financial services companies are organized and do business. General economic conditions may also affect these companies. Credit and other losses resulting from the financial difficulty of borrowers or other third parties also have a potentially adverse effect on companies in this industry. Insurance companies are particularly subject to government regulation and rate setting, potential tax law changes, and industry-wide pricing and competition cycles. Property and casualty insurance companies also tend to be affected by weather and other catastrophes. Life and health insurance companies tend to be affected by mortality and morbidity rates, including the effects of epidemics. Individual insurance companies may be exposed to reserve inadequacies, problems in investment portfolios and failures of reinsurance carriers. MANAGEMENT OF THE COMPANIES The business and affairs of the Companies are managed under the direction of their respective Boards. The Boards are generally responsible for the overall management and supervision of the business and affairs of the Companies and their Funds, which includes formulating policies for the Funds, approving major service provider contracts (including investment advisory agreements) and authorizing Company officers to carry out the actions of the Boards. A majority of the Board Members of each Company are not affiliated with the Adviser or otherwise "interested persons" of the Companies or the Adviser as defined in the 1940 Act; these Board Members are referred to as Independent Board Members. Although all Board Members are charged with the fiduciary duty of protecting shareholders interests when supervising and overseeing the management and operations of the Companies, the 39 Independent Board Members have particular responsibilities for assuring that the Fund is managed in the best interests of its shareholders, including being charged with certain specific legally mandated duties. The Boards, including certain of their Committees described below, meet at least quarterly to review, among other things, the business and operations, investment performance and regulatory compliance of the Funds. At least annually, the Boards review, among other things, the fees paid to: (i) the Adviser and any affiliates, for investment advisory and sub-advisory services and other administrative and shareholder services; and (ii) the Distributor for the distribution and sale of Fund shares. The Board Members and Principal Officers The Board Members and principal officers of the Companies are listed below together with information on their positions with the Companies, age, address, principal occupation during the past five years and other principal business affiliations. Those Board Members who are not Independent Board Members are indicated by an asterisk "*".
Principal Occupations During Past 5 Years Position with and Current Name, Age and Address the Companies Directorships - --------------------- ------------- -------------- Edmund L. Benson, III Board Member Director, President and Treasurer, Saunders & Benson, Age: 64 Inc. (insurance); Director, Insurance Managers Inc. c/o Nations Funds (insurance); Director, Insurance Managers, Inc. One Bank of America Plaza (insurance); Board Member, Nations Funds Family (7 Charlotte, NC 28255 registered investment companies); and Director, Nations Fund Portfolios, Inc. through August 1999. William P. Carmichael Board Member Director, Pacific Horizon Funds, Inc. (investment Age: 57 company) through May 2000; Trustee, Time Horizon c/o Nations Funds Funds (investment company) through February 1999; One Bank of America Plaza Trustee, Pacific Innovations Trust (investment Charlotte, NC 28255 company) from January 1997 to February 1999; Director, The Hain Food Group, Inc. (specialty food products distributor) through December 1998; Director, Cobra Electronics Corporation (electronic equipment manufacturer); Director, Opta Food Ingredients, Inc. (food ingredients manufacturer); Director, Golden Rule Insurance Company; and Board Member, Nations Funds Family (5 registered investment companies). James Ermer Board Member Executive Vice President, Corporate Development and Age: 59 Planning - Land America (title insurance) through c/o Nations Funds present; Senior Vice President, Finance - CSX One Bank of America Plaza Corporation (transportation and natural resources) Charlotte, NC 28255 through December 1997; Director, National Mine Service (mining supplies); Director, Lawyers Title Corporation (title insurance); Board Member, Nations Funds Family (7 registered investment companies); and Director, Nations Fund Portfolios, Inc. through August 1999. William H. Grigg Board Member Chairman Emeritus since July 1997, Chairman and Chief Age: 68 Executive Officer through July 1997 - Duke Power Co.; c/o Nations Funds Director, The Shaw Group, Inc.; Director and Vice One Bank of America Plaza Chairman, Aegis Insurance Services, Ltd. (a mutual Charlotte, NC 28255 insurance company in Bermuda); Board Member, Nations Funds Family (11 registered investment companies); and Director, Nations Fund Portfolios, Inc. through August 1999. Thomas F. Keller Board Member R.J. Reynolds Industries Professor of Business Age: 69 Administration, Fuqua School of Business, Duke c/o Nations Funds University; Dean, Fuqua School of Business Europe, One Bank of America Plaza Duke University; Director, Wendy's International, Charlotte, NC 28255 Inc. (restaurant operating and franchising); Dean Fuqua School of Business, Duke University, through June 1995; Director, LADD Furniture, Inc. (furniture) through February 2001; Director, American Business Products, Inc. (printing services) through March 2000; Director, Dimon, Inc. (tobacco); Director, Biogen, Inc. (pharmaceutical biotechnology); Trustee, The Mentor Funds, Mentor Institutional Trust and Cash Reserve Trust through December 1999; Board Member, Nations Funds Family (11
40
registered investment companies); and Director, Nations Fund Portfolios, Inc. through August 1999. Carl E. Mundy, Jr. Board Member President and CEO, USO through _________; Commandant, Age: 66 United States Marine Corps from July 1991 to July c/o Nations Funds 1995; Director, Shering-Plough (pharmaceuticals and One Bank of America Plaza health care products); Director, General Dynamics Charlotte, NC 28255 Corporation (defense systems); Board Member, Nations Funds Family (7 registered investment companies); and Director, Nations Fund Portfolios, Inc. through August 1999. Dr. Cornelius J. Pings Board Member President, Association of American Universities Age: 72 through June 1998; Director, Farmers Group, Inc. c/o Nations Funds (insurance company); Director, Edelbrock,Inc. through One Bank of America Plaza May 2000; Board Member and Chairman, Pacific Horizon Charlotte, NC 28255 Funds, Inc., Master Investment Trust, Series I through 1999; Board Member and Chairman, Pacific Innovations Trust through 2000; Trustee, Time Horizon Funds through 1999; Board Member, Nations Funds Family (7 registered investment companies); and Director, Nations Fund Portfolios, Inc. from May 1999 through August 1999. James B. Sommers* Board Member Executive Vice President, NationsBank Corporation Age: 62 through May 1997; Chairman, Central Piedmont c/o Nations Funds Community College Foundation; Chairman, Board of One Bank of America Plaza Commissioners, Charlotte/ Mecklenberg Hospital Charlotte, NC 28255 Authority; Trustee, Central Piedmont Community College; Trustee, Mint Museum of Art; Board Member, Nations Funds Family (7 registered investment companies); and Director, Nations Fund Portfolios, Inc. through August 1999. A. Max Walker* President and Independent Financial Consultant; Chairman of the Age: 79 Chairman of the Board Boards, Nations Funds Family (4 registered investment c/o Nations Funds companies); Chairman of the Boards and President, One Bank of America Plaza Nations Funds Family (7 registered investment Charlotte, NC 28255 companies); and Chairman of the Board and President, Nations Fund Portfolios, Inc. through August 1999. Charles B. Walker Board Member Director, Ethyl Corporation (chemical manufacturing); Age: 62 Vice Chairman and Chief Financial Officer, Albemarle c/o Nations Funds Corporation (chemical manufacturing); Board Member, One Bank of America Plaza Nations Funds Family (7 registered investment Charlotte, NC 28255 companies); and Director, Nations Fund Portfolios, Inc. through August 1999. Thomas S. Word, Jr.* Board Member Partner - McGuireWoods LLP (law firm); Director - Age: 63 Vaughan-Bassett Furniture Company, Inc. (furniture); c/o Nations Funds Board Member, Nations Funds Family (7 registered One Bank of America Plaza investment companies); and Director, Nations Fund Charlotte, NC 28255 Portfolios, Inc. through August 1999. Richard H. Blank, Jr. Secretary and Senior Vice President since 1998, and Vice President Age: 44 Treasurer from 1994 to 1998 -- Mutual Fund Services, Stephens Stephens Inc. Inc.; Secretary since September 1993 and Treasurer 111 Center Street since November 1998 - Nations Funds Family (7 Little Rock, AR 72201 registered investment companies); and Secretary and Treasurer, Nations Fund Portfolios, Inc. through August 1999.
Board Committees Each Company has an Audit Committee, Governance Committee and Investment Committee. The primary responsibilities of each Company's Audit Committee are, as set forth in its charter, to make recommendations to the Board Members as to: the engagement or discharge of the Company's independent auditors (including the audit fees charged by auditors); supervise investigations into matters relating to audit matters; review with the independent auditors the results of audits; and address any other matters regarding audits. The members of 41 each Company's Audit Committee are: Dr. Thomas Keller (Chair), Dr. Cornelius Pings and Charles B. Walker. The Audit Committee members are not "interested" persons (as defined in the 1940 Act). The primary responsibilities of each Company's Governance Committee are, as set from in its charter, to make recommendations to the Boards on issues related to the Independent Board Members and the composition and operation of the Boards, and communicate with management on those issues. The Governance Committees also evaluate and nominate Board Member candidates. The members of each Company's Governance Committee are: William H. Grigg (Chair), Edmund L. Benson III, William P. Carmichael (advisory capacity only for NFT, NFI and NR) and Carl E. Mundy, Jr. The Governance Committee members are not "interested" persons (as defined in the 1940 Act). The primary responsibilities of each Company's Investment Committee are, as set forth in its charter, to assist the Boards in carrying out their oversight responsibilities in specific areas of investment management, both by acting as liaison between the full Boards and the Adviser on investment matters, and by acting on behalf of the Boards, on an interim basis, on investment issues in non-recurring or extraordinary circumstances when it is impractical to convene a meeting of the full Boards. In carrying out these general responsibilities the Investment Committees assist the Boards in connection with issues relating to: the investment policies and procedures adopted for the Funds; appropriate performance benchmarks and other comparative issues; portfolio management staffing and other personnel issues of the Adviser; investment related compliance issues; possible exemptive applications or other relief necessary or appropriate with respect to investment matters; and other investment related matters referred from time to time to the Committees by the full Boards. The Committees report their activities to the full Boards on a regular basis and are responsible for making such recommendations with respect to the matters described above and other matters as the Committees may deem necessary or appropriate. The members of each Company's Investment Committee are: James Ermer (Chair), James B. Sommers and Thomas S. Word, Jr. Board Compensation Board Members are compensated for their services to the Nations Funds Family on a complex-wide basis, and not on a per registered investment company or per fund basis. Effective February 1, 2001, the Board approved new compensation arrangements, as follows:
Board Member Annual Retainer: $65,000 Board Chairman: Additional 25% of the combined total of the base annual retainer and all meeting fees received as a Board Member. Terms: Payable in quarterly installments. Payable pro rata for partial calendar year service. Allocated across multiple registrants. Meeting Fees: $5,000 per meeting for in-person meetings (up to six meetings per calendar year) and $1,000 for telephone meetings. Allocated across multiple registrants convened at meetings. Audit Committee Member Chairman: Additional 10% of the combined total of the base (for Audit Committee Members only) annual retainer and all meeting fees received as a Board Member or Audit Committee Member. Committee Meeting Fees: $1,000 per meeting if not held in connection with a regularly scheduled Board meeting. Allocated across multiple registrants convened at meetings. Governance Committee Member Chairman: Additional 10% of the combined total of the base (for Governance Committee Members only) annual retainer and all meeting fees received as a Board Member or Governance Committee Member. Committee Meeting Fees: $1,000 per meeting if not held in connection with a regularly scheduled Board meeting. Allocated across multiple registrants convened at meetings. Investment Committee Member Chairman: Additional 10% of the combined total of the base (for Investment Committee Members only) annual retainer and all meeting fees received as a Board Member or Investment Committee Member. Committee Meeting Fees: $1,000 per meeting if not held in connection with a regularly scheduled Board meeting. Allocated across multiple registrants convened at meetings.
Prior to February 1, 2001, the Board was compensated as follows: 42
Board Member Annual Retainer: $65,000 Board Chairman: Additional 20% of the base annual retainer. Terms: Payable in quarterly installments. Payable pro rata for partial calendar year service. Allocated across multiple registrants. Meeting Fees: $5,000 per meeting for in-person meetings (up to six meetings per calendar year) and $1,000 for telephone meetings. Allocated across multiple registrants convened at meetings. Audit Committee Member Chairman: Additional 10% of the base retainer as Board Member. Meeting Fees: $1,000 per meeting if not held within one calendar day before or after regularly scheduled Board meetings. Allocated across multiple registrants convened at meetings. Nominating Committee Member Meeting Fees: $1,000 per meeting if not held within one calendar day before or after regularly scheduled Board meetings. Allocated across multiple registrants convened at meetings.
The following Compensation Table provides the compensation paid by the Companies to the Board Members for the year ended March 31, 2001, based on the compensation structures in place during this period. COMPENSATION TABLE
Aggregate Pension or Compensation Retirement from Benefits Accrued Estimated Annual Total Compensation Name of Person NFI, NFT, NFST as Part of Fund Benefits Upon from NFI, NFT, NFST, NR Position (1) and NR Expenses Retirement Plan & Nations Funds Family (2)(3) ------------ ------ -------- --------------- ----------------------------- Edmund L. Benson, III 73,446 7,500 45,000 92,000 Board Member William Carmichael 8,298 1,800 11,000 26,852 Board Member James Ermer 71,941 8,000 49,000 90,225 Board Member William H. Grigg 75,126 8,000 49,000 111,125 Board Member Thomas F. Keller 75,010 8,000 49,000 112,000 Board Member Carl E. Mundy, Jr. 73,446 7,500 45,000 92,000 Board Member Dr. Cornelius Pings 73,446 7,500 45,000 92,000 Board Member James P. Sommers 74,237 7,500 45,000 93,000 Board Member A. Max Walker 85,413 9,200 56,000 128,063 Chairman of the Board Charles B. Walker 69,396 7,500 45,000 87,000 Board Member Thomas S. Word 74,237 7,500 45,000 93,000 Board Member
(1) All Board Members receive reasonable reimbursements for expenses related to their attendance at meetings of the Boards. Except to the extent that A. Max Walker, as Chairman of the Board of each Company, can be deemed to be an officer of such Company, no officers of the Companies receive direct remuneration from the Companies for serving in such capacities. (2) Messrs. Grigg, Keller and A.M. Walker receive compensation from eleven investment companies that are deemed to be part of the Nations Funds "fund complex," as that term is defined under Item 22 of Rule 14a-101 under the 1934 Act. Messrs. Benson, Ermer, C. Walker, 43 Sommers, Mundy and Word receive compensation from seven investment companies deemed to be part of the Nations Funds complex. Mr. Carmichael receives compensation from four investment companies deemed to be part of the Nations Funds complex. (3) Total compensation amounts include deferred compensation payable to or accrued for the following Board Members: Edmund L. Benson, III $44,302; James Ermer $86,898; William H. Grigg $90,649; Thomas F. Keller $91,343; and Thomas S. Word $89,567. Nations Funds Retirement Plan Under the terms of the Nations Funds Family Retirement Plan for Eligible Board Members (the "Retirement Plan"), each Board Member may be entitled to certain benefits upon retirement from the Boards. Pursuant to the Retirement Plan, the normal retirement date is the date on which the eligible Board Member has attained age 65 and has completed at least five years of continuous service with one or more of the Companies. If a Board Member retires before reaching age 65, no benefits are payable. Each eligible Board Member is entitled to receive an annual benefit from the Funds commencing on the first day of the calendar quarter coincident with or next following his date of retirement equal to 5% of the aggregate Board Member's fees payable by the Funds during the calendar year in which the Board Member's retirement occurs multiplied by the number of years of service (not in excess of ten years of service) completed with respect to any of the Funds. Such benefit is payable to each eligible Board Member in quarterly installments for a period of no more than five years. If an eligible Board Member dies after attaining age 65, the Board Member's surviving spouse (if any) will be entitled to receive 50% of the benefits that would have been paid (or would have continued to have been paid) to the Board Member if he had not died. The Retirement Plan is unfunded. The benefits owed to each Board Member are unsecured and subject to the general creditors of the Funds. Nations Funds Deferred Compensation Plan Under the terms of the Nations Funds Deferred Compensation Plan for Eligible Board Members (the "Deferred Compensation Plan"), each Board Member may elect, on an annual basis, to defer all or any portion of the annual board fees (including the annual retainer and all attendance fees) payable to the Board Member for that calendar year. An application was submitted to and approved by the SEC to permit deferring Board Members to elect to tie the rate of return on fees deferred pursuant to the Deferred Compensation Plan to one or more of certain investment portfolios of certain Funds. Distributions from the deferring Board Members' deferral accounts will be paid in cash, in generally equal quarterly installments over a period of five years beginning on the date the deferring Board Members' retirement benefits commence under the Retirement Plan. The Boards, in their sole discretion, may accelerate or extend such payments after a Board Member's termination of service. If a deferring Board Member dies prior to the commencement of the distribution of amounts in his deferral account, the balance of the deferral account will be distributed to his designated beneficiary in a lump sum as soon as practicable after the Board Member's death. If a deferring Board Member dies after the commencement of such distribution, but prior to the complete distribution of his deferral account, the balance of the amounts credited to his deferral account will be distributed to his designated beneficiary over the remaining period during which such amounts were distributable to the Board Member. Amounts payable under the Deferred Compensation Plan are not funded or secured in any way and deferring Board Members have the status of unsecured creditors of the Companies from which they are deferring compensation. Codes of Ethics Each Company, each Adviser and Stephens have adopted a Code of Ethics which contains policies on personal securities transactions by "access persons," including portfolio managers and investment analysts. These Codes of Ethics substantially comply in all material respects with recently amended Rule 17j-1 under the 1940 Act, which among other things provides that the Boards must review each Code of Ethics at least annually. The Codes of Ethics, among other things, prohibit each access person of the Company from purchasing or selling securities when such person knows or should have known that, at the time of the transaction, the security (i) was being considered for purchase or sale by a Fund, or (ii) was being purchased or sold by a Fund. For purposes of the Codes of Ethics, an access person means (i) a director or officer of a Company, (ii) any employee of a Company (or any company in a control relationship with a Company) who, in the course of his/her regular duties, obtains information about, or makes recommendations with respect to, the purchase or sale of securities by a Company, and (iii) any natural person in a control relationship with a Company who obtains information concerning recommendations made to a Company regarding the purchase or sale of securities. Portfolio managers and other 44 persons who assist in the investment process are subject to additional restrictions, including a requirement that they disgorge to a Company any profits realized on short-term trading (i.e., the purchase/sale or sale/purchase of securities within any 60-day period). The above restrictions do not apply to purchases or sales of certain types of securities, including mutual fund shares, money market instruments and certain U.S. Government securities. To facilitate enforcement, the Codes of Ethics generally require that a Company's access persons, other than its "disinterested" Board Members, submit reports to a Company's designated compliance person regarding transactions involving securities which are eligible for purchase by a Fund. The Codes of Ethics for the Companies, Advisers and Stephens are on public file with, and are available from, the SEC. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES As of July 1, 2001, Bank of America, N.A., One Bank of America Plaza, Charlotte, NC 28255, a wholly-owned subsidiary of Bank of America Corporation, may be deemed a "control person" (as that term is defined in the 1940 Act) of those Funds, shown below, in that it is deemed to beneficially own greater than 25% of the outstanding shares of a Fund by virtue of its fiduciary or trust roles. As of July 1, 2001, the name, address and percentage of ownership of each person who may be deemed to be a principal holder (i.e., owns of record or is known by a Company to own beneficially 5% or more of any class of a Fund's outstanding shares) is:
Fund/Class Ownership Address Amount of % of % of Type Shares Owned Class Fund KANSAS MUNICIPAL INCOME FUND R GTRUST 15,521.98 5.06 0.00 INVESTOR A PO BOX 2127 TOPEKA KS 66601-2127 KANSAS MUNICIPAL INCOME FUND R NFSC FEBO # W52-044652 178,550.38 58.29 0.02 INVESTOR A DOUGLAS J TERNES 12011 HICKORY LANE WICHITA KS 67235 KANSAS MUNICIPAL INCOME FUND R NFSC FEBO # W52-003573 24,799.02 8.09 0.00 INVESTOR A V KATHERYN & JIM F COPELAND TTEE V KATHERYN COPELAND REV TR/UA 11 1400 N WOODLAWN APT 6C WICHITA KS 67208 KANSAS MUNICIPAL INCOME FUND R JARNAT 30,343.50 9.90 0.00 INVESTOR A C/O FIRST NATIONAL BANK PO BOX 545 WINFIELD KS 67156 KANSAS MUNICIPAL INCOME FUND R NFSC FEBO # W52-037605 25,570.36 99.99 0.00 INVESTOR B ARLENE E BEHRING 1440 N GATEWOOD #27 WICHITA KS 67206 KANSAS MUNICIPAL INCOME FUND R STEPHENS INC 1.001 100.00 0.00 INVESTOR C ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 KANSAS MUNICIPAL INCOME FUND B BANK OF AMERICA NA 9,997,410.52 99.99 0.97 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 LIFEGOAL BALANCED GROWTH B STATE STREET BANK & TRUST CO TTEE 159,702.514 28.15 0.01 PORTFOLIO INVESTOR A FBO COASTGEAR & COMPANY ATTN: KEVIN SMITH 105 ROSEMONT AVE WESTWOOD MA 02090
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LIFEGOAL BALANCED GROWTH B STATE STREET BANK & TRUST CO TTEE 111,575.222 47.99 0.01 PORTFOLIO INVESTOR C FBO COASTGEAR & COMPANY ATTN: KEVIN SMITH 105 ROSEMONT AVE WESTWOOD MA 02090 LIFEGOAL BALANCED GROWTH B BANK OF AMERICA NA TTEE 18,339,847.39 99.94 0.88 PORTFOLIO PRIMARY A NB 401K PLAN U/A DTD 01/01/1983 P O BOX 2518/TX4-213-06-14 HOUSTON TX 77252-2518 LIFEGOAL BALANCED GROWTH R BNY CUST ROLLOVER IRA FBO 27,371.69 85.35 0.00 PORTFOLIO PRIMARY B MICHAEL CARDELINO 1712 FLATWOOD DRIVE FLOWER MOUND TX 75028 LIFEGOAL BALANCED GROWTH R BNY CUST SEP IRA FBO 4,688.89 14.62 0.00 PORTFOLIO PRIMARY B RONALD E ROSS 4004 NEW TOWN RD WAXHAW NC 28173-9759 LIFEGOAL GROWTH PORTFOLIO B STATE STREET BANK & TRUST CO TTEE 82,352.99 30.93 0.01 INVESTOR C FBO COASTGEAR & COMPANY ATTN: KEVIN SMITH 105 ROSEMONT AVE WESTWOOD MA 02090 LIFEGOAL GROWTH PORTFOLIO B BANK OF AMERICA NA TTEE 6,300,428.50 98.37 0.64 PRIMARY A NB 401K PLAN U/A DTD 01/01/1983 P O BOX 2518/TX4-213-06-14 HOUSTON TX 77252-2518 LIFEGOAL GROWTH PORTFOLIO R BNY CUST IRA FBO 698.28 99.79 0.00 PRIMARY B FRANK W TIMPA PO BOX 612 FORT MYERS FL 33902-0000 LIFEGOAL INCOME & GROWTH R BNY CUST FBO 10,783.42 5.66 0.00 PORTFOLIO INVESTOR A MARSHA L BREWER SEP IRA PLAN 9907 FLOYD ST OVERLAND PARK KS 66212 LIFEGOAL INCOME & GROWTH B DIVERSIFIED INVESTMENT ADVISORS 12,804.16 6.72 0.00 PORTFOLIO INVESTOR A ATTN: BHEESHAM PERSAUD MAIL DROP 2-52 4 MANHATTANVILLE ROAD PURCHASE NY 10577-2119 LIFEGOAL INCOME & GROWTH B STATE STREET BANK & TRUST CO TTEE 45,681.17 23.98 0.11 PORTFOLIO INVESTOR A FBO COASTGEAR & COMPANY ATTN: KEVIN SMITH 105 ROSEMONT AVE WESTWOOD MA 02090 LIFEGOAL INCOME & GROWTH B STATE STREET BANK & TRUST CO TTEE 73,924.96 59.54 0.11 PORTFOLIO INVESTOR C FBO COASTGEAR & COMPANY ATTN: KEVIN SMITH 105 ROSEMONT AVE WESTWOOD MA 02090 LIFEGOAL INCOME & GROWTH B DONALD R ATKINS AND 8,333.48 6.71 0.00 PORTFOLIO INVESTOR C DAVID R MORGAN TTEES LYNDON STEEL 401K PROFIT SHARING PL 1947 UNION CROSS ROAD WINSTON-SALEM NC 27107
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LIFEGOAL INCOME & GROWTH B BANK OF AMERICA NA TTEE 1,882,576.11 99.73 0.64 PORTFOLIO PRIMARY A NB 401K PLAN U/A DTD 01/01/1983 P O BOX 2518/TX4-213-06-14 HOUSTON TX 77252-2518 LIFEGOAL INCOME & GROWTH R STEPHENS INC 1.23 100.00 0.00 PORTFOLIO PRIMARY B ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 AGGRESSIVE GROWTH FUND R BNY CUST ROLLOVER IRA FBO 3,232.41 5.77 0.00 INVESTOR C BRIAN W LUGER 7905 SAGAMORE RD LEAWOOD KS 66206 AGGRESSIVE GROWTH FUND R WACHOVIA SECURITIES, INC. 3,524.24 6.30 0.00 INVESTOR C FBO 564-89769-17 P.O. BOX 1220 CHARLOTTE, NC 28201-1220 AGGRESSIVE GROWTH FUND R BNY CUST SEP IRA FBO 3,527.42 6.30 0.00 INVESTOR C DAVID M STOUT 202 HUDSON LN JACKSONVILLE NC 28540 AGGRESSIVE GROWTH FUND R NFSC FEBO # W19-659355 3,581.75 6.40 0.00 INVESTOR C FALCON FOOD SVC CO INC ATT J B KRAFT PRESIDENT 12753 PINEACRE LANE WEST PALM BCH, FL 33414 AGGRESSIVE GROWTH FUND B JAMES HIGHTOWER ART HIGHTOWER AND 3,925.66 7.01 0.00 INVESTOR C WILLIAM HIGHTOWER TTEES FBO HIGHTOWER CONSTRUCTION CO INC 401K PROFIT SHARING PLAN P O BOX 1369 GOOSE CREEK SC 29445 AGGRESSIVE GROWTH FUND B SUMMERVILLE PEDIATRICS PA 9,946.31 17.78 0.00 INVESTOR C PROFIT SHARING PLAN 312 MIDLAND PARKWAY SUMMERVILLE SC 29485-8114 AGGRESSIVE GROWTH FUND B BANK OF AMERICA NA 10,569,877.30 99.78 0.74 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 ASSET ALLOCATION FUND B SEAFIRST BANK 7,998,490.28 66.78 0.38 INVESTOR A FBO RETIREMENT SVCS PO BOX 84248 SEATTLE WA 98124-5548 ASSET ALLOCATION FUND B MERRILL LYNCH, PIERCE, FENNER 17,190.23 8.02 0.00 INVESTOR C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 ASSET ALLOCATION FUND B STATE STREET BANK & TRUST CO TTEE 99,360.89 46.36 0.00 INVESTOR C FBO COASTGEAR & COMPANY ATTN: KEVIN SMITH 105 ROSEMONT AVE WESTWOOD MA 02090
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ASSET ALLOCATION FUND PRIMARY B BANK OF AMERICA NA 2,106,289.28 98.25 0.10 A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 ASSET ALLOCATION FUND-PRIMARY R STEPHENS INC 1.73 100.00 0.00 B ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 BLUE CHIP FUND INVESTOR A B SEAFIRST BANK 12,132,985.25 54.46 0.43 FBO RETIREMENT SVCS PO BOX 84248 SEATTLE WA 98124-5548 BLUE CHIP FUND INVESTOR C B STATE STREET BANK & TRUST CO TTEE 515,299.93 73.93 0.02 FBO COASTGEAR & COMPANY ATTN: KEVIN SMITH 105 ROSEMONT AVE WESTWOOD MA 02090 BLUE CHIP FUND PRIMARY A B BANK OF AMERICA NA 1,876,735.53 88.79 0.07 ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 BLUE CHIP FUND PRIMARY A B NATIONS LIFEGOAL PORTFOLIOS INC 109,033.55 5.15 0.00 LIFEGOAL INCOME & GROWTH PORTFOLIO ATTN BRIAN SMITH NC1-002-33-31 101 SOUTH TRYON ST CHARLOTTE NC 28255 BLUE CHIP FUND-PRIMARY B R STEPHENS INC 0.70 100.00 0.00 ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 BOND FUND INVESTOR A B COBATCO C/O SYNOVUS TRUST CO 1,793,991.93 36.31 0.01 OPERATIONS 1148 BROADWAY COLUMBUS GA 31901 BOND FUND INVESTOR B B MERRILL LYNCH, PIERCE, FENNER 59,434.10 6.17 0.00 & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 BOND FUND INVESTOR C R BNY CUST IRA FBO 10,707.13 6.90 0.00 JAMES A BLANCHARD 9 LAS BRISAS AUSTIN TX 78746 BOND FUND INVESTOR C B MERRILL LYNCH, PIERCE, FENNER 19,546.35 12.60 0.00 & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 BOND FUND INVESTOR C B SUMMERVILLE PEDIATRICS PA 21,535.89 13.89 0.00 PROFIT SHARING PLAN 312 MIDLAND PARKWAY SUMMERVILLE SC 29485-8114
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BOND FUND INVESTOR C R NFSC FEBO # W80-059390 8,370.12 5.39 0.00 HELEN E SOLBERG TTEE HELEN ELIZABETH SOLBERG TRUST U/A 11/4/96 183 3RD AVE #509 CHULA VISTA CA 91910 BOND FUND INVESTOR C R CARVER DEVELOPMENT BOARD 9,052.57 5.83 0.00 ENDOWMENT FUND 226 N HACKBERRY ST SAN ANTONIO TX 78202 BOND FUND PRIMARY A B BANK OF AMERICA NA 223,017,281.22 92.03 0.90 ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 BOND FUND PRIMARY B R STEPHENS INC 1.05 100.00 0.00 ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 CALIFORNIA MUNICIPAL BOND R NFSC FEBO # W73-620181 42,389.69 5.04 0.00 FUND INVESTOR B HAZEL A NELSON TTEE OF THE NELSON FAMILY TRUST U/A 7/28/92 P O BOX 1457 WHITTIER CA 90609 CALIFORNIA MUNICIPAL BOND R BANC OF AMERICA INVESTMENT SERVICES 42,912.46 5.10 0.00 FUND INVESTOR B FBO 390139091 185 BERRY ST. 3RD FLOOR #12640 SAN FRANCISCO CA 94107 CALIFORNIA MUNICIPAL BOND R NFSC FEBO # W79-686131 54,042.90 6.42 0.00 FUND INVESTOR B ESHAGH ESHAGHADEH 631 S OLIVE ST #555 & 565 LOS ANGELES CA 90014 CALIFORNIA MUNICIPAL BOND R NFSC FEBO # W80-075507 27,566.32 9.73 0.00 FUND INVESTOR C JOSE L MAZON NORMA MAZON 1293 GAYWOOD ST SAN DIEGO CA 92154 CALIFORNIA MUNICIPAL BOND B MERRILL LYNCH, PIERCE, FENNER 31,752.16 11.21 0.00 FUND INVESTOR C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 CALIFORNIA MUNICIPAL BOND R NFSC FEBO # W75-610682 33,899.28 11.97 0.00 FUND INVESTOR C DENNIS REN YEON WONG 1262 TAINAN PL SAN JOSE CA 95131 CALIFORNIA MUNICIPAL BOND R BANC OF AMERICA INVESTMENT SERVICES 34,435.90 12.16 0.00 FUND INVESTOR C FBO 370510421 PO BOX 3701 INVESTMENT OPERATIONS WA1-501-31-10 SEATTLE WA 981243701
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CALIFORNIA MUNICIPAL BOND R BANC OF AMERICA INVESTMENT SERVICES 37,128.02 13.11 0.00 FUND INVESTOR C FBO 330109681 PO BOX 3701 INVESTMENT OPERATIONS WA1-501-31-10 SEATTLE WA 981243701 CALIFORNIA MUNICIPAL BOND R NFSC FEBO # W75-043389 41,235.06 14.56 0.00 FUND INVESTOR C CHEUK WONG LEE 19TH FL 78-B MEI FOO SUN CHUEN KOWLOON HONGKONG CHINA, PEOPLES REPUBLIC CALIFORNIA MUNICIPAL BOND B BANK OF AMERICA NA 5,913,084.23 99.99 0.22 FUND PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 CALIFORNIA TAX RESERVES B R NFSC FEBO # W80-004251 1.21 10.79 0.00 DUKEE KWON 22545 SKYLINE DR. YORBA LINDA CA 92887 CALIFORNIA TAX RESERVES B R STEPHENS INC 10.00 89.20 0.00 ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 CALIFORNIA TAX RESERVES C R STEPHENS INC 10.00 100.00 0.00 ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 CALIFORNIA TAX-EXEMPT R LEWCO SECURITIES 18,936,586.76 5.44 0.01 RESERVES ADVISER FD 00034 EXCHANGE PLACE PLAZA 2 JERSEY CITY NJ 07311-3988 CALIFORNIA TAX-EXEMPT B NATIONAL FINANCIAL FOR THE 281,752,936.24 81.01 0.43 RESERVES ADVISER FD EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 CALIFORNIA TAX-EXEMPT R AMERICAN INDUSTRIAL PARTNERS 1,500,108.62 87.65 0.00 RESERVES CAPITAL FD ONE MARITIME PLAZA #2525 SAN FRANCISCO CA 94111 CALIFORNIA TAX-EXEMPT R INTEGRAL CAPITAL MGMT III LP 211,326.88 12.34 0.00 RESERVES CAPITAL FD ATTN SUSAN BIGLIERI 2750 SAND HILL ROAD MENLO PARK CA 94025 CALIFORNIA TAX-EXEMPT B NATIONAL FINANCIAL FOR THE 212,811,648.37 27.29 0.43 RESERVES DAILY FUND EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 CALIFORNIA TAX-EXEMPT R STEPHENS INC 10.00 100.00 0.00 RESERVES INSTITUTIONAL CLASS ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201
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CALIFORNIA TAX-EXEMPT B BA INVESTMENT SERVICES INC 566,043,195.65 72.59 0.33 RESERVES DAILY FUND FOR THE BENEFIT OF CUSTOMERS UNIT 17852 ATTN H DAVID JONES 3RD PO BOX 7042 SAN FRANCISCO CA 94120 CALIFORNIA TAX-EXEMPT B NATIONAL FINANCIAL FOR THE 233,547,637.90 97.38 0.43 RESERVES INVESTOR FD EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 CALIFORNIA TAX-EXEMPT R STEPHENS INC 25.08 100.00 0.00 RESERVES LIQUIDITY ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 CALIFORNIA TAX-EXEMPT R STEPHENS INC 25.08 100.00 0.00 RESERVES MARKET ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 CALIFORNIA TAX-EXEMPT R STEPHENS INC 25.08 100.00 0.00 RESERVES SERVICES ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 CALIFORNIA TAX-EXEMPT B BANK OF AMERICA NA 323,523,871.79 99.12 0.19 RESERVES TRUST CL. ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 NAIONS CAPITAL GROWTH FUND B MERCANTILE SAFE DEP & TRUST CO TTEE 244,480.40 6.06 0.00 INVESTOR A CASE COMMUNICATIONS DEFINED BENEFIT PLAN A/C# 3400306 U/A DTD 05/28/1984 766 OLD HAMMONDS FERRY RD LINTHICUM MD 21090 CAPITAL GROWTH FUND INVESTOR C R NFSC FEBO # W13-653160 21,916.90 5.06 0.00 NFSC/FMTC IRA ROLLOVER FBO HERBERT HALPERIN 6905 NEVIS RD BETHESDA MD 20817 CAPITAL GROWTH FUND INVESTOR C R NFSC FEBO # W16-719625 27,376.81 6.33 0.00 NFSC/FMTC IRA FBO JAMES A HULLENDER 211 BLUEBIRD RD LAKE LURE NC 28746 CAPITAL GROWTH FUND INVESTOR C B E LARRY FONTS TTEE FBO 28,799.34 6.66 0.00 CENTRAL DALLAS ASSOCIATION PROFIT SHARING PLAN 1201 ELM STREET SUITE 5310 DALLAS TX 75270 CAPITAL GROWTH FUND PRIMARY A B BANK OF AMERICA NA 57,229,894.53 98.13 0.83 ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 CAPITAL GROWTH FUND PRIMARY B R STEPHENS INC 1.66 100.00 0.00 ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201
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CASH RESERVES ADVISER FUND B NATIONAL FINANCIAL FOR THE 733,113,941.31 10.87 0.17 EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 CASH RESERVES ADVISER FUND R SECURITY PACIFIC CASH MANAGEMENT 908,867,600.00 13.48 0.02 C/O BOFA-GPO M/C CA4-706-04-13 ATTN REGINA OLSEN--4TH FLOOR 1850 GATEWAY BLVD # 5533 CONCORD CA 94520-3275 CASH RESERVES ADVISER FUND B NATIONSBANK OF TEXAS NA AGENT FBO 910,664,860.75 13.51 0.02 GLOBAL FINANCE SWEEP CUSTOMERS ATTN: STEVEN EDWARDS 1201 MAIN ST TX1-609-21-04 DALLAS TX 75202 CASH RESERVES B R NFSC FEBO # W17-692956 1,617,644.23 5.44 0.00 L-J INC #1 BANK OF AMERICA COLLATERAL LN ATT TRIPP WHITENER SC3240-03-05 NATIONSBANK PO BOX 448 COLUMBIA SC 29202 CASH RESERVES C R LEGG MASON WOOD WALKER INC. 121,229.22 9.34 0.00 309-70465-14 PO BOX 1476 BALTIMORE, MD 21202 CASH RESERVES C R NFSC FEBO # W52-048305 200,000.000 15.40 0.00 CATHERINE R BECK RICHARD BECK 3214 W 101 STREET LEAWOOD KS 66206 CASH RESERVES C B RITCHEY M MARBURY III TTEE 81,863.75 6.30 0.00 MARBURY ENGINEERING CO PROFIT SHARING PLAN 2334 LAKE PARK DR ALBANY GA 31707 CASH RESERVES C R NFSC FEBO # W77-642860 83,924.36 6.46 0.00 TIMOTHY B ELL VERA ELL ELL-JACOBS TINA ELL-JACOBS 1915 NE BRYANT ST PORTLAND OR 97211 CASH RESERVES CAPITAL FUND B BANC OF AMERICA LLC 1,278,747,769.89 6.43 0.02 ATTN MUTUAL FUNDS 600 MONTGOMERY ST SAN FRANCISCO CA 94111 CASH RESERVES CAPITAL FUND B THE BANK OF NEW YORK 1,632,500,000.00 8.21 0.03 AS AGENT FOR ITS SECURITIES LENDING CUSTOMERS 101 BARCLAY ST NEW YORK NY 10286 CASH RESERVES CAPITAL FUND B BANK OF AMERICA NA 2,091,832,562.55 10.52 0.04 ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911
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CASH RESERVES DAILY CLASS B BA INVESTMENT SERVICES INC 4,757,174,680.90 32.87 0.09 FOR THE BENEFIT OF CUSTOMERS UNIT 17852 ATTN H DAVID JONES 3RD PO BOX 7042 SAN FRANCISCO CA 94120 CASH RESERVES DAILY CLASS B NATIONAL FINANCIAL FOR THE 7,383,082,168.96 51.02 0.17 EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 CASH RESERVES INSTITUTIONAL B BANK OF AMERICA-SHORT TERM ASSET 330,434,000.00 30.83 0.01 CLASS MANAGEMENT 231 S LASALLE ST IL1-231-04-02 CHICAGO IL 60697 CASH RESERVES INSTITUTIONAL R HARE & CO, BANK OF NEW YORK 96,981,286.07 9.05 0.01 CLASS ATTN STIF/MASTER NOTE ONE WALL STREET 2ND FL NEW YORK NY 10286 CASH RESERVES INVESTOR FUND R SILICON VALLEY BANK 4,739,787,773.47 77.39 0.09 ATTN: BRIAN ARAKI 3003 TASMAN DRIVE MSHG 110 SANTA CLARA CA 95054 CASH RESERVES INVESTOR FUND B NATIONAL FINANCIAL FOR THE 989,075,757.36 16.15 0.17 EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 CASH RESERVES SERVICES FUND R NATIONSBANK SWP DISBURSEMENT NC 458,500,000.00 44.70 0.01 NATIONSBANK SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 CASH RESERVES TRUST CLASS B BANK OF AMERICA NA 1,948,310,066.93 88.51 0.04 ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 CASH RESERVES TRUST CLASS R HARE & CO, BANK OF NEW YORK 248,594,152.77 11.29 0.01 ATTN STIF/MASTER NOTE ONE WALL STREET 2ND FL NEW YORK NY 10286 CASH RESERVES-MARKET CLASS R NATIONSBANK SWP DISBURSEMENT NC 3,442,000,000.00 99.12 0.06 NATIONSBANK SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 CLASSIC VALUE FUND INVESTOR A R NFSC FEBO # W26-034444 24,608.65 6.77 0.00 JOE L ARNOLD PO BOX 1300 BRISTOL VA 24203 CLASSIC VALUE FUND INVESTOR A B NFSC FEBO # W26-774561 36,617.24 10.07 0.01 PROFIT SHARING PLAN P/ADM GENERAL ASSURANCE OF AMERICA I DTD 06/18/73 PO BOX 9469 RICHMOND VA 23228
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CLASSIC VALUE FUND INVESTOR A B MERRILL LYNCH, PIERCE, FENNER 55,075.71 15.15 0.03 & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 CLASSIC VALUE FUND INVESTOR A B MERCANTILE SAFE DEPST & TRUST TTEE 57,105.26 15.71 0.01 FBO CARTERET GENERAL HOSP MPPP TRST U/A DATED 10/08/98 766 OLD HAMMONDS FERRY RD LINTHICUM MD 21090 CLASSIC VALUE FUND INVESTOR B B MERRILL LYNCH, PIERCE, FENNER 43,490.08 7.63 0.03 & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 CLASSIC VALUE FUND INVESTOR C B MERRILL LYNCH, PIERCE, FENNER 69,475.42 6.08 0.03 & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 CLASSIC VALUE FUND PRIMARY A B BANK OF AMERICA NA 2,774,311.78 96.50 0.56 ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 CONVERTIBLE SECURITIES FUND B MERRILL LYNCH, PIERCE, FENNER 312,418.46 7.18 0.02 INVESTOR B & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 CONVERTIBLE SECURITIES FUND B STATE STREET BANK & TRUST CO TTEE 128,970.19 14.81 0.00 INVESTOR C FBO COASTGEAR & COMPANY ATTN: KEVIN SMITH 105 ROSEMONT AVE WESTWOOD MA 02090 CONVERTIBLE SECURITIES FUND B MERRILL LYNCH, PIERCE, FENNER 195,006.33 22.39 0.02 INVESTOR C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 CONVERTIBLE SECURITIES FUND B BANK OF AMERICA NA 5,722,183.67 88.93 0.18 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 CONVERTIBLE SECURITIES FUND R BANC OF AMERICA SECURITIES LLC 619,077.81 9.62 0.02 PRIMARY A 131-00002-19 CA5-801-07-13 600 MONTGOMERY STREET SAN FRANCISCO CA 94111
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EMERGING MARKETS FUND B CHARLES SCHWAB & CO INC 123,729.81 22.16 0.03 INVESTOR A SPECIAL CUSTODY ACCOUNT FOR BENEFIT OF CUSTOMERS ATTN MUTUAL FUNDS 101 MONTGOMERY STREET SAN FRANCISCO CA 94104 EMERGING MARKETS FUND B CENTRAL TX COLLEGE EMP PP&TR DTD 8/ 230,860.62 41.36 0.06 INVESTOR A PEN PLAN ADMIN / TTEES: HIDY/LIBERT YOUNG/WAITE/AITKEN/ERSKINE MOR-NATIONS EMERGING-EQUITY PO BOX 1800 KILLEEN TX 765401800 EMERGING MARKETS FUND B CENTRAL TX EMPL SUPPL P&TR DTD 8/24 32,621.61 5.84 0.01 INVESTOR A PEN PLAN ADMIN / TTEES: HIDY/LIBERT YOUNG/WAITE/AITKEN/ERSKINE MOR-NATIONS EMERGING - EQUITY PO BOX 1800 KILLEEN TX 765401800 EMERGING MARKETS FUND R CIBC WORLD MARKETS CORP. 1,065.48 9.64 0.00 INVESTOR C FBO 020-63009-15 P.O. BOX 3484 CHURCH STREET STATION NEW YORK, NY 10008-3484 EMERGING MARKETS FUND R NFSC FEBO # W52-602817 1,131.22 10.24 0.00 INVESTOR C NFS/FMTC IRA FBO AUGUSTA J NELSON 706 MITCHELL OAK GROVE MO 64075 EMERGING MARKETS FUND R NFSC FEBO # W52-693553 1,476.83 13.37 0.00 INVESTOR C JOSEPH JAMES MULVANEY P O BOX 4703 DES MOINES IA 50306 EMERGING MARKETS FUND R CIBC WORLD MARKETS CORP. 552.64 5.00 0.00 INVESTOR C FBO 320-20636-10 P.O. BOX 3484 CHURCH STREET STATION NEW YORK, NY 10008-3484 EMERGING MARKETS FUND B MERRILL LYNCH, PIERCE, FENNER 590.00 5.34 0.00 INVESTOR C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 EMERGING MARKETS FUND R NFSC FEBO # W17-648345 600.74 5.44 0.00 INVESTOR C NFSC/FMTC IRA FBO CARROLL L TERRELL 6502 WOODROW TERR RICHMOND VA 23228 EMERGING MARKETS FUND R CIBC WORLD MARKETS CORP. 706.52 6.39 0.00 INVESTOR C FBO 020-70721-17 P.O. BOX 3484 CHURCH STREET STATION NEW YORK, NY 10008-3484
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EMERGING MARKETS FUND R NFSC FEBO # 186-079626 956.02 8.65 0.00 INVESTOR C FMT CO CUST IRA FBO RODNEY E GOODMAN 1834 230TH AVE NE REDMOND WA 98074 EMERGING MARKETS FUND PRIMARY B BANK OF AMERICA NA 2,625,918.10 86.43 0.69 A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 EMERGING MARKETS FUND PRIMARY B NATIONS LIFEGOAL PORTFOLIOS INC 340,848.12 11.21 0.09 A LIFEGOAL GROWTH PORTFOLIO ATTN BRIAN SMITH NC1-002-33-31 101 SOUTH TRYON ST CHARLOTTE NC 28255 EMERGING MARKETS FUND PRIMARY R STEPHENS INC 2.43 100.00 0.00 B NATIONS RESERVE RIC 111 CENTER STREET LITTLE ROCK AR 72201 EQUITY INCOME FUND INVESTOR A B COBATCO C/O SYNOVUS TRUST CO 247,953.97 9.23 0.01 OPERATIONS 1148 BROADWAY COLUMBUS GA 31901 EQUITY INCOME FUND INVESTOR C R NFSC FEBO # W16-686590 17,454.60 6.04 0.00 FRANK L PRICE ANN PRICE SILVA 202 WALNUT HILLS DR BREVARD NC 28712 EQUITY INCOME FUND PRIMARY A B BANK OF AMERICA NA 26,534,366.45 99.89 0.78 ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 EQUITY INCOME FUND PRIMARY B R STEPHENS INC 1.24 100.00 0.00 ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 FINANCIAL SERVICES FUND R JOHN W ZIMMERMAN & 1,516.68 43.54 0.00 INVESTOR A MARY T ZIMMERMAN JTWROS 809 CASTLE FOREST CT BALLWIN MO 63021 FINANCIAL SERVICES FUND R NFSC FEBO # W81-006580 276.75 7.94 0.00 INVESTOR A NFS/FMTC SEP IRA FBO MARK J GLASSMAN 4 MOUNTAIN VIEW RD WEST HAVEN CT 06516 FINANCIAL SERVICES FUND R NFSC FEBO # EMP-072060 300.00 8.61 0.00 INVESTOR A BRIAN HAGLER BRIDGET HAGLER 270 COVENTRY WAY HIGHLAND IL 62249 FINANCIAL SERVICES FUND R NFSC FEBO # EMP-104183 478.47 13.73 0.00 INVESTOR A MICHAEL J ANCELL PAMELA S ANCELL 1203 CHAVANIAC DRIVE BALLWIN MO 63011 FINANCIAL SERVICES FUND R NFSC FEBO # W38-612324 597.02 17.14 0.00 INVESTOR A NFSC/FMTC IRA FBO JEFFREY K SMITH 5348 SUNNY FIELD CT ELLICOTT CITY MD 21043
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FINANCIAL SERVICES FUND R BANC OF AMERICA INVESTMENT SERVICES 2,868.07 29.13 0.01 INVESTOR B FBO 320413601 PO BOX 3701 INVESTMENT OPERATIONS WA1-501-31-10 SEATTLE WA 981243701 FINANCIAL SERVICES FUND R NFSC FEBO # W81-658677 518.59 5.26 0.00 INVESTOR B JOAN C ANJUM CUST JALEEL S ANJUM UTMA NV 2891 AUGUSTA DR LAS VEGAS NV 89109 FINANCIAL SERVICES FUND R NFSC FEBO # W81-658685 518.59 5.26 0.00 INVESTOR B JOAN C ANJUM CUST REHMAN S ANJUM UTMA NV 2891 AUGUSTA DR LAS VEGAS NV 89109 FINANCIAL SERVICES FUND R NFSC FEBO # W81-658693 518.59 5.26 0.00 INVESTOR B JOAN C ANJUM CUST SOFIA E ANJUM UTMA NV 2891 AUGUSTA DR LAS VEGAS NV 89109 FINANCIAL SERVICES FUND R NFSC FEBO # W14-097926 534.79 5.43 0.00 INVESTOR B NFS/FMTC IRA FBO JAMES W MAXWELL 1060 TWIN LAKES RD ATHENS GA 30606 FINANCIAL SERVICES FUND R NFSC FEBO # W77-159247 648.82 6.59 0.00 INVESTOR B NFSC/FMTC IRA FBO GARY L CAMPBELL 16701 N MCDONALD PROSSER WA 99350 FINANCIAL SERVICES FUND R PAINEWEBBER FOR THE BENEFIT OF 728.16 7.39 0.00 INVESTOR B JERRY J BOYER & SHEILA F BOYER JTWROS 18761-6 HAYWOOD TERRACE BOCA RATON FL 33496-6645 FINANCIAL SERVICES FUND R NFSC FEBO # W65-091022 988.14 10.03 0.00 INVESTOR B NILDA RICHARDS 720 S BREVARD AVENUE #117 COCOA BEACH FL 32931 FINANCIAL SERVICES FUND R STEPHENS INC 1.00 100.00 0.00 INVESTOR C ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 FINANCIAL SERVICES FUND B BANC OF AMERICA ADVISORS INC 500,000.00 99.80 0.97 PRIMARY A ATTN BRIAN SMITH NC1-002-12-01 101 S TRYON ST CHARLOTTE NC 28255-0001 FL INTER. MUNI. BOND FUND B COBATCO C/O SYNOVUS TRUST CO 128,288.53 21.07 0.01 INVESTOR A OPERATIONS 1148 BROADWAY COLUMBUS GA 31901 FL INTER. MUNI. BOND FUND R NFSC FEBO # W65-066230 30,812.03 5.06 0.00 INVESTOR A BRUCE D MCALLISTER 1400 GREEN COVE RD WINTER PARK FL 32789
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FL INTER. MUNI. BOND FUND R GERTRUDE L WOOD TTEE 31,263.34 5.13 0.00 INVESTOR A U/A DTD FEB 26, 1991 GERTRUDE L WOOD REV TRUST 161 CYPRESS VIEW DR NAPLES FL 34113 FL INTER. MUNI. BOND FUND B FIRBAN & CO 37,388.70 6.14 0.00 INVESTOR A FBO JOANNE B ALMAND TUA II C/O AMSOUTH BANK ATTN: MUTUAL FUND DEPT PO BOX 12365 BIRMINGHAM AL 35202-1426 FL INTER. MUNI. BOND FUND R NFSC FEBO # W66-017817 23,376.54 5.14 0.00 INVESTOR B JOSEPH EL MANN 4201 NO OCEAN BLVD #C509 BOCA RATON FL 33431 FL INTER. MUNI. BOND FUND R NFSC FEBO # W62-059013 1,305.24 8.01 0.00 INVESTOR C STANTON T COOK TOD KENNETH EDWARD COOK TOD STANTON THOMAS COOK III 1918 SUNNY PALM DR ORMOND BEACH FL 32174 FL INTER. MUNI. BOND FUND R DORIS R BOMSTEIN AND SANFORD 10,439.64 64.14 0.00 INVESTOR C SANFORD BOMSTEIN TTEES DORIS R BOMSTEIN TRUST U/A/D 08/20/91 3000 S OCEAN BLVD APT 1201 BOCA RATON FL 33432 FL INTER. MUNI. BOND FUND B MERRILL LYNCH, PIERCE, FENNER 4,415.21 27.12 0.00 INVESTOR C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 FL INTER. MUNI. BOND FUND B BANK OF AMERICA NA 21,882,735.80 100.00 0.95 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 FL MUNICIPAL BOND FUND B NATIONAL FINANCIAL SVS CORP 2,826,426.14 59.69 0.19 INVESTOR A FOR THE EXCLUSIVE BENEFIT OF OUR CUSTOMERS CHURCH STREET STATION PO BOX 3908 NEW YORK NY 10008-3908 FL MUNICIPAL BOND FUND R NFSC FEBO # W64-048550 2,191.55 24.22 0.00 INVESTOR C THOMAS W BROWN RT 20 BOX 2130 LAKE CITY FL 32055 FL MUNICIPAL BOND FUND B MERRILL LYNCH, PIERCE, FENNER 6,542.16 72.31 0.00 INVESTOR C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 FL MUNICIPAL BOND FUND B BANK OF AMERICA NA 8,689,968.71 99.88 0.60 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911
58
GA INTER. MUNI. BOND FUND R WACHOVIA SECURITIES, INC. 161,162.67 13.68 0.01 INVESTOR A FBO 402-08416-17 P.O. BOX 1220 CHARLOTTE NC 28201-1220 GA INTER. MUNI. BOND FUND B TRENT & CO 60,836.50 5.16 0.00 INVESTOR A C/O OLD KENT BANK ATTN TRUST SECURITIES /MUTUAL FUND SPECIALIST 4420 44TH ST STE A GRAND RAPIDS MI 49512-4011 GA INTER. MUNI. BOND FUND R WACHOVIA BANK NA CO-TTEE 65,235.33 5.53 0.00 INVESTOR A OF LSW-S P O BOX 3073 301 N MAIN ST MC NC-31057 WINSTON-SALEM NC 27150 GA INTER. MUNI. BOND FUND R NFSC FEBO # W14-004162 75,430.05 6.40 0.01 INVESTOR A ALICE HINTON RAY P O BOX 415 DACULA GA 30019 GA INTER. MUNI. BOND FUND R NFSC FEBO # W14-086592 76,903.56 6.52 0.01 INVESTOR A JAMES T WILLOUGHBY 451 CHESTNUT HILL RD MARIETTA GA 30064 GA INTER. MUNI. BOND FUND R WACHOVIA SECURITIES, INC. 254,882.29 40.65 0.02 INVESTOR B FBO 564-70081-18 P.O. BOX 1220 CHARLOTTE, NC 28201-1220 GA INTER. MUNI. BOND FUND R WACHOVIA SECURITIES, INC. 32,890.61 5.24 0.00 INVESTOR B FBO 564-70080-19 P.O. BOX 1220 CHARLOTTE NC 28201-1220 GA INTER. MUNI. BOND FUND R PAINEWEBBER FOR THE BENEFIT OF 11,552.68 14.51 0.00 INVESTOR C KAY S COLLINS 1512 NORTH CHENEY DR VIDALIA GA 30474-4322 GA INTER. MUNI. BOND FUND R NFSC FEBO # W14-652571 51,047.04 64.12 0.00 INVESTOR C LETTY C CAGLE DOUGLAS CAGLE APT 318 8592 ROSWELL RD ATLANTA GA 30350 GA INTER. MUNI. BOND FUND B BANK OF AMERICA NA 12,208,391.99 99.98 4.44 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 GA MUNICIPAL BOND FUND R NFSC FEBO # X09-188107 11,176.37 6.02 0.00 INVESTOR A GERTRUDE P ALTFATER 8592 ROSWELL RD APT 422 ATLANTA GA 30350-1889 GA MUNICIPAL BOND FUND R ANN P BLYTHE 19,193.28 10.35 0.01 INVESTOR A 1110 GRAYSTONE CROSSING ALPHARETTA GA 30005-7436 GA MUNICIPAL BOND FUND R NFSC FEBO # W14-725382 27,491.53 14.82 0.01 INVESTOR A EDD PRICE LYNN PRICE AAA TANK TESTERS PO BOX 789 BRAZELTON GA 30517
59
GA MUNICIPAL BOND FUND R NFSC FEBO # W14-749877 29,938.03 16.14 0.01 INVESTOR A HUNTER R HUGHES III C/O ROGERS & HARDIN 229 PEACHTREE ST NW 2700 INTERATIONAL TOWER ATLANTA GA 30303 GA MUNICIPAL BOND FUND R NFSC FEBO # W14-004162 80,445.89 43.39 0.03 INVESTOR A ALICE HINTON RAY P O BOX 415 DACULA GA 30019 GA MUNICIPAL BOND FUND R AUREATHA W FLOWERS 1,439.80 17.61 0.00 INVESTOR C 4 MIDDLE PLANTATION RD NW ATLANTA GA 30318 GA MUNICIPAL BOND FUND B MERRILL LYNCH, PIERCE, FENNER 6,323.60 77.35 0.00 INVESTOR C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 GA MUNICIPAL BOND FUND B BANK OF AMERICA NA 1,724,103.15 99.98 0.63 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 GLOBAL VALUE FUND INVESTOR A B MERRILL LYNCH, PIERCE, FENNER 199,323.76 41.28 0.31 & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 GLOBAL VALUE FUND INVESTOR A R LEGG MASON WOOD WALKER INC. 48,309.18 10.00 0.03 302-80616-16 PO BOX 1476 BALTIMORE, MD 21202 GLOBAL VALUE FUND INVESTOR B B MERRILL LYNCH, PIERCE, FENNER 113,875.13 36.20 0.31 & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 GLOBAL VALUE FUND INVESTOR C B MERRILL LYNCH, PIERCE, FENNER 141,227.84 28.25 0.31 & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 GLOBAL VALUE FUND PRIMARY A B BANC OF AMERICA ADVISORS INC 100,000.00 57.38 0.07 ATTN BRIAN SMITH NC1-002-12-01 101 S TRYON ST CHARLOTTE NC 28255-0001 GLOBAL VALUE FUND PRIMARY A B BANK OF AMERICA NA 74,266.65 42.61 0.05 ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911
60
GOVERNMENT MONEY MARKET DAILY R BANC OF AMERICA INVESTMENT SERVICES 1,176,465.82 5.99 0.00 SHARES FBO 320223781 PO BOX 3701 INVESTMENT OPERATIONS WA1-501-31-10 SEATTLE WA 981243701 GOVERNMENT MONEY MARKET DAILY B NATIONAL FINANCIAL FOR THE 17,624,022.95 89.84 0.09 SHARES EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 GOVERNMENT MONEY MARKET FUND B NATIONAL FINANCIAL FOR THE 17,631,180.39 88.95 0.09 INVESTOR A EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 GOVERNMENT MONEY MARKET FUND R FASKEN LTD 14,554,229.53 21.18 0.04 INVESTOR B 303 W WALL AVE STE 1900 MIDLAND TX 79701 GOVERNMENT MONEY MARKET FUND R ELI S JACOBS 3,599,095.84 5.23 0.01 INVESTOR B 570 LEXINGTON AVE 22ND FL NEW YORK NY 1022 GOVERNMENT MONEY MARKET FUND R FASKEN OIL AND RANCH LTD 4,609,071.94 6.70 0.01 INVESTOR B 303 W WALL AVE STE 1900 MIDLAND TX 79701 GOVERNMENT MONEY MARKET FUND R COLUMBIA COUNTY GENERAL FUND 5,080,348.26 7.39 0.01 INVESTOR B ATTN JUDY LEWIS PO BOX 1529 LAKE CITY FL 32056-0000 GOVERNMENT MONEY MARKET FUND R NORBERT DICKMAN & 7,211,726.69 10.49 0.02 INVESTOR B ROBERT DICKSON TRUSTEES BARBARA FASKEN 1995 TRUST 303 WEST WALL AVE STE 1900 MIDLAND TX 79701 GOVERNMENT MONEY MARKET FUND R NFSC FEBO # W69-008842 468,933.47 96.59 0.00 INVESTOR C NFSC/FMTC IRA ROLLOVER FBO THOMAS S SPADARO 346 ST GEORGE COURT VENICE FL 34293 GOVERNMENT MONEY MARKET FUND B BANK OF AMERICA NA 274,789,392.01 99.57 0.71 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 GOVERNMENT MONEY MARKET FUND B BANK OF AMERICA NA 307,183.44 100.00 0.00 PRIMARY B ATTN TONY FARRER (B SHARES) 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 GOVERNMENT RESERVES ADVISER B BANC OF AMERICA LLC 197,998,423.49 20.85 0.05 FUND ATTN MUTUAL FUNDS 600 MONTGOMERY ST SAN FRANCISCO CA 94111
61
GOVERNMENT RESERVES ADVISER B NATIONAL FINANCIAL FOR THE 421,197,044.28 44.35 0.16 FUND EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 GOVERNMENT RESERVES B R DEAN WITTER FOR THE BENEFIT OF 262,530.01 18.17 0.00 GEORGE/K/ BERNSTEIN PO BOX 250 CHURCH STREET STATION NEW YORK, NY 10008-0250 GOVERNMENT RESERVES B R DEAN WITTER FOR THE BENEFIT OF 354,226.77 24.51 0.00 CARYL S BERNSTEIN PO BOX 250 CHURCH STREET STATION NEW YORK, NY 10008-0250 GOVERNMENT RESERVES B R NFSC FEBO # W67-626333 381,152.40 26.38 0.00 CARLOS EXPOSITO 40 NW 124 AVE MIAMI FL 33182 GOVERNMENT RESERVES B R NFSC FEBO # W14-661422 78,956.31 5.46 0.00 PERRY G MCLEAN BEVERLY W MCLEAN 135 GINGERCAKE DR FAYETTEVILLE GA 30214 GOVERNMENT RESERVES B R DEAN WITTER FOR THE BENEFIT OF 79,103.27 5.47 0.00 GEORGE K BERNSTEIN PO BOX 250 CHURCH STREET STATION NEW YORK, NY 10008-0250 GOVERNMENT RESERVES B R NFSC FEBO # W26-660612 86,542.44 5.99 0.00 NFSC/FMTC IRA ROLLOVER FBO HARRY H WALKER 19810 EANES RD PETERSBURG VA 23803 GOVERNMENT RESERVES C R NFSC FEBO # W19-040584 12,062.82 99.91 0.00 DON L CLYMER CUST BRITTANY LYNN CLYMER UTMA FL PO BOX 2778 EDWARDS CO 81632 GOVERNMENT RESERVES CAPITAL R ALLEGIS GROUP INC 130,526,711.48 11.51 0.03 FUND ATTN CHRISTOPHER LOETELL 7301 PARKWAY DRIVE HANOVER MD 21076-1119 GOVERNMENT RESERVES CAPITAL R SAS INSTITUTE INC 135,670,631.34 11.96 0.03 FUND ATTN MR JEFF EAKES SAS CAMPUS DRIVE CARY NC 27513 GOVERNMENT RESERVES CAPITAL R MCVEAN TRADING & INVESTMENT LLC 65,545,863.91 5.78 0.02 FUND CUSTOMER SEGREGATED FUNDS ATTN PAUL PLESCHER 850 RIDGE LAKE BLVD STE 1 MEMPHIS TN 38120 GOVERNMENT RESERVES CAPITAL R NC JOINT UNDERWRITING ASSOC 74,266,755.93 6.55 0.02 FUND BEACH PLAN PO BOX 12500 RALEIGH NC 27605
62
GOVERNMENT RESERVES CAPITAL R POZEN INC 81,329,389.74 7.17 0.02 FUND ATTN JOHN BARNHARDT 6330 QUADRANGLE DR STE 240 CHAPEL HILL NC 27514 GOVERNMENT RESERVES CAPITAL R LONE STAR TECHNOLOGIES INC 92,821,557.24 8.18 0.02 FUND ATTN CHARLES J KESZLER PO BOX 803546 DALLAS TX 75380-3546 GOVERNMENT RESERVES DAILY B NATIONAL FINANCIAL FOR THE 271,749,392.02 98.96 0.16 CLASS EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 GOVERNMENT RESERVES R ROUND ROCK ISD OPERATING FUND 12,009,314.73 9.66 0.00 INSTITUTIONAL CLASS ATTN ACCOUNTING DEPARTMENT 1311 ROUND ROCK AVENUE ROUND ROCK TX 78681-4941 GOVERNMENT RESERVES R VARIETY WHOLESALERS 15,000,000.00 12.06 0.00 INSTITUTIONAL CLASS PO BOX 17800 RALEIGH NC 27619 GOVERNMENT RESERVES R GARMIN INTERNATIONAL INC 15,000,000.00 12.06 0.00 INSTITUTIONAL CLASS ATTN KEVIN RAUCKMAN DIR OF FIN 1200 EAST 151 ST OLATHE KS 66062 GOVERNMENT RESERVES R HOSPITAL AUTH OF VALDOSTA & LOWNDES 17,949,557.87 14.44 0.00 INSTITUTIONAL CLASS CO GA DBA S GA MEDICAL CENTER ATTN BILL HULING P O BOX 1727 VALDOSTA GA 31603-1727 GOVERNMENT RESERVES R NEW VALLEY CORPORATION 54,281,984.18 43.67 0.01 INSTITUTIONAL CLASS ATTN BRYANT KIRKLAND 100 S E 2ND ST 32ND FLOOR MIAMI FL 33131-1502 GOVERNMENT RESERVES B BANK OF AMERICA-SHORT TERM ASSET 9,989,000.00 8.03 0.00 INSTITUTIONAL CLASS MANAGEMENT 231 S LASALLE ST IL1-231-04-02 CHICAGO IL 60697 GOVERNMENT RESERVES INVESTOR B NATIONAL FINANCIAL FOR THE 400,884,728.28 94.15 0.10 FUND EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 GOVERNMENT RESERVES LIQUIDITY R CHARLOTTE PIPE AND FOUNDRY INC 24,045,397.23 6.70 0.01 CLASS ATTN DENNIS DOWNING PO BOX 35430 CHARLOTTE NC 28235 GOVERNMENT RESERVES LIQUIDITY R NATIONSBANK SWP DISBURSEMENT NC 25,000,000.00 6.97 0.01 CLASS NATIONSBANK SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255
63
GOVERNMENT RESERVES LIQUIDITY R BANC OF AMERICA LLC 250,751,353.27 69.94 0.06 CLASS ATTN MUTUAL FUNDS 600 MONTGOMERY ST SAN FRANCISCO CA 94111 GOVERNMENT RESERVES MARKET R NATIONSBANK SWP DISBURSEMENT NC 506,000,000.00 99.76 0.12 CLASS NATIONSBANK SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 GOVERNMENT RESERVES SERVICE R NATIONSBANK SWP DISBURSEMENT NC 29,000,000.00 99.99 0.01 CLASS NATIONSBANK SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 GOVERNMENT RESERVES TRUST B BANK OF AMERICA NA 332,317,711.05 99.99 0.08 CLASS ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 GOVERNMENT SECURITIES FUND B UNION BANK TRUST NOMINEE 324,493.88 5.40 0.01 INVESTOR A FBO ANGELUS SANITARY CAN MACHINE CO EMP WELFARE BP 610001305-00 PO BOX 85484 SAN DIEGO CA 92186-5484 GOVERNMENT SECURITIES FUND R CAROUSEL CAPITAL PARTNERS LP 522,044.89 8.68 0.02 INVESTOR A 201 N TRYON STREET SUITE 2450 CHARLOTTE NC 28202 GOVERNMENT SECURITIES FUND R NFSC FEBO # W53-678562 19,399.14 6.91 0.00 INVESTOR C RUTH LEE PAAR 750 WEBSTER WARSAW IL 62379 GOVERNMENT SECURITIES FUND R FIRST CLEARING CORPORATION 23,765.04 8.47 0.00 INVESTOR C A/C 2049-3139 ERNEST A CHANDLER 15 GLENKIRK CHARLESTON SC 29407 GOVERNMENT SECURITIES FUND B MERRILL LYNCH, PIERCE, FENNER 32,027.50 11.42 0.00 INVESTOR C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 GOVERNMENT SECURITIES FUND B BANK OF AMERICA NA 20,041,051.23 99.66 0.66 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 GOVERNMENT SECURITIES FUND R STEPHENS INC 2.20 100.00 0.00 PRIMARY B ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 HIGH YIELD BOND FUND INVESTOR B BANC OF AMERICA INVESTMENT SERVICES 124,179.35 8.44 0.01 A FBO 310465351 PO BOX 3701 INVESTMENT OPERATIONS WA1-501-31-10 SEATTLE WA 981243701
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HIGH YIELD BOND FUND INVESTOR R NFSC FEBO # W74-755850 279,412.30 19.00 0.02 A ROLF F ILLSLEY TTEE OF THE ROLF F ILLSLEY 1995 REV TR, U/A 11/16/95 P O BOX 2804 SANTA ROSA CA 95405 HIGH YIELD BOND FUND INVESTOR R NFSC FEBO # W76-007692 463,098.20 31.49 0.03 A LARRY A SHEHADEY 1451 W ROBINWOOD LANE FRESNO CA 93711 HIGH YIELD BOND FUND INVESTOR B MERRILL LYNCH, PIERCE, FENNER 54,262.52 11.62 0.00 C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 HIGH YIELD BOND FUND PRIMARY A B NATIONS LIFEGOAL PORTFOLIOS INC 2,379,565.41 20.15 0.14 LIFEGOAL BALANCED GROWTH PORTFOLIO ATTN BRIAN SMITH NC1-002-33-31 101 SOUTH TRYON ST CHARLOTTE NC 28255 HIGH YIELD BOND FUND PRIMARY A B BANK OF AMERICA NA 9,076,800.33 76.88 0.53 ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 HIGH YIELD BOND PORTFOLIO B HARTFORD LIFE INSURANCE COMPANY 1,056,487.70 76.14 0.76 ATTN DAVID TEN BROECK PO BOX 2999 HARTFORD CT 06104-2999 HIGH YIELD BOND PORTFOLIO B HARTFORD LIFE INSURANCE COMPANY 290,882.31 20.96 0.76 SEPARATE ACCOUNT TWO ATTN DAVID TEN BROECK P O BOX 2999 HARTFORD CT 06104-2999 INTERMEDIATE BOND FUND B BANK OF AMERICA NA 2,657,261.60 41.70 0.19 INVESTOR A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 INTERMEDIATE BOND FUND B SEAFIRST BANK 2,739,645.39 42.99 0.20 INVESTOR A FBO RETIREMENT SVCS PO BOX 84248 SEATTLE WA 98124-5548 INTERMEDIATE BOND FUND B UNION BANK TRUST NOMINEE 330,623.47 5.18 0.02 INVESTOR A FBO ANGELUS SANITARY CAN MACHINE CO EMP WELFARE BP 610001305-00 PO BOX 85484 SAN DIEGO CA 92186-5484 INTERMEDIATE BOND FUND R NFSC FEBO # W25-059382 13,204.51 13.46 0.00 INVESTOR C JOHN L MANNING III P/ADM ORGAIN READY MIX PFT SHRING PL 240 KRAFT ST CLARKSVILLE TN 37040 INTERMEDIATE BOND FUND R NFSC FEBO # W77-299057 5,988.02 6.10 0.00 INVESTOR C VERLIN R BALDWIN TOD BETTY B DIAL 4134 NE FLANDERS ST PORTLAND OR 97232
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INTERMEDIATE BOND FUND B MERRILL LYNCH, PIERCE, FENNER 56,653.87 57.78 0.01 INVESTOR C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 INTERMEDIATE BOND FUND R NFSC FEBO # W76-046752 7,740.48 7.89 0.00 INVESTOR C WILMA A DOWNER TTEE C LEONARD & WILMA A DOWNER FAM TR, U/A 12/21/00 3640 KARL DRIVE NO HIGHLANDS CA 95660 INTERMEDIATE BOND FUND R NFSC FEBO # W80-052612 11,782.31 6.28 0.00 INVESTORS B AMANDA URIBE RUIZ P O BOX 433956 SAN YSIDRO CA 92173 INTERMEDIATE BOND FUND R DEAN WITTER FOR THE BENEFIT OF 12,640.69 6.74 0.00 INVESTORS B SHIRLEY M AFFOLTER TTEE FOR THE PO BOX 250 CHURCH STREET STATION NEW YORK, NY 10008-0250 INTERMEDIATE BOND FUND B MERRILL LYNCH, PIERCE, FENNER 14,011.77 7.47 0.01 INVESTORS B & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 INTERMEDIATE BOND FUND R PAINEWEBBER FOR THE BENEFIT OF 9,793.82 5.22 0.00 INVESTORS B SHERYL F. GORDON 271 WILLOW LANE CARBONDALE CO 81623-9517 INTERMEDIATE BOND FUND B BANK OF AMERICA NA 7,332,937.96 99.90 0.52 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 INTERMEDIATE MUNI. BOND FUND R HOMETOWN BANK & COMPANY 311,904.77 11.33 0.00 INVESTOR A PO BOX 2887 WILSON NC 27894-2887 INTERMEDIATE MUNI. BOND FUND R WARREN K MONTOURI TTEE 385,569.792 14.00 0.00 INVESTOR A WARREN K MONTOURI TRUST U/A DTD 10/08/97 2440 VIRGINIA AVE NW STE 100 WASHINGTON DC 20037-2601 INTERMEDIATE MUNI. BOND FUND B COBATCO C/O SYNOVUS TRUST CO 545,918.71 19.83 0.00 INVESTOR A OPERATIONS 1148 BROADWAY COLUMBUS GA 31901 INTERMEDIATE MUNI. BOND FUND B MERRILL LYNCH, PIERCE, FENNER 13,417.38 16.42 0.00 INVESTOR C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 INTERMEDIATE MUNI. BOND FUND R NFSC FEBO # W77-336394 14,332.42 17.54 0.00 INVESTOR C M A PROCTOR BETTY JANE PROCTOR 303 2ND ST S #C-7 KIRKLAND WA 98033
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INTERMEDIATE MUNI. BOND FUND R CHARLES W DOOLIN 41,603.61 50.91 0.00 INVESTOR C 3508 HARVARD AVE DALLAS TX 75205-0000 INTERMEDIATE MUNI. BOND FUND B BANK OF AMERICA NA 115,522,067.18 99.99 0.97 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 INTERMEDIATE MUNI. BOND R NFSC FEBO # W53-659851 12,157.27 5.10 0.00 INVESTOR B EDWARD H WAELTERMAN & MARY L ELLERSIECK CO-TTEE EDWARD H & CORNELIA WAELTERMAN TR U/A 12/6/ 4 COUNT FLEET CIR FLORISSANT MO 63033 INTERMEDIATE MUNI. BOND R NFSC FEBO # W14-742724 13,670.31 5.74 0.00 INVESTOR B SHIRLEY R COLEMAN 711 4TH AVENUE WESTPOINT GA 31833 LAGRANGE GA 30241 INTERMEDIATE MUNI. BOND R NFSC FEBO # W40-640670 14,600.32 6.13 0.00 INVESTOR B MARTHA FAIN SHORES 2024 DOWNING WICHITA FALLS TX 76308 INTERMEDIATE MUNI. BOND R NFSC FEBO # W26-783960 14,713.10 6.17 0.00 INVESTOR B JOANNE B STEGALL 517 CAMEO TERRACE CHESAPEAKE VA 23320 INTERMEDIATE MUNI. BOND R NFSC FEBO # W41-673196 15,625.00 6.56 0.00 INVESTOR B ELLEN ASTON PAULL 1407 N WESTON LANE AUSTIN TX 78733 INTERMEDIATE MUNI. BOND R MILDRED M CRISPYN TTEE 17,807.35 7.47 0.00 INVESTOR B TIMOTHY J CRISPYN TRUST U/A DTD 7-21-1997 2382 CAT TAIL POND RD JOHNS ISLAND SC 29455-6101 INTERMEDIATE MUNI. BOND R NFSC FEBO # W15-649406 17,813.39 7.48 0.00 INVESTOR B GUSTAVE J CRISPYN TTEE JOSEPH A CRISPYN TR U/A 7/21/97 2382 CAT TAIL POND RD JOHNS ISLAND SC 29455 INTERMEDIATE MUNI. BOND R NFSC FEBO # W15-626244 27,016.07 11.34 0.00 INVESTOR B ROBERT J EVANS OLLIE P EVANS MARY HELEN SCHULTE 255 WEATHERLY CLUB DR ALABASTER AL 35007 INTERNATIONAL EQUITY FUND B BANK OF AMERICA NA 288,701.52 7.72 0.73 INVESTOR A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 INTERNATIONAL EQUITY FUND B H GRAYSON MITCHELL JR AND 10,741.66 9.39 0.00 INVESTOR C JOHN RAWLS TTEE FBO GRAYSON MITCHELL INC 401K PLAN P O BOX 128 EMPORIA VA 23847
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INTERNATIONAL EQUITY FUND B MERRILL LYNCH, PIERCE, FENNER 24,387.52 21.32 0.00 INVESTOR C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 INTERNATIONAL EQUITY FUND B E LARRY FONTS TTEE FBO 6,805.06 5.94 0.00 INVESTOR C CENTRAL DALLAS ASSOCIATION PROFIT SHARING PLAN 1201 ELM STREET SUITE 5310 DALLAS TX 75270 INTERNATIONAL EQUITY FUND B TATSUSHI T KUBO, MAX W DAHLGREN, 6,810.19 5.95 0.00 INVESTOR C & JOHN DAHLGREN TTEES FBO EPIC PRODUCTS INTERNATIONAL CORPORATION 401(K) PLAN PO BOX 5808 ARLINGTON TX 76005-5808 INTERNATIONAL EQUITY FUND B C A PORTERFIELD & ROSALEE MOXLEY 7,521.72 6.57 0.00 INVESTOR C & FRANK MINTON TTEES FBO STARMOUNT COMPANY EMPLOYEES TAX DEFERRED SAVINGS PLAN PO BOX 10349 GREENSBORO NC 27404-0349 INTERNATIONAL EQUITY FUND B BANK OF AMERICA NA 43,596,689.50 79.50 0.73 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 INTERNATIONAL EQUITY FUND B BANK OF AMERICA NA TTEE 8,900,025.72 16.23 0.15 PRIMARY A NB 401K PLAN U/A DTD 01/01/1983 P O BOX 2518/TX4-213-06-14 HOUSTON TX 77252-2518 INTERNATIONAL EQUITY FUND R STEPHENS INC 1.39 44.55 0.00 PRIMARY CLASS B ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 INTERNATIONAL EQUITY FUND R STEPHENS INC 1.74 55.44 0.00 PRIMARY CLASS B NATIONS RESERVE RIC 111 CENTER STREET LITTLE ROCK AR 72201 INTERNATIONAL VALUE FUND B CHARLES SCHWAB & CO INC 5,027,771.48 18.15 0.04 INVESTORS A SPECIAL CUSTODY ACCOUNT FOR BENEFIT OF CUSTOMERS ATTN MUTUAL FUNDS 101 MONTGOMERY STREET SAN FRANCISCO CA 94104 INTERNATIONAL VALUE FUND B MERRILL LYNCH, PIERCE, FENNER 6,716,858.35 24.24 0.07 INVESTORS A & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246
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INTERNATIONAL VALUE FUND B MERRILL LYNCH, PIERCE, FENNER 738,449.82 13.38 0.07 INVESTORS B & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 INTERNATIONAL VALUE FUND B MERRILL LYNCH, PIERCE, FENNER 1,215,062.25 29.19 0.07 INVESTORS C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 INTERNATIONAL VALUE FUND B CHARLES SCHWAB & CO INC 10,401,820.55 11.69 0.08 PRIMARY A SPECIAL CUSTODY ACCOUNT FOR BENEFIT OF CUSTOMERS ATTN MUTUAL FUNDS 101 MONTGOMERY STREET SAN FRANCISCO CA 94104 INTERNATIONAL VALUE FUND B BANK OF AMERICA NA 63,459,303.82 71.35 0.50 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 INTERNATIONAL VALUE FUND R STEPHENS INC 1.50 100.00 0.00 PRIMARY B NATIONS RESERVE RIC 111 CENTER STREET LITTLE ROCK AR 72201 INTERNATIONAL VALUE PORTFOLIO B HARTFORD LIFE INSURANCE COMPANY 100,373.13 12.54 0.94 ATTN DAVID TEN BROECK PO BOX 2999 HARTFORD CT 06104-2999 INTERNATIONAL VALUE PORTFOLIO B VARIABLE SEPARATE ACCOUNT OF 43,459.77 5.42 0.05 ANCHOR NATIONAL LIFE INSURANCE CO PO BOX 54299 LOS ANGELES CA 90054-0299 INTERNATIONAL VALUE PORTFOLIO B HARTFORD LIFE INSURANCE COMPANY 649,079.71 81.09 0.94 SEPARATE ACCOUNT TWO ATTN DAVID TEN BROECK P O BOX 2999 HARTFORD CT 06104-2999 LARGECAP INDEX FUND PRIMARY A B BANK OF AMERICA NA TTEE 38,743,573.15 43.13 0.42 NB 401K PLAN U/A DTD 01/01/1983 P O BOX 2518/TX4-213-06-14 HOUSTON TX 77252-2518 LARGECAP INDEX FUND PRIMARY A B BANK OF AMERICA NA 50,856,720.52 56.61 0.56 ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 LARGECAP INDEX FUND PRIMARY B R STEPHENS INC 0.82 100.00 0.00 ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201
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MANAGED INDEX FUND INVESTOR A B CHARLES SCHWAB & CO INC 135,215.43 6.11 0.01 SPECIAL CUSTODY ACCOUNT FOR BENEFIT OF CUSTOMERS ATTN MUTUAL FUNDS 101 MONTGOMERY STREET SAN FRANCISCO CA 94104 MANAGED INDEX FUND INVESTOR A R MUIR & CO 151,817.95 6.86 0.01 C/O FROST NATIONAL BANK PO BOX 2479 SAN ANTONIO TX 78298-2479 MANAGED INDEX FUND PRIMARY A B BANK OF AMERICA NA 21,233,975.57 91.31 0.83 ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 MANAGED INDEX FUND PRIMARY B R PAMELA S KEENE & WILLIAM S KEENE & 417.21 99.69 0.00 RUBY E KEENE & WILLIAM RAWLS KEENE JTWROS 2016 ENGLEWOOD DR APEX NC 27502 MARSICO 21ST CENTURY FUND B MERRILL LYNCH, PIERCE, FENNER 302,892.64 11.49 0.09 INVESTOR A & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 MARSICO 21ST CENTURY FUND B MERRILL LYNCH, PIERCE, FENNER 409,574.51 5.77 0.09 INVESTOR B & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 MARSICO 21ST CENTURY FUND B MERRILL LYNCH, PIERCE, FENNER 285,023.25 33.40 0.09 INVESTOR C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 MARSICO 21ST CENTURY FUND B CHARLES SCHWAB & CO INC 141,356.82 18.27 0.01 PRIMARY A SPECIAL CUSTODY ACCOUNT FOR BENEFIT OF CUSTOMERS ATTN MUTUAL FUNDS 101 MONTGOMERY STREET SAN FRANCISCO CA 94104 MARSICO 21ST CENTURY FUND B BANK OF AMERICA NA 632,345.52 81.72 0.06 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 MARSICO FOCUSED EQUITIES FUND B MERRILL LYNCH, PIERCE, FENNER 12,354,765.10 38.46 0.24 INVESTOR A & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246
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MARSICO FOCUSED EQUITIES FUND B CHARLES SCHWAB & CO INC 2,869,583.15 8.93 0.04 INVESTOR A SPECIAL CUSTODY ACCOUNT FOR BENEFIT OF CUSTOMERS ATTN MUTUAL FUNDS 101 MONTGOMERY STREET SAN FRANCISCO CA 94104 MARSICO FOCUSED EQUITIES FUND B MERRILL LYNCH, PIERCE, FENNER 7,803,575.27 16.07 0.24 INVESTOR B & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 MARSICO FOCUSED EQUITIES FUND B MERRILL LYNCH, PIERCE, FENNER 7,283,833.13 54.55 0.24 INVESTOR C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 MARSICO FOCUSED EQUITIES FUND B NATIONS LIFEGOAL PORTFOLIOS INC 1,320,356.42 5.80 0.01 PRIMARY A LIFEGOAL GROWTH PORTFOLIO ATTN BRIAN SMITH NC1-002-33-31 101 SOUTH TRYON ST CHARLOTTE NC 28255 MARSICO FOCUSED EQUITIES FUND B NATIONS LIFEGOAL PORTFOLIOS INC 1,342,403.77 5.90 0.01 PRIMARY A LIFEGOAL BALANCED GROWTH PORTFOLIO ATTN BRIAN SMITH NC1-002-33-31 101 SOUTH TRYON ST CHARLOTTE NC 28255 MARSICO FOCUSED EQUITIES FUND B CHARLES SCHWAB & CO INC 1,899,416.99 8.35 0.04 PRIMARY A SPECIAL CUSTODY ACCOUNT FOR BENEFIT OF CUSTOMERS ATTN MUTUAL FUNDS 101 MONTGOMERY STREET SAN FRANCISCO CA 94104 MARSICO FOCUSED EQUITIES FUND B BANK OF AMERICA NA 10,312,727.57 45.36 0.09 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 MARSICO FOCUSED EQUITIES FUND B BANK OF AMERICA NA TTEE 6,995,623.47 30.77 0.06 PRIMARY A NB 401K PLAN U/A DTD 01/01/1983 P O BOX 2518/TX4-213-06-14 HOUSTON TX 77252-2518 MARSICO FOCUSED EQUITIES FUND R STEPHENS INC 1.47 100.00 0.00 PRIMARY B NATIONS RESERVE RIC 111 CENTER STREET LITTLE ROCK AR 72201 MARSICO GROWTH & INCOME FUND B MERRILL LYNCH, PIERCE, FENNER 7,567,299.58 70.65 0.30 INVESTOR A & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246
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MARSICO GROWTH & INCOME FUND B MERRILL LYNCH, PIERCE, FENNER 1,392,263.12 8.65 0.30 INVESTOR B & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 MARSICO GROWTH & INCOME FUND B MERRILL LYNCH, PIERCE, FENNER 1,106,655.99 50.79 0.30 INVESTOR C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 MARSICO GROWTH & INCOME FUND B BANK OF AMERICA NA 4,201,950.80 83.34 0.12 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 MARSICO GROWTH & INCOME FUND B CHARLES SCHWAB & CO INC 702,096.22 13.92 0.02 PRIMARY A SPECIAL CUSTODY ACCOUNT FOR BENEFIT OF CUSTOMERS ATTN MUTUAL FUNDS 101 MONTGOMERY STREET SAN FRANCISCO CA 94104 MARSICO GROWTH & INCOME R STEPHENS INC 1.60 100.00 0.00 PRIMARY B NATIONS RESERVE RIC 111 CENTER STREET LITTLE ROCK AR 72201 MARSICO INTL OPPORTUNITIES B MERRILL LYNCH, PIERCE, FENNER 132,863.29 42.20 0.29 FUND INVESTOR A & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 MARSICO INTL OPPORTUNITIES B MERRILL LYNCH, PIERCE, FENNER 80,085.93 30.84 0.29 FUND INVESTOR B & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 MARSICO INTL OPPORTUNITIES B MERRILL LYNCH, PIERCE, FENNER 63,805.10 52.36 0.29 FUND INVESTOR C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 MARSICO INTL OPPORTUNITIES R FISERV CORRESPONDENT SVC 7,190.48 5.90 0.01 FUND INVESTOR C FAO MONTSDEOCA RANCH INC ATTN: JUDY BRONSON P O BOX 206 LORIDA FL 33857 MARSICO ITN'L OPPORTUNITIES B BANK OF AMERICA NA 106,978.59 41.62 0.11 FUND PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911
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MARSICO ITN'L OPPORTUNITIES R STEPHENS GROUP INC 150,000.00 58.37 0.16 FUND PRIMARY A ATTN JOLENE JOHNSON 111 CENTER ST LITTLE ROCK AR 72201 MD INTER. MUNI. BOND FUND R NFSC FEBO # W13-640379 150,114.21 9.28 0.01 INVESTOR A CAROL C CHILDS PETER W HOUSE 4210 LEEWARD PL BETHESDA MD 20816 MD INTER. MUNI. BOND FUND R NFSC FEBO # W13-061581 344,332.40 21.30 0.02 INVESTOR A ROBERT GLADSTONE LESLIE GLADSTONE 2468 BELMONT RD NW WASHINGTON DC 20008 MD INTER. MUNI. BOND FUND R NFSC FEBO # W38-007404 91,221.33 5.64 0.01 INVESTOR A VINCENT L SALVATORI CAROL H SALVATORI 2652 GREENBRIAR RD ANNAPOLIS MD 21401 MD INTER. MUNI. BOND FUND R NFSC FEBO # W38-697320 26,396.05 5.50 0.00 INVESTOR B CORNELIUS R LOVE III 600 CORNELIUS POINT RD STEVENSVILLE MD 21666 MD INTER. MUNI. BOND FUND R NFSC FEBO # W13-652245 26,924.65 5.61 0.00 INVESTOR B LAUREL R G MORENO TTEE MIRO GUDELSKY TRUST U/A 10/14/91 10808 RIVERWOOD DRIVE POTOMAC MD 20854 MD INTER. MUNI. BOND FUND R NFSC FEBO # W13-661589 1,581.82 6.00 0.00 INVESTOR C VALLI JO GRAMMER 1550 FAIRWAY DRIVE APT 102 NAPERVILLE IL 60563 MD INTER. MUNI. BOND FUND R NFSC FEBO # RS6-699381 2,764.75 10.49 0.00 INVESTOR C KWOK LUEN LEE PATSY S LEE 2705 HARDY AV WHEATON MD 20902 MD INTER. MUNI. BOND FUND R NFSC FEBO # W13-660124 3,316.20 12.58 0.00 INVESTOR C JESSICA UDALL GIL MILAN D SMITH JR 5610 WISCONSIN AV CHEVY CHASE MD 20815 MD INTER. MUNI. BOND FUND R NFSC FEBO # W13-776971 9,255.92 35.12 0.00 INVESTOR C ELIZABETH W NICHOLSON 408 GREAT FALLS ROAD ROCKVILLE MD 20850 MD INTER. MUNI. BOND FUND B BANK OF AMERICA NA 15,894,258.01 100.00 0.88 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 MD MUNICIPAL BOND FUND R NFSC FEBO # W38-076201 14,366.65 5.34 0.00 INVESTOR A STEPHEN C LECHLITER 306A CROSS GREEN ST GAITHERSBURG MD 20878
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MD MUNICIPAL BOND FUND R NFSC FEBO # W13-640379 140,879.93 52.43 0.04 INVESTOR A CAROL C CHILDS PETER W HOUSE 4210 LEEWARD PL BETHESDA MD 20816 MD MUNICIPAL BOND FUND R NFSC FEBO # W38-024651 17,801.18 6.62 0.00 INVESTOR A BRIAN BILLICK LESLIE K BILLICK 11001 OWINGS MILLS BLVD OWINGS MILLS MD 21117 MD MUNICIPAL BOND FUND R NFSC FEBO # W13-634760 23,517.55 8.75 0.01 INVESTOR A RAYMOND A TURETSKY BESS H TURETSKY 11220 WOODSON AV KENSINGTON MD 20895 MD MUNICIPAL BOND FUND R NFSC FEBO # W38-028541 22,110.34 80.43 0.01 INVESTOR C ELIZABETH GREGORY PO BOX 2327 OCEAN CITY MD 21843 MD MUNICIPAL BOND FUND B MERRILL LYNCH, PIERCE, FENNER 4,002.61 14.56 0.00 INVESTOR C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 MD MUNICIPAL BOND FUND B BANK OF AMERICA NA 1,900,780.10 99.98 0.48 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 MIDCAP GROWTH FUND INVESTOR C R NFSC FEBO # W25-059382 13,785.05 5.35 0.00 JOHN L MANNING III P/ADM ORGAIN READY MIX PFT SHRING PL 240 KRAFT ST CLARKSVILLE TN 37040 MIDCAP GROWTH FUND INVESTOR C B TATSUSHI T KUBO, MAX W DAHLGREN, 14,785.08 5.74 0.00 & JOHN DAHLGREN TTEES FBO EPIC PRODUCTS INTERNATIONAL CORPORATION 401(K) PLAN PO BOX 5808 ARLINGTON TX 76005-5808 MIDCAP GROWTH FUND INVESTOR C B C A PORTERFIELD & ROSALEE MOXLEY 17,229.72 6.69 0.00 & FRANK MINTON TTEES FBO STARMOUNT COMPANY EMPLOYEES TAX DEFERRED SAVINGS PLAN PO BOX 10349 GREENSBORO NC 27404-0349 MIDCAP GROWTH FUND INVESTOR C B MERRILL LYNCH, PIERCE, FENNER 25,816.82 10.02 0.00 & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 MIDCAP GROWTH FUND PRIMARY A B BANK OF AMERICA NA 43,830,250.10 96.66 0.86 ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911
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MIDCAP GROWTH FUND PRIMARY B R STEPHENS INC 1.03 100.00 0.00 ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 MIDCAP INDEX FUND INVESTOR A R LA ROBINSON & JOHN D ROBINSON TTEES 18,155.07 33.79 0.00 MARY K ROBINSON TRUST U/A DTD 10/13/00 2301 ST CLAIR AVE BRENTWOOD MO 63144 MIDCAP INDEX FUND INVESTOR A R NFSC FEBO # EMP-058610 2,793.22 5.19 0.00 C BROOKS ENGLEHARDT KARI ENGLEHARDT 1500 EXETER RD CHARLOTTE NC 28211 MIDCAP INDEX FUND INVESTOR A R NFSC FEBO # FL4-248428 3,097.73 5.76 0.00 FRANCISCO R MADERAL KAREN L MADERAL 9320 SW 100 ST MIAMI FL 33176 MIDCAP INDEX FUND INVESTOR A R NFSC FEBO # W40-654620 3,119.53 5.80 0.00 DR KENT MACAULAY 602 E LIBERTY ROUND ROCK TX 78664 MIDCAP INDEX FUND INVESTOR A R NFSC FEBO # FL4-135992 3,600.00 6.70 0.00 ROSE ANN HEER TTEE ROSE ANN HEER REV TRUST U/A 9/25/90 2160 HERON DRIVE MERRITT ISLAND FL 32952 MIDCAP INDEX FUND INVESTOR A R NFSC FEBO # T10-020460 3,721.63 6.92 0.00 MICHAEL G JONAGAN PAULA V JONAGAN 28 B SOUTH ROAD BRIGHTON 3186 AUSTRALIA MIDCAP INDEX FUND INVESTOR A R PRUDENTIAL SECURITIES INC. FBO 5,191.17 9.66 0.00 MS ANNE-MARIE MONACO 22 BOULEVARD DES MOULINS MC 98000 MONACO MIDCAP INDEX FUND PRIMARY A B BANK OF AMERICA NA 20,930,338.38 44.31 0.44 ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 MIDCAP INDEX FUND PRIMARY A B BANK OF AMERICA NA TTEE 26,124,570.49 55.31 0.55 NB 401K PLAN U/A DTD 01/01/1983 P O BOX 2518/TX4-213-06-14 HOUSTON TX 77252-2518 MONEY MARKET RESERVES ADVISER R MATERIAL SCIENCES CORPORATION 39,816,076.97 5.16 0.00 CLASS 2200 EAST PRATT BLVD ELK GROVE VILLAGE IL 60007 MONEY MARKET RESERVES ADVISER R KYOCERA INTERNATIONAL INC 50,017,000.00 6.49 0.00 CLASS ATTN DAN POLLARD 8611 BALBOA AVE SAN DIEGO CA 92123
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MONEY MARKET RESERVES ADVISER R CENTRAL CAROLINA BANK 73,512,721.56 9.53 0.01 CLASS ATTN CASH MANAGEMENT 111 CORCORAN STREET 2ND FLR MO 2-1 DURHAM NC 27701 MONEY MARKET RESERVES ADVISER R HARE & CO, BANK OF NEW YORK 85,509,921.11 11.09 0.25 CLASS ATTN STIF/MASTER NOTE ONE WALL STREET 2ND FL NEW YORK NY 10286 MONEY MARKET RESERVES C R NFSC FEBO # W76-051594 13,015.12 5.09 0.00 NFS/FMTC ROLLOVER IRA FBO PATRICIA M MCELROY PO BOX 7793 CITRUS HEIGHTS CA 95621 MONEY MARKET RESERVES C R NFSC FEBO # W76-654310 13,927.28 5.45 0.00 PATRICIA K DALY 9920 WILLEY CT GRANITE BAY CA 95746 MONEY MARKET RESERVES C R NFSC FEBO # W16-027138 23,144.250 9.06 0.00 NFSC/FMTC IRA FBO DIANA A TATE 701 SIMPSON ST GREENSBORO NC 27401 MONEY MARKET RESERVES C R NFSC FEBO # W73-662763 96,715.36 37.88 0.00 RICHARD L JENKINS TTEE OF THE K & I TR 11749 CAPRI DR WHITTIER CA 90601 MONEY MARKET RESERVES C R NFSC FEBO # W14-015130 99,545.17 38.99 0.00 MORGAN D HILL 3243 EAGLE WATCH DR WOODSTOCK GA 30189 MONEY MARKET RESERVES CAPITAL R HARE & CO, BANK OF NEW YORK 3,002,895,208.17 33.85 0.25 CLASS ATTN STIF/MASTER NOTE ONE WALL STREET 2ND FL NEW YORK NY 10286 MONEY MARKET RESERVES CAPITAL R US BANK CORP TRUST SERVICES 716,735,359.00 8.07 0.06 CLASS VAR & CO (US BANK TRUST NA) ATTN CASH SWEEP SPEN0603 180 E 5TH ST ST PAUL MN 55101 MONEY MARKET RESERVES DAILY B NATIONAL FINANCIAL FOR THE 4,243,713.52 98.54 0.00 CLASS EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 MONEY MARKET RESERVES R BANK OF AMERICA-SHORT TERM ASSET 118,584,000.00 31.14 0.01 INSTITUTIONAL CLASS MANAGEMENT 231 S LASALLE ST IL1-231-04-02 CHICAGO IL 60697 MONEY MARKET RESERVES R PILLOWTEX CORPORATION 25,400,699.26 6.67 0.00 INSTITUTIONAL CLASS ATTN JAIME VASQUEZ 1 LAKE CIRCLE DRIVE KANNAPOLIS NC 28081
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MONEY MARKET RESERVES R ANDERSON NEWS CORPORATION 30,000,000.00 7.88 0.00 INSTITUTIONAL CLASS ATTN LYNN AKERS 6016 BROOKVALE LA STE 151 KNOXVILLE TN 379194003 MONEY MARKET RESERVES R SUNTRUST BANK AS TTEE FOR THE CITY 12,878,532.17 12.04 0.00 INVESTOR CL OF CLARKSVILLE TN SERIES 2001 POOL ATTN JANICE ENTSMINGER 225 E ROBINSON ST STE 250 ORLANDO FL 32801 MONEY MARKET RESERVES R SUNTRUST BANK AS TRUSTEE FOR 16,116,425.23 15.07 0.00 INVESTOR CL THE COUNTY OF MONTGOMERY SERIES 1997 POOL ATTN SHAREHOLDER SERVICING GROUP 9777 WILSHIRE BLVD STE 800 BEVERLY HILLS CA 90212 MONEY MARKET RESERVES R CHASE MANHATTAN TRUST CO TRUSTEE 26,375,000.00 24.67 0.00 INVESTOR CL FOR NKY SHAREHOLDER SERVICING GROUP 9777 WILSHIRE BLVD STE 800 BEVERLY HILLS CA 90212 MONEY MARKET RESERVES R SUNTRUST BANK AS TRUSTEE FOR 33,352,663.83 31.20 0.00 INVESTOR CL THE CITY OF CLARKSVILLE TN SERIES 1997 POOL ATTN SHAREHOLDER SERVICING GROUP 9777 WILSHIRE BLVD STE 800 BEVERLY HILLS CA 90212 MONEY MARKET RESERVES R SUNTRUST BANK AS TTEE FOR THE CITY 6,556,953.00 6.13 0.00 INVESTOR CL OF CLARKSVILLE TN SERIES 2001-JACKSON ATTN JANICE ENTSMINGER 225 E ROBINSON ST STE 250 ORLANDO FL 32801 MONEY MARKET RESERVES R BANK OF OKLAHOMA NA AS TRUSTEE 7,500,000.00 7.01 0.00 INVESTOR CL FOR THE CREEK COUNTY HOME FINANCE AUTHORITY ATTN SHAREHOLDER SERVICING GROUP 9777 WILSHIRE BLVD SUITE 800 BEVERLY HILLS CA 90212 MONEY MARKET RESERVES R LNR PROPERTY CORPORATION 33,700,000.00 5.97 0.00 LIQUIDITY CLASS ATTN TED DESIBIO 760 NW 107TH AVE STE 300 MIAMI FL 33172 MONEY MARKET RESERVES R BANK OF AMERICA VA COLLAT A/C 35,740,923.43 6.33 0.00 LIQUIDITY CLASS CAPRI CAPITAL ASSOC LLC LOC ATTN CORY LAIRD 1655 N FORT MYER DRIVE 13TH FL ARLINGTON VA 22209 MONEY MARKET RESERVES R OPNET TECHNOLOGIES INC 53,056,035.48 9.40 0.00 LIQUIDITY CLASS 3400 INTERNATIONAL DR NW WASHINGTON DC 20006
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MONEY MARKET RESERVES MARKET R NATIONSBANK SWP DISBURSEMENT NC 1,363,500,000.00 99.99 0.11 CL NATIONSBANK SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 MONEY MARKET RESERVES SERVICE R NATIONSBANK SWP DISBURSEMENT NC 135,500,000.00 74.97 0.01 CL NATIONSBANK SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 MONEY MARKET RESERVES SERVICE R US BANK CORP TRUST SERVICES 45,225,590.00 25.02 0.00 CL VAR & CO (US BANK TRUST NA) ATTN CASH SWEEP SPEN0603 180 E 5TH ST ST PAUL MN 55101 MONEY MARKET RESERVES TRUST CL R US BANK CORP TRUST SERVICES 59,274,712.00 99.99 0.00 VAR & CO (US BANK TRUST NA) ATTN CASH SWEEP SPEN0603 180 E 5TH ST ST PAUL MN 55101 MUNICIPAL INCOME FUND R NFSC FEBO # W77-013960 232,901.08 5.17 0.00 INVESTOR A RICHARD C BRIGGS 3251 106TH AVE SE BELLEVUE WA 98004 MUNICIPAL INCOME FUND R PRIM & ASSOCIATES 245,048.18 5.44 0.00 INVESTOR A PO BOX 12219 ZEPHYR COVE NV 89448 MUNICIPAL INCOME FUND R WELLS FARGO INVESTMENTS LLC 271,251.48 6.02 0.00 INVESTOR A A/C 7742-3276 608 SECOND AVENUE SOUTH 8TH FL MINNEAPOLIS, MN 55402 MUNICIPAL INCOME FUND R EMMET DAVID GELHOT 11,487.09 9.84 0.00 INVESTOR C 5630 OLEATHA AVENUE SAINT LOUIS MO 63139-1504 MUNICIPAL INCOME FUND R NFSC FEBO # W23-056383 13,513.51 11.58 0.00 INVESTOR C KAREN I EINDORF OCTAVIO MARQUEZ 58 E SUNDANCE CIR SPRING TX 77382 MUNICIPAL INCOME FUND R RAYMOND JAMES & ASSOC INC FBO 7,145.27 6.12 0.00 INVESTOR C MAYOLA SAPPINGTON & DEBORAH DUREN & KENNETH SAPPINGTON JT/WROS 8 LENOIR COURT COLUMBIA MO 65201 MUNICIPAL INCOME FUND PRIMARY B BANK OF AMERICA NA 77,580,255.35 99.25 0.93 A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 MUNICIPAL RESERVE LIQUIDITY R D SCOTT LUTTRELL LIVING TRUST 10,126,183.87 17.77 0.01 CLASS DTD MAY 20 1999 6401 MACLAURIN DR TAMPA FL 33647 MUNICIPAL RESERVE LIQUIDITY R HUSHANG ANSARY 2,864,661.99 5.02 0.00 CLASS 1000 LOUISIANA STE 5900 HOUSTON TX 77002
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MUNICIPAL RESERVE LIQUIDITY R GLOBAL EXPRESS MONEY ORDERS INC 3,200,026.37 5.61 0.00 CLASS ATTN PAM MUNSON P O BOX 8608 SILVER SPRING MD 20907 MUNICIPAL RESERVE LIQUIDITY R WASHOE COMPANY 3,700,796.77 6.49 0.00 CLASS PO BOX 2086 AUSTIN TX 78768 MUNICIPAL RESERVE LIQUIDITY R JOHNSON EZELL CORPORATION 5,695,019.29 9.99 0.00 CLASS FBO NEIL EZELL 18167 US HWY 19 NORTH STE 660 CLEARWATER FL 33764 MUNICIPAL RESERVE LIQUIDITY R THOMAS J SHANNON JR I\T\F 6,006,253.20 10.54 0.00 CLASS 13000 N DALE MABRY HWY TAMPA FL 33618 MUNICIPAL RESERVE LIQUIDITY R LINDA JO CARTER 7,359,295.42 12.91 0.00 CLASS 8024 FM 428 DENTON TX 76208 MUNICIPAL RESERVE LIQUIDITY R LUTTRELL CAPITOL MGMT 7,912,432.05 13.88 0.00 CLASS ATTN JASON WOLFE 15310 AMBERLY DR STE # 205 TAMPA FL 33647 MUNICIPAL RESERVE MARKET CLASS R NATIONSBANK SWP DISBURSEMENT NC 200,000,000.00 99.99 0.11 NATIONSBANK SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 MUNICIPAL RESERVE SERVICE R NATIONSBANK SWP DISBURSEMENT NC 17,000,000.00 99.99 0.11 CLASS NATIONSBANK SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 MUNICIPAL RESERVE TRUST CLASS B BANK OF AMERICA NA 515,075,026.63 99.09 0.26 ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 MUNICIPAL RESERVES ADVISER B BANC OF AMERICA LLC 33,475,654.76 21.89 0.02 FUND ATTN MUTUAL FUNDS 600 MONTGOMERY ST SAN FRANCISCO CA 94111 MUNICIPAL RESERVES ADVISER B NATIONAL FINANCIAL FOR THE 39,687,539.84 25.96 0.34 FUND EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 MUNICIPAL RESERVES ADVISER R HERITAGE BAG COMPANY 8,044,771.83 5.26 0.00 FUND 1648 DIPLOMAT DRIVE CARROLLTON TX 75006-6847 MUNICIPAL RESERVES ADVISER R HITEN D VARIA & 8,840,203.29 5.78 0.00 FUND SHERNAZ VARIA JTWROS 4565 JENKINS DRIVE PLANO TX 75024 MUNICIPAL RESERVES ADVISER R BANC OF AMERICA INVESTMENT SERVICES 9,808,980.63 6.41 0.00 FUND FBO 570040121 PO BOX 3701 INVESTMENT OPERATIONS WA1-501-31-10 SEATTLE WA 981243701
79
MUNICIPAL RESERVES B R NFSC FEBO # W26-738484 11,343.13 11.51 0.00 BARBARA C TAYLOR 250 ARROW LANE WYTHEVILLE VA 24382 MUNICIPAL RESERVES B R NFSC FEBO # W68-033359 20,544.74 20.86 0.00 THE G AND C SPINKS FAMILY TRUS GEORGE W SPINKS AND U/A 07/14/1990 3819 NW ROYAL OAK DRIVE JENSEN BEACH FL 34957 MUNICIPAL RESERVES B R NFSC FEBO # W27-746380 23,102.86 23.45 0.00 SWEET JANE'S INC 4823 MEADOW DRIVE SUITE 210 DURHAM NC 27713 MUNICIPAL RESERVES B R NFSC FEBO # W61-402095 34,525.22 35.05 0.00 THOMAS P DOLAN TTEE THOMAS P DOLAN TRUST U/A 1/5/89 4165 BOCA POINTE DRIVE SARASOTA FL 34238 MUNICIPAL RESERVES B R NFSC FEBO # W26-059692 8,959.48 9.09 0.00 ANTONIA M STELLOH REYNOLD F STELLOH III 4281 E OCEAN BLVD LONG BEACH CA 90803 MUNICIPAL RESERVES C R STEPHENS INC 10.00 100.00 0.00 ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 MUNICIPAL RESERVES CAPITAL B MUNICIPAL INCOME FUND 14,461,000.00 5.07 0.01 FUND 51-0331215 ATTN DEL LUCAS 101 S TRYON STREET NC1-002-33-31 CHARLOTTE NC 28255 MUNICIPAL RESERVES CAPITAL B NATIONS SHORT TERM MUNICIPAL INCOME 15,780,000.00 5.53 0.01 FUND 51-0349911 ATTN DEL LUCAS 101 S TRYON STREET NC1-002-33-31 CHARLOTTE NC 28255 MUNICIPAL RESERVES CAPITAL R PUBLIX SUPERMARKETS INC 25,000,000.00 8.77 0.01 FUND ATTN TREAS DEPT CASH MGT DESK P O BOX 407 LAKELAND FL 33802 MUNICIPAL RESERVES CAPITAL R MICHAEL R BLOOMBERG 33,081,813.44 11.61 0.02 FUND C/O MARTIN GELLER CPA PC ATTN DIANE RIZZO 800 THIRD AVENUE 19TH FL NEW YORK NY 10022 MUNICIPAL RESERVES CAPITAL B BANK OF AMERICA NA 61,251,224.20 21.49 0.03 FUND ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 MUNICIPAL RESERVES CAPITAL R RAIN BIRD CORPORATE SERVICES CO 61,885,261.53 21.71 0.03 FUND 145 N GRAND AVE GLENDORA CA 91741-2469
80
MUNICIPAL RESERVES DAILY FUND B NATIONAL FINANCIAL FOR THE 582,773,148.97 86.54 0.34 EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 MUNICIPAL RESERVES DAILY FUND B BA INVESTMENT SERVICES INC 89,940,393.05 13.35 0.05 FOR THE BENEFIT OF CUSTOMERS UNIT 17852 ATTN H DAVID JONES 3RD PO BOX 7042 SAN FRANCISCO CA 94120 MUNICIPAL RESERVES R BANK OF AMERICA-SHORT TERM ASSET 22,086,000.00 99.99 0.01 INSTITUTIONAL CLASS MANAGEMENT 231 S LASALLE ST IL1-231-04-02 CHICAGO IL 60697 MUNICIPAL RESERVES INVESTOR B BA INVESTMENT SERVICES INC 11,935,954.96 16.95 0.01 FUND FOR THE BENEFIT OF CUSTOMERS UNIT 17852 ATTN H DAVID JONES 3RD PO BOX 7042 SAN FRANCISCO CA 94120 MUNICIPAL RESERVES INVESTOR R BANC OF AMERICA INVESTMENT SERVICES 3,800,000.00 5.39 0.00 FUND FBO 515902141 PO BOX 3701 INVESTMENT OPERATIONS WA1-501-31-10 SEATTLE WA 981243701 MUNICIPAL RESERVES INVESTOR B NATIONAL FINANCIAL FOR THE 51,404,399.08 73.01 0.34 FUND EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 NC INTER. MUNI. BOND FUND R ARROW & CO 102,754.45 9.63 0.01 INVESTOR A PO BOX 30010 DURHAM NC 27702-3010 NC INTER. MUNI. BOND FUND R NFSC FEBO # X68-061336 104,055.80 9.75 0.01 INVESTOR A JULIA E CLARK 4600 TROY'S MTN LN DURHAM NC 27705 NC INTER. MUNI. BOND FUND R NFSC FEBO # W26-656267 65,193.78 6.11 0.00 INVESTOR A EILEEN M FRIARS 3516 FOXCROFT ROAD CHARLOTTE NC 28211 NC INTER. MUNI. BOND FUND R NFSC FEBO # W16-714542 74,328.60 6.96 0.00 INVESTOR A W FRANK DOWD JR P O BOX 35430 CHARLOTTE NC 28235 NC INTER. MUNI. BOND FUND R WACHOVIA SECURITIES, INC. 26,632.25 5.03 0.00 INVESTOR B FBO 205-04775-18 P.O. BOX 1220 CHARLOTTE, NC 28201-1220 NC INTER. MUNI. BOND FUND R BANK OF AMERICA NA 27,896.03 5.27 0.00 INVESTOR B SUCCESSOR TTEE A RICHARD STIRNI AGMNT DTD 8/23/90 ATTN JOAN WRAY 10-01-004-0319111 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911
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NC INTER. MUNI. BOND FUND R NFSC FEBO # W27-002879 38,094.52 7.20 0.00 INVESTOR B JACK CARTWRIGHT 1040 CANTERING RD HIGH POINT NC 27262 NC INTER. MUNI. BOND FUND R WACHOVIA SECURITIES, INC. 1,174.08 11.06 0.00 INVESTOR C FBO 205-05103-18 P.O. BOX 1220 CHARLOTTE NC 28201-1220 NC INTER. MUNI. BOND FUND R NFSC FEBO # W17-664693 1,439.38 13.56 0.00 INVESTOR C KAREN H BIRD DONALD A BIRD PO BOX 636 ELLENBORO NC 28040 NC INTER. MUNI. BOND FUND R NFSC FEBO # W27-734004 2,515.24 23.70 0.00 INVESTOR C BARBARA B COYNER 513 LAKE BOONE TRAIL RALEIGH NC 27608 NC INTER. MUNI. BOND FUND R DONALDSON LUFKIN JENRETTE 3,055.32 28.79 0.00 INVESTOR C SECURITIES CORPORATION INC. P. O. BOX 2052 JERSEY CITY, NJ 07303-9998 NC INTER. MUNI. BOND FUND R NFSC FEBO # RS7-740810 664.27 6.26 0.00 INVESTOR C THOMAS H BLOUNT DORIS J BLOUNT 207 W 11TH ST WASHINGTON NC 27889 NC INTER. MUNI. BOND FUND B BANK OF AMERICA NA 16,996,938.57 99.84 0.91 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 NC MUNICIPAL BOND FUND R NFSC FEBO # W69-032018 16,548.88 5.56 0.00 INVESTOR A DONALD L GROVES 19 GLENN CABLE ROAD ASHEVILLE NC 28805 NC MUNICIPAL BOND FUND R NFSC FEBO # 679-149853 26,915.06 9.04 0.01 INVESTOR A MICHAEL T VOWELL CATHERINE L VOWELL 19025 PENINSULA POINT RD CORNELIUS NC 28031 NC MUNICIPAL BOND FUND R NFSC FEBO # W16-038083 27,988.57 9.40 0.01 INVESTOR A RICHARD B PRIORY JOAN E PRIORY 3520 PROVIDENCE ROAD CHARLOTTE NC 28211 NC MUNICIPAL BOND FUND R NFSC FEBO # NC4-157236 2,792.51 15.75 0.00 INVESTOR C FLORENCE H MOORE EX E/O MICHAEL T MOORE 4034 CHURCHHILL RD CHARLOTTE NC 28211 NC MUNICIPAL BOND FUND R NFSC FEBO # W16-699632 2,817.36 15.89 0.00 INVESTOR C JOHN R TAYLOR EDNA H TAYLOR 802 HIDDEN CREEK CIR SALISBURY NC 28147
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NC MUNICIPAL BOND FUND B MERRILL LYNCH, PIERCE, FENNER 3,222.54 18.17 0.00 INVESTOR C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 NC MUNICIPAL BOND FUND R NFSC FEBO # X68-076554 3,547.02 20.00 0.00 INVESTOR C CHARLES R MIANNAY MAGDALENE M MIANNAY 105 SEXTANT CT NEW BERN NC 28562 NC MUNICIPAL BOND FUND R NFSC FEBO # NC4-157678 5,036.23 28.41 0.00 INVESTOR C T RANDOLPH PERKINS CHRISTINA B PERKINS 2508 FLINTGROVE RD CHARLOTTE NC 28226 NC MUNICIPAL BOND FUND B BANK OF AMERICA NA 2,201,406.72 99.98 0.53 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 PRIME FUND DAILY SHARES B NATIONAL FINANCIAL FOR THE 980,342,050.66 97.86 0.25 EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 PRIME FUND INVESTOR A B NATIONAL FINANCIAL FOR THE 459,377,794.51 81.38 0.25 EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 PRIME FUND INVESTOR C R NFSC FEBO # W26-003808 263,496.84 6.13 0.00 HERBERT MAXEY JR NANCY A MAXEY P O BOX 257 BUCKINGHAM VA 23921 PRIME FUND INVESTOR C R DEAN WITTER REYNOLDS CUST FOR 293,430.37 6.83 0.00 CARROLL D SHANKS PO BOX 250 CHURCH STREET STATION NEW YORK, NY 10008-0250 PRIME FUND INVESTOR C R NFSC FEBO # W19-668443 297,678.23 6.92 0.00 JOHN JONES BECKY L JONES 4235 SW 111 TERR DAVIEFL 33328 PRIME FUND MARSICO CLASS B SUNSTONE FINANCIAL GROUP INC AS AGT 34,754,922.80 99.99 0.01 FOR MARISCO FUNDS INC 803 W MICHIGAN ST SUITE A MILWAUKEE WI 53233-2301 PRIME FUND PRIMARY A B BANK OF AMERICA NA 3,397,862,285.67 98.66 0.58 ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911
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PRIME FUND PRIMARY B B BANK OF AMERICA NA 8,082,279.27 100.00 0.58 ATTN TONY FARRER (B SHARES) 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 SC INTER. MUNI. BOND FUND R DEAN WITTER FOR THE BENEFIT OF 193,810.41 11.95 0.01 INVESTOR A J C BERNARD & PO BOX 250 CHURCH STREET STATION NEW YORK, NY 10008-0250 SC INTER. MUNI. BOND FUND R SEI TRUST CO 85,494.27 5.27 0.00 INVESTOR A C/O BERTHA,JORDAN, & GRIFFIN ATTN: MUTAL FUND ADMINISTRATOR ONE FREEDOM VALLEY DRIVE OAKS, PA 19456 SC INTER. MUNI. BOND FUND R DEAN WITTER FOR THE BENEFIT OF 93,632.96 5.77 0.00 INVESTOR A D PIERRE G CAMERON JR. TTEE PO BOX 250 CHURCH STREET STATION NEW YORK, NY 10008-0250 SC INTER. MUNI. BOND FUND R NFSC FEBO # W15-645788 79,922.78 11.79 0.00 INVESTOR B GUSTAVE J CRISPYN MILDRED M CRISPYN 2382 CAT TAIL POND RD JOHNS ISLAND SC 29455 SC INTER. MUNI. BOND FUND R NFSC FEBO # W15-013765 15,544.93 5.61 0.00 INVESTOR C CAROLINE M LUTZ 26 FIDDLERS TRACE FRIPP ISLAND SC 29920 SC INTER. MUNI. BOND FUND R WEXFORD CLEARING SERVICES CORP FBO 21,605.99 7.79 0.00 INVESTOR C GARY D MITCHELL 1003 MEADOW LN ANDERSON SC 29621-1916 SC INTER. MUNI. BOND FUND R NFSC FEBO # W15-636169 21,797.61 7.86 0.00 INVESTOR C PETER B & FRIEDA B GRIFFIN TTEE THE HOBART W GRIFFIN & FRIEDA B GRIFFIN TR, U/A 1/31/92 116 DUNBARTON CIR AIKEN SC 29803 SC INTER. MUNI. BOND FUND R WEXFORD CLEARING SERVICES CORP FBO 23,745.30 8.56 0.00 INVESTOR C MARSHALL H ROBERSON & GEORGIA T ROBERSON JT TEN 1001 THORNEHILL DR ANDERSON SC 29621-1560 SC INTER. MUNI. BOND FUND R NFSC FEBO # W15-020141 81,238.31 29.31 0.00 INVESTOR C GIRARD M BLOUNT JR 4569 CARRIAGE RUN CIRCLE MURRELLS INLET SC 29576 SC INTER. MUNI. BOND FUND B BANK OF AMERICA NA 20,617,443.16 100.00 0.89 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 SC MUNICIPAL BOND FUND R PAINEWEBBER FOR THE BENEFIT OF 10,422.62 8.09 0.00 INVESTOR A JOHN STEVENSON METCALF 2287 SHORELINE DRIVE JOHNS ISLAND SC 29455-8631 SC MUNICIPAL BOND FUND R PAINEWEBBER FOR THE BENEFIT OF 10,461.32 8.12 0.00 INVESTOR A DAVID HALSTEAD METCALF 2325 ROCKY TOP ROAD CHARLOTTESVILLE VA 22911-8575
84
SC MUNICIPAL BOND FUND R NFSC FEBO # W17-039020 55,180.51 42.86 0.02 INVESTOR A DONNA R CART TTEE DONNA ROBINSON CART U/A 5/23/00 1140 PARTRIDGE RD SPARTANBURG SC 29302 SC MUNICIPAL BOND FUND R WACHOVIA BANK NA INVESTMENT MGR 8,819.04 6.85 0.00 INVESTOR A CHARLES D ERB TTEE FOR CHARLES D ERB TRUST U/A DTD 10/4/88 PO BOX 3073 M/C NC-31057 WINSTON-SALEM NC 27150 SC MUNICIPAL BOND FUND R NFSC FEBO # 679-136298 9,321.38 7.24 0.00 INVESTOR A LOUISE B ROSS LOUISE B ROSS TTEE U/A 10/22/1997 PO BOX 908 BAMBERG SC 29003 SC MUNICIPAL BOND FUND R DONALDSON LUFKIN JENRETTE 9,323.00 7.24 0.00 INVESTOR A SECURITIES CORPORATION INC. P. O. BOX 2052 JERSEY CITY, NJ 07303-9998 SC MUNICIPAL BOND FUND R NFSC FEBO # W16-000981 48,614.72 6.20 0.02 INVESTOR B PETER R ANDERSON EMMY LOU ANDERSON 207 SEA MARSH DRIVE KIAWAH ISLAND SC 29455 SC MUNICIPAL BOND FUND R NFSC FEBO # W38-006564 50,544.04 6.44 0.02 INVESTOR B HENRY A STROHMINGER JR 1426 N WACCAMAW DR GARDEN CITY SC 29576 SC MUNICIPAL BOND FUND R PAINEWEBBER FOR THE BENEFIT OF 4,771.00 29.89 0.00 INVESTOR C HENRY SMYTHE U/W/O EDITH G DUKES 5 EXCHANGE PL CHARLESTON SC 29401-2530 SC MUNICIPAL BOND FUND R PAINEWEBBER FOR THE BENEFIT OF 4,771.00 29.89 0.00 INVESTOR C HENRY SMYTHE TTEE U/W/O ETHEL BENNETT 5 EXCHANGE PL CHARLESTON SC 29401-2530 SC MUNICIPAL BOND FUND R NFSC FEBO # W15-013684 6,114.31 38.31 0.00 INVESTOR C OLGA WEINSTEIN TTEE OLGA WEINSTEIN REVOCABLE TRUST U/A 4/28/99 56 FORT ROYAL CHARLESTON SC 29407 SC MUNICIPAL BOND FUND B BANK OF AMERICA NA 1,971,373.68 99.99 0.68 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 SHORT INTER. GOVERNMENT FUND R NFSC FEBO # W14-610208 1,006,756.99 9.82 0.01 INVESTOR A BURGESS PIGMENT CO PO BOX 349 DECK BLVD SANDERSVILLE GA 31082 SHORT INTER. GOVERNMENT FUND B BANK OF AMERICA NA 1,562,700.73 15.25 0.90 INVESTOR A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911
85
SHORT INTER. GOVERNMENT FUND R JAMES STREET PROPERTY INVESTORS 740,077.44 7.22 0.01 INVESTOR A 600 ATLANTIC AVE SUITE 2000 BOSTON MA 02210 SHORT INTER. GOVERNMENT FUND R NFSC FEBO # W75-025127 419,221.41 55.76 0.00 INVESTOR C PALM MICROSYSTEMS INC 630 ALDER DR. MILPITAS CA 95035 SHORT INTER. GOVERNMENT FUND B MERRILL LYNCH, PIERCE, FENNER 43,016.96 5.72 0.00 INVESTOR C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 SHORT INTER. GOVERNMENT FUND R NFSC FEBO # W26-710326 63,774.59 8.48 0.00 INVESTOR C L D HARRIS, BRUCE BRATTON TTEE UMWA PCG TRAINING AND EDUCATIO FUND, U/A 5/23/96 DTD 5-23-96 PO BOX 1270 BRISTOL VA 24203 SHORT INTER. GOVERNMENT FUND B BANK OF AMERICA NA 117,976,346.04 98.88 0.90 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 SHORT INTER. GOVERNMENT FUND B RELIANCE TRUST CO 34,343.50 99.99 0.00 PRIMARY B PO BOX 48449 ATLANTA GA 30362 SHORT TERM MUNI. INCOME FUND R NFSC FEBO # W82-800490 247,389.16 6.08 0.01 INVESTOR A EL CAMINO ASSC A PARTNERSHIP ATT CHARLES CARLISE 2400 E MISSOURI AVE #7370 PHOENIX AZ 85016 SHORT TERM MUNI. INCOME FUND B BALSA & CO 297,592.90 7.31 0.02 INVESTOR A MUTUAL FUNDS UNIT 16-HCB-040 PO BOX 2558 HOUSTON TX 77252-8040 SHORT TERM MUNI. INCOME FUND R NFSC FEBO # W77-013960 298,485.21 7.33 0.02 INVESTOR A RICHARD C BRIGGS 3251 106TH AVE SE BELLEVUE WA 98004 SHORT TERM MUNI. INCOME FUND R NFSC FEBO # W52-039942 339,425.95 8.34 0.02 INVESTOR A ROBERT SUNDERLAND TTEE ROBERT SUNDERLAND TRUST U/A 12/20/83 910 RHYOLITE TERRACE HENDERSON NV 89015 SHORT TERM MUNI. INCOME FUND R NFSC FEBO # W14-726940 15,749.69 5.92 0.00 INVESTOR B JUDITH C BROWN 708 OLD GREENVILLE RD FAYETTEVILLE GA 30215 SHORT TERM MUNI. INCOME FUND R NFSC FEBO # W26-643050 18,185.07 6.83 0.00 INVESTOR B MRS ANN W CUTCHINS 5906 OCEANFRONT VIRGINIA BCH VA 23451
86
SHORT TERM MUNI. INCOME FUND R NFSC FEBO # W13-092100 20,563.42 7.73 0.00 INVESTOR B PARAGON ASSETS LTD PARTNERSHIP A PARTNERSHIP ROBERT L LYLES 4520 KING ST #206 ALEXANDRIA VA 22302 SHORT TERM MUNI. INCOME FUND R NFSC FEBO # W26-783200 57,354.29 21.56 0.00 INVESTOR B JAMES H SPARKS KAREN M SPARKS 4006 N WITCHDUCK RD VIRGINIA BCH VA 23455 SHORT TERM MUNI. INCOME FUND B MERRILL LYNCH, PIERCE, FENNER 10,998.28 5.03 0.00 INVESTOR C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 SHORT TERM MUNI. INCOME FUND R NFSC FEBO # W19-115410 14,299.80 6.55 0.00 INVESTOR C ROBERT T MORPHY TTEE ROBERT T MORPHY REV TRUST U/A 1/11/90 22343 BLUE WATER CIR #B-224 BOCA RATON FL 33433 SHORT TERM MUNI. INCOME FUND R CHRISTOPHER H WILLIAMS 21,869.46 10.01 0.00 INVESTOR C 10 HAMPTON HILLS LANE RICHMOND VA 23226 SHORT TERM MUNI. INCOME FUND R A G EDWARDS & SONS INC FBO 23,564.46 10.79 0.00 INVESTOR C EUGENE IACOPI & ANITA IACOPI TTEE EUGENE A IACOPI & ANITA M A/C 0541-043020 ONE NORTH JEFFERSON ST LOUIS MO 63103-2287 SHORT TERM MUNI. INCOME FUND R NFSC FEBO # W38-064548 44,398.64 20.33 0.00 INVESTOR C R PETER BOSWORTH 801 ST GEORGES RD BALTIMORE MD 21210 SHORT TERM MUNI. INCOME FUND B BANK OF AMERICA NA 14,120,015.11 95.48 0.73 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 SHORT-TERM INCOME FUND B COBATCO C/O SYNOVUS TRUST CO 172,285.59 12.27 0.00 INVESTOR A OPERATIONS 1148 BROADWAY COLUMBUS GA 31901 SHORT-TERM INCOME FUND R NFSC FEBO # W17-737127 14,831.36 5.80 0.00 INVESTOR B CLEMSON ARCHITECTURAL FNDTN 108 STRODE TOWER CLEMSON SC 29634 CLEMSON SC 29631 SHORT-TERM INCOME FUND R NFSC FEBO # W17-731277 26,761.04 10.46 0.00 INVESTOR B W ANDERSON RURAL WATER & SEWER RESERVE FUND 2767 WHITEHALL RD ANDERSON SC 29625 SHORT-TERM INCOME FUND R NFSC FEBO # W17-731269 45,126.73 17.64 0.00 INVESTOR B WEST ANDERSON RURAL WATER & SEWER CO INC 2767 WHITEHALL RD ANDERSON SC 29625
87
SHORT-TERM INCOME FUND R NFSC FEBO # W75-025127 390,646.34 62.24 0.01 INVESTOR C PALM MICROSYSTEMS INC 630 ALDER DR. MILPITAS CA 95035 SHORT-TERM INCOME FUND R NFSC FEBO # W73-032085 76,374.75 12.17 0.00 INVESTOR C MARTIN AND MARSHA BRANDER TRUS MARTIN I BRANDER U/A 12/05/1995 323 N CARMELINA AVE LOS ANGELES CA 90049 SHORT-TERM INCOME FUND B BANK OF AMERICA NA 34,950,485.06 95.91 0.90 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 SHORT-TERM INCOME FUND R STEPHENS INC 1.03 100.00 0.00 PRIMARY B ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 SMALL CAP INDEX INVESTOR A B CHARLES SCHWAB & CO INC 127,166.31 23.57 0.01 SPECIAL CUSTODY ACCOUNT FOR BENEFIT OF CUSTOMERS ATTN MUTUAL FUNDS 101 MONTGOMERY STREET SAN FRANCISCO CA 94104 SMALL CAP INDEX INVESTOR A B BALSA & CO 35,088.33 6.50 0.00 MUTUAL FUNDS UNIT 16-HCB-040 PO BOX 2558 HOUSTON TX 77252-8040 SMALL CAP INDEX INVESTOR A R DADE COMMUNITY FOUNDATION INC 44,013.77 8.15 0.00 200 SOUTH BISCAYNE BLVD STE 2780 MIAMI FL 33131-2343 SMALL CAP INDEX PRIMARY A B BANK OF AMERICA NA 17,725,321.73 77.50 0.76 ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 SMALL CAP INDEX PRIMARY A B BANK OF AMERICA NA TTEE 4,832,719.51 21.13 0.21 NB 401K PLAN U/A DTD 01/01/1983 P O BOX 2518/TX4-213-06-14 HOUSTON TX 77252-2518 SMALL COMPANY FUND INVESTOR B B MERRILL LYNCH, PIERCE, FENNER 52,850.64 5.24 0.00 & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 SMALL COMPANY FUND INVESTOR C B OLLEN STEPP, TTEE 14,947.65 6.62 0.00 MEMBERS OF SPRINGDALE POLICE PENSION & RELIEF FUND 201 SPRING STREET SPRINGDALE AR 72764-4554 SMALL COMPANY FUND INVESTOR C B MERRILL LYNCH, PIERCE, FENNER 20,148.79 8.93 0.00 & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246
88
SMALL COMPANY FUND PRIMARY A B BANK OF AMERICA NA 37,735,735.13 91.24 0.71 ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 SMALL COMPANY FUND PRIMARY B R STEPHENS INC 1.14 100.00 0.00 ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 STRATEGIC GROWTH FUND PRIMARY B BANK OF AMERICA NA 89,617,929.34 99.41 0.96 A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 STRATEGIC GROWTH INVESTOR A B COBATCO C/O SYNOVUS TRUST CO 940,724.27 44.03 0.01 OPERATIONS 1148 BROADWAY COLUMBUS GA 31901 STRATEGIC GROWTH INVESTOR C B MERRILL LYNCH, PIERCE, FENNER 11,757.17 6.09 0.00 & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 STRATEGIC INCOME FUND R BANC OF AMERICA INVESTMENT SERVICES 10,260.16 6.44 0.00 INVESTOR C FBO 300181211 185 BERRY ST. 3RD FLOOR #12640 SAN FRANCISCO CA 94107 STRATEGIC INCOME FUND R NFSC FEBO # W16-037044 12,562.48 7.89 0.00 INVESTOR C EDNA H DUNKLE NFSC/FMTC IRA GEORGE H DUNKLE DOD 4-30-00 207 N BEVERLY DR LOCUST NC 28097 STRATEGIC INCOME FUND R NFSC FEBO # W17-662682 17,323.89 10.88 0.00 INVESTOR C NFSC/FMTC IRA ROLLOVER FBO LINDA G WALKER 7 SALLY ST SPARTANBURG SC 29301 STRATEGIC INCOME FUND R JAMES B FORD AND 17,910.11 11.25 0.00 INVESTOR C JOANNE W FORD JTTEN 3441 LEBANON PIKE STE 113 HERMITAGE TN 37076-2000 STRATEGIC INCOME FUND R NFSC FEBO # W25-059382 28,035.96 17.61 0.00 INVESTOR C JOHN L MANNING III P/ADM ORGAIN READY MIX PFT SHRING PL 240 KRAFT ST CLARKSVILLE TN 37040 STRATEGIC INCOME FUND PRIMARY B BANK OF AMERICA NA 15,026,491.18 99.83 0.66 A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 STRATEGIC INCOME FUND PRIMARY R STEPHENS INC 1.06 100.00 0.00 B ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201
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TAX EXEMPT FUND DAILY SHARES B NATIONAL FINANCIAL FOR THE 90,958,411.14 99.64 0.05 EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 TAX EXEMPT FUND INVESTOR A B BANC OF AMERICA SECURITIES LLC 5,452,923.75 9.26 0.00 ATTN MUTAL FUNDS 600 MONTGOMERY ST SAN FRANCISCO CA 94111 TAX EXEMPT FUND INVESTOR A B NATIONAL FINANCIAL FOR THE 50,895,942.80 86.45 0.05 EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 TAX EXEMPT FUND INVESTOR B R HARE & CO, BANK OF NEW YORK 18,844,296.87 7.97 0.01 ATTN STIF/MASTER NOTE ONE WALL STREET 2ND FL NEW YORK NY 10286 TAX EXEMPT FUND INVESTOR C R NFSC FEBO # W16-624101 211,554.07 19.55 0.00 ALFRED K SAMPSON 527 NC HWY 150 WEST GREENSBORO NC 27455 TAX EXEMPT FUND INVESTOR C R STEVENS T CALDWELL & 800,000.00 73.95 0.00 LYNN A CALDWELL JTWROS 10859 EMERALD COAST HWY #4-409 DESTIN FL 32541 TAX EXEMPT FUND PRIMARY A B BANK OF AMERICA NA 2,251,541,210.61 99.26 0.85 ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 TAX EXEMPT FUND PRIMARY B B BANK OF AMERICA NA 3,514,045.93 100.00 0.00 ATTN TONY FARRER (B SHARES) 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 TN INTER. MUNI. BOND FUND R NFSC FEBO # W25-680427 122,275.74 15.33 0.03 INVESTOR A BOB G LONG PO BOX 266 HERMITAGE TN 37076 TN INTER. MUNI. BOND FUND R NFSC FEBO # W25-683256 127,867.17 16.03 0.03 INVESTOR A MARSHALL T POLK III PO BOX 90148 NASHVILLE TN 37209 TN INTER. MUNI. BOND FUND R SAM H HAY SR, MD 42,090.92 5.27 0.01 INVESTOR A PO BOX 5064 MURFREESBORO TN 37133 TN INTER. MUNI. BOND FUND R CHARLES R HULSHOF & 46,415.57 5.82 0.01 INVESTOR A CHERYL T HULSHOF JT TEN 8225 MARYLAND LANE BRENTWOOD TN 37027-7332 TN INTER. MUNI. BOND FUND R NFSC FEBO # W25-680419 49,524.41 6.21 0.01 INVESTOR A JOSEPH L DILORENZO 310 WATERCRESS DRIVE FRANKLIN TN 37064
90
TN INTER. MUNI. BOND FUND R NFSC FEBO # W25-684716 61,307.78 7.68 0.01 INVESTOR A JAMES R KELLAM III 3605 SYCAMORE LANE NASHVILLE TN 37215 TN INTER. MUNI. BOND FUND R RALPH S GRAHAM TTEE 62,126.91 7.79 0.01 INVESTOR A RALPH S GRAHAM REV LIV TRUST U/A DTD 08/14/1990 PO BOX 235 BIG SANDY TN 38221 TN INTER. MUNI. BOND FUND R NFSC FEBO # W25-695556 14,768.26 11.35 0.00 INVESTOR B CHARLES R COOKSEY JULIE E COOKSEY 4767 CARTHAGE HWY LEBANON TN 37087 TN INTER. MUNI. BOND FUND R NFSC FEBO # W25-008028 17,056.62 13.11 0.00 INVESTOR B DAVID A LOCKMILLER CARLOTTA E LOCKMILLER 4343 LEBANON RD APT#1711 HERMITAGE TN 37076 TN INTER. MUNI. BOND FUND R NFSC FEBO # W25-688070 6,796.95 5.22 0.00 INVESTOR B WILLIAM M REGAN 215 LONG VALLEY ROAD BRENTWOOD TN 37027 TN INTER. MUNI. BOND FUND R NFSC FEBO # W25-605689 8,538.31 6.56 0.00 INVESTOR B TERENCE M KELLY BARBARA M KELLY 272 HIDDEN LAKE RD HENDERSONVILLE TN 37075 TN INTER. MUNI. BOND FUND R NFSC FEBO # W25-695467 9,422.12 7.24 0.00 INVESTOR B GARY ARMOR HALL VICKI B HALL 16609 MIZZEN COURT CORNELIUS NC 28031 TN INTER. MUNI. BOND FUND R NFSC FEBO # W25-620670 9,477.09 7.28 0.00 INVESTOR B JOLENE H JORDAN P O BOX 1736 CORDOVA TN 38088 TN INTER. MUNI. BOND FUND R STEPHENS INC 276.40 99.59 0.00 INVESTOR C ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 TN INTER. MUNI. BOND FUND B BANK OF AMERICA NA 3,915,329.74 100.00 0.81 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 TN MUNICIPAL BOND FUND R NFSC FEBO # W25-002658 108,369.65 61.36 0.11 INVESTOR A WILLIAM W PUGH JR 734 EMORY VALLEY RD #104 OAK RIDGE TN 37830 TN MUNICIPAL BOND FUND R NFSC FEBO # W25-682101 13,266.08 7.51 0.01 INVESTOR A ALLENE ELLIS JOYCE ROSE 2544 BEARWALLOW RD ASHLAND CITY TN 37015 TN MUNICIPAL BOND FUND R NFSC FEBO # W25-681849 21,509.66 12.18 0.02 INVESTOR A JOHN MCBEE 427 LYNWOOD BOULEVARD NASHVILLE TN 37205
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TN MUNICIPAL BOND FUND R NFSC FEBO # W25-063657 9,478.67 5.36 0.01 INVESTOR A MARY SMITH BANIC 605 W VANDERBILT DR OAK RIDGE TN 37830 TN MUNICIPAL BOND FUND R NFSC FEBO # W25-683620 16,960.59 5.62 0.02 INVESTOR B ROSE MARIE ST CLAIR 222 ANDREWS DRIVE CLARKSVILLE TN 37042 TN MUNICIPAL BOND FUND R NFSC FEBO # W23-731293 18,844.56 6.24 0.02 INVESTOR B B/G MADISON MCBRAYER 1168 CUMBERLAND ROAD CHATTANOOGA TN 37419 TN MUNICIPAL BOND FUND R NFSC FEBO # W25-794732 19,071.87 6.32 0.02 INVESTOR B NANCY C DAVIS HENRY G DAVIS 2201 BOWMAN RD FRANKLIN TN 37064 TN MUNICIPAL BOND FUND R NFSC FEBO # W25-690961 20,325.00 6.73 0.02 INVESTOR B ELIZABETH D CAMPBELL 3037 SMITH SPRINGS RD ANTIOCH TN 37013 TN MUNICIPAL BOND FUND R NFSC FEBO # W25-009660 2,497.28 11.95 0.00 INVESTOR C DONALD J SOUTHARD SR BARBARA C SOUTHARD 278 JOE BYRD LN CLINTON TN 37716 TN MUNICIPAL BOND FUND R NFSC FEBO # W25-617954 4,349.08 20.82 0.00 INVESTOR C FRANK W CONDURELIS JANE E CONDURELIS 806 BRENTVIEW DR NASHVILLE TN 37220 TN MUNICIPAL BOND FUND B MERRILL LYNCH, PIERCE, FENNER 4,771.47 22.84 0.00 INVESTOR C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 TN MUNICIPAL BOND FUND R J CHASE COLE 8,355.63 40.00 0.01 INVESTOR C 511 UNION ST STE 2100 NASHVILLE TN 37219 TN MUNICIPAL BOND FUND B BANK OF AMERICA NA 455,611.55 99.93 0.48 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 TREASURY FUND DAILY SHARES B NATIONAL FINANCIAL FOR THE 49,297,462.04 96.61 0.03 EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 TREASURY FUND INVESTOR A R HARE & CO, BANK OF NEW YORK 1,088,736,614.11 96.11 0.60 ATTN STIF/MASTER NOTE ONE WALL STREET 2ND FL NEW YORK NY 10286 TREASURY FUND INVESTOR B R N F SMITH & ASSOCIATES LP 12,234,934.84 6.84 0.01 5306 HOLLISTER HOUSTON TX 77040
92
TREASURY FUND INVESTOR B R GRAND PRAIRIE SPORTS FACILITIES 13,909,485.12 7.77 0.01 DEVELOPMENT CORPORATION INC SALES TAX ACCOUNT PO BOX 534045 GRAND PRAIRIE TX 75053 TREASURY FUND INVESTOR B R HARE & CO, BANK OF NEW YORK 62,803,467.43 35.11 0.60 ATTN STIF/MASTER NOTE ONE WALL STREET 2ND FL NEW YORK NY 10286 TREASURY FUND INVESTOR C R NFSC FEBO # RS6-607207 11,546.71 10.02 0.00 NFSC/FMTC IRA ROLLOVER FBO JAMES A COX 2015 ASHTON POINTE DR DACULA GA 30019 TREASURY FUND INVESTOR C R NFSC FEBO # W13-643629 13,293.10 11.53 0.00 NFSC/FMTC IRA FBO MAUREEN D MATRICARDI 8004 CARRLEIGH PKWY SPRINGFIELD VA 22152 TREASURY FUND INVESTOR C R NFSC FEBO # W13-643637 13,293.10 11.53 0.00 NFSC/FMTC IRA FBO EDMUND A MATRICARDI JR 8004 CARRLEIGH PKWY SPRINGFIELD VA 22152 TREASURY FUND INVESTOR C R NFSC FEBO # W32-608246 19,459.61 16.88 0.00 NFSC/FMTC IRA FBO DONALD E PAUL 3407 SHADOWOOD DRIVE VALRICO FL 33594 TREASURY FUND INVESTOR C R NFSC FEBO # W52-725021 53,053.74 46.04 0.00 NFSC/FMTC IRA FBO RETHA C WHITEHEAD 5226 GARFIELD AV KANSAS CITY MO 64130 TREASURY FUND PRIMARY A B BANK OF AMERICA NA 553,133,149.00 99.77 0.29 ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 TREASURY FUND PRIMARY B B BANK OF AMERICA NA 8,541,392.41 100.00 0.00 ATTN TONY FARRER (B SHARES) 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 NATIONS TREASURY RESERVE B BANK OF AMERICA NA 440,732,700.58 98.91 0.06 TRUST CLASS ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 TREASURY RESERVES ADVISER FUND R SECURITY PACIFIC CASH MANAGEMENT 137,275,400.00 7.56 0.02 C/O BANK OF AMERICA GPO M/C 5533 ATTN REGINA OLSEN--4TH FLOOR 1850 GATEWAY BLVD # 5533 CONCORD CA 94520-3275 TREASURY RESERVES ADVISER FUND B NATIONSBANK OF TEXAS NA AGENT FBO 201,032,011.64 11.08 0.03 GLOBAL FINANCE SWEEP CUSTOMERS ATTN: STEVEN EDWARDS 1201 MAIN ST TX1-609-21-04 DALLAS TX 75202
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TREASURY RESERVES B R NFSC FEBO # W38-050156 20,000.00 6.67 0.00 ROBERT L COLEMAN 12218 QUADRILLE LANE BOWIE MD 20720 TREASURY RESERVES B R LOUISE WALCOTT JONES & 225,871.60 75.43 0.00 THOMAS H JONES JR JTWROS 3235 GULF OF MEXICA DR #306A LONGBOAT KEY FL 34228 TREASURY RESERVES B R NFSC FEBO # W14-618039 52,945.09 17.68 0.00 SUSIE BEARD ELLA P BEARD 946 DEWEY ST SW ATLANTA GA 30310 TREASURY RESERVES C R STEPHENS INC 10.00 100.00 0.00 ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 TREASURY RESERVES CAPITAL FUND R PHELPS DODGE CORPORATION 106,942,757.66 5.93 0.01 ATTN BO LE MASTER 2600 N CENTRAL AVE PHOENIX AZ 85004 TREASURY RESERVES CAPITAL FUND B BANC OF AMERICA LLC 289,786,997.26 16.06 0.04 ATTN MUTUAL FUNDS 600 MONTGOMERY ST SAN FRANCISCO CA 94111 TREASURY RESERVES CAPITAL FUND R KPMG PEAT MARWICK LL 303,000,000.00 16.80 0.04 ATTN HARVEY SKOLNICK 3 CHESTNUT RIDGE RD MONTVALE NJ 07645-1842 TREASURY RESERVES DAILY FUND B NATIONAL FINANCIAL FOR THE 273,196,390.79 25.20 0.04 EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 TREASURY RESERVES DAILY FUND R MAXIM INTERGRATED PRODUCTS INC 69,097,607.34 6.37 0.01 ATTN:ACCOUNTING MS 433 ATTN: RUEHLE 120 SAN GABRIEL DRIVE SUNNYVALE CA 94086 TREASURY RESERVES R ROUND ROCK ISD DEBT SERVICE 10,000,000.00 7.59 0.00 INSTITUTIONAL CLASS ATTN ACCOUNTING DEPT 1311 ROUND ROCK AVE ROUND ROCK TX 78681-4941 TREASURY RESERVES R TIGUA INDIAN RESERVATION 18,126,011.54 13.76 0.00 INSTITUTIONAL CLASS YSLETA DEL SUR PUEBLO MINOR ACCOUNT P O BOX 17579 EL PASO TX 79917-7579 TREASURY RESERVES R ETHYL CORPORATION 72,082,453.00 54.75 0.01 INSTITUTIONAL CLASS ATTN MIKE MCKEEVER 330 SOUTH FOURTH STREET RICHMOND VA 23219 TREASURY RESERVES R CLARK COUNTY PUBLIC ADMIN 8,000,000.00 6.07 0.00 INSTITUTIONAL CLASS PUBLIC GUARDIAN ATTN JARED C SHAFER 515 SHADOW LANE LAS VEGAS NV 89106
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TREASURY RESERVES R CLARK COUNTY PUBLIC GUARDIAN 8,500,000.00 6.45 0.00 INSTITUTIONAL CLASS KATHLEEN BUCHANAN PUBLIC GUARDIAN 515 SHADOW LANE LAS VEGAS NV 89106 TREASURY RESERVES INVESTOR R HARE & CO, BANK OF NEW YORK 129,815,707.52 17.07 0.02 FUND ATTN STIF/MASTER NOTE ONE WALL STREET 2ND FL NEW YORK NY 10286 TREASURY RESERVES INVESTOR B NATIONAL FINANCIAL FOR THE 41,806,569.56 5.49 0.04 FUND EXCLUSIVE BENEFIT OF OUR CUSTOMERS 200 LIBERTY ST 1 WORLD FINANCIAL CTR ATTN MUTUAL FUNDS 5TH FLR NEW YORK NY 10281 TREASURY RESERVES INVESTOR R SILICON VALLEY BANK 577,553,993.37 75.94 0.07 FUND ATTN: BRIAN ARAKI 3003 TASMAN DRIVE MSHG 110 SANTA CLARA CA 95054 TREASURY RESERVES LIQUIDITY R OPTICAL SWITCH CORPORATION 16,010,097.88 5.71 0.00 CLASS ATTN RANDY COTHRUN 930 E CAMPBELL RD RICHARDSON TX 75081 TREASURY RESERVES LIQUIDITY R SWINERTON & WALBERG CO 19,633,780.17 7.00 0.00 CLASS MR JAMES R GILLETTE EXEC VP ATTN VICKIE PAUL ONE KAISER PLAZA STE 701 OAKLAND CA 94612 TREASURY RESERVES LIQUIDITY R PRIMUS TELECOMMUNICATIONS 24,412,877.22 8.71 0.00 CLASS INTERNATIONAL INC ATTN AARON MIVERT 1700 OLD MEADOW ROAD SUITE 300 MCLEAN VA 22102 TREASURY RESERVES LIQUIDITY R NORTHSTAR PARTNERSHIP LP 39,675,764.74 14.15 0.00 CLASS ATTN GLEN LEVIN 527 MADISON AVE FL 16 NEW YORK NY 10022-4304 TREASURY RESERVES LIQUIDITY R NATIONSBANK SWP DISBURSEMENT NC 42,000,000.00 14.98 0.19 CLASS NATIONSBANK SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 TREASURY RESERVES MARKET CLASS R NATIONSBANK SWP DISBURSEMENT NC 1,345,000,000.00 99.99 0.19 NATIONSBANK SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 TREASURY RESERVES SERVICE FUND R NATIONSBANK SWP DISBURSEMENT NC 146,500,000.00 48.19 0.19 NATIONSBANK SWEEP/AUTOBORROW FIRST CITIZENS BLDG 128 S TRYON ST NC1-006-08-03 CHARLOTTE NC 28255 TREASURY RESERVES SERVICE FUND R JDA SOFTWARE INC 15,717,120.56 5.17 0.00 ATTN DARREN S DIXON 14400 N 87TH ST SCOTTSDALE AZ 85260-3649
95
TREASURY RESERVES SERVICE FUND R B OF A CALIFORNIA TREASURY Y CLASS 30,000,000.00 9.86 0.00 SEAN EHRLICH 2044 FRANKLIN ST OAKLAND CA 94612-2908 TX INTER. MUNI. BOND FUND R SECURED TRUST BANK 126,254.49 23.58 0.00 INVESTOR A SUITE 100 1909 SOUTH BROADWAY TYLER TX 75701 TX INTER. MUNI. BOND FUND R MOTCO 148,091.53 27.66 0.01 INVESTOR A P O BOX 17001-TRUST SAN ANTONIO TX 78217 TX INTER. MUNI. BOND FUND R NFSC FEBO # W18-708275 27,521.52 5.14 0.00 INVESTOR A SHARRA LANKFORD 238 VAN ROWE DUNCANVILLE TX 75116 TX INTER. MUNI. BOND FUND R MADELINE O'DONNELL 43,993.54 8.21 0.00 INVESTOR A 2395 NICHOLS CANYON RD HOLLYWOOD CA 90046 TX INTER. MUNI. BOND FUND R NFSC FEBO # W41-600997 19,010.03 9.24 0.00 INVESTOR B OLIVER ROOFING SYSTEMS PO BOX 180191 AUSTIN TX 78718 TX INTER. MUNI. BOND FUND R NFSC FEBO # W40-682470 19,467.28 9.46 0.00 INVESTOR B A G MARTIN NELLIE L MARTIN 2011 32ND ST LUBBOCK TX 79411 TX INTER. MUNI. BOND FUND R NFSC FEBO # W18-719404 22,726.78 11.05 0.00 INVESTOR B MONTINE T WISDOM 6335 W NORTHWEST HWY #1318 DALLAS TX 75225 TX INTER. MUNI. BOND FUND R NFSC FEBO # W40-678880 33,748.44 16.41 0.00 INVESTOR B JAMES ROBERT MALLORY FAITH K MALLORY 2400 WINTON TERR E FORT WORTH TX 76109 TX INTER. MUNI. BOND FUND R STEPHENS INC 273.72 100.00 0.00 INVESTOR C ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 TX INTER. MUNI. BOND FUND B BANK OF AMERICA NA 27,051,607.80 99.80 0.97 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 TX MUNICIPAL BOND FUND R NFSC FEBO # W40-650790 2,742.71 5.13 0.00 INVESTOR A SETH W LEHMBERG ROSE MARY LEHMBERG 2201 MEADOW LANE TAYLOR TX 76574 TX MUNICIPAL BOND FUND R SHIRLEY A WAGNER 2,821.93 5.27 0.00 INVESTOR A 3002 SAN PAULA DALLAS TX 75228-0000
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TX MUNICIPAL BOND FUND R EDWARD D JONES AND CO F/A/O 2,853.79 5.33 0.00 INVESTOR A ADOLPH F SCHMIDT & ELVIRA H SCHMIDT EDJ# 512-06113-1-3 P O BOX 2500 MARYLAND HEIGHTS MO 630438500 TX MUNICIPAL BOND FUND R MOTCO 42,520.02 79.53 0.03 INVESTOR A P O BOX 17001-TRUST SAN ANTONIO TX 78217 TX MUNICIPAL BOND FUND R NFSC FEBO # W23-726141 27,561.82 5.49 0.02 INVESTOR B HOWARD D WOMACK 291 FM 1078 ORANGE TX 77632 TX MUNICIPAL BOND FUND R NFSC FEBO # W23-739839 29,406.47 5.86 0.02 INVESTOR B TERRY M JOHNSON PAULA M JOHNSON PO BOX 1227 WOLFFORTH TX 79382 TX MUNICIPAL BOND FUND R NFSC FEBO # W40-609048 43,401.21 8.65 0.03 INVESTOR B JANE M MCCARVER EX E/O A G MCCARVER 901 W INDIANNA STE A MIDLAND TX 79701 TX MUNICIPAL BOND FUND B MERRILL LYNCH, PIERCE, FENNER 122.34 28.16 0.00 INVESTOR C & SMITH INC FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTENTION SERVICE TEAM 4800 DEER LAKE DRIVE EAST 3RD FLOOR JACKSONVILLE FL 32246 TX MUNICIPAL BOND FUND R STEPHENS INC 311.99 71.83 0.00 INVESTOR C ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 TX MUNICIPAL BOND FUND B BANK OF AMERICA NA 813,006.42 99.96 0.59 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 VA INTER. MUNI. BOND FUND R DOROTHY LEE WALSHE 10,073.36 16.62 0.00 INVESTOR C 5801 MILL SPRING RD MIDLOTHIAN VA 23112 VA INTER. MUNI. BOND FUND R NFSC FEBO # W13-003441 3,609.95 5.95 0.00 INVESTOR C HAROLD R CRAMER DONNA CRAMER 2051 CROSSING GATE WAY VIENNA VA 22181 VA INTER. MUNI. BOND FUND R NFSC FEBO # W26-066940 3,706.30 6.11 0.00 INVESTOR C ANDREW L GRAHAM JR ELRICA S GRAHAM 708 WREN DRIVE PULASKI VA 24301 VA INTER. MUNI. BOND FUND R NFSC FEBO # W26-049425 6,719.58 11.09 0.00 INVESTOR C COLLIN PEEL MARGIE PEEL 195 FAIRWAY LN WYTHEVILLE VA 24382
97
VA INTER. MUNI. BOND FUND B BANK OF AMERICA NA 23,265,602.49 100.00 0.83 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 VA MUNICIPAL BOND FUND R CIBC WORLD MARKETS CORP. 20,107.27 20.94 0.01 INVESTOR A FBO 033-23266-10 P.O. BOX 3484 CHURCH STREET STATION NEW YORK, NY 10008-3484 VA MUNICIPAL BOND FUND R NFSC FEBO # W68-011398 5,075.45 5.28 0.00 INVESTOR A GERALD H MOULTON JR VIRGINIA M MOULTON 3240 VILLAMONT ROAD BLUE RIDGE VA 24064 NEW YORK NY 10281 VA MUNICIPAL BOND FUND R NFSC FEBO # W13-652342 5,302.03 5.52 0.00 INVESTOR A JEFFERY W HALE DIANE A HALE 8618 WOODBINE LANE ANNANDALE VA 22003 VA MUNICIPAL BOND FUND R JESSIE E SPELLS 5,983.12 6.23 0.00 INVESTOR A 25611 TAROCCO DR BONITA SPRINGS FL 34135-6406 VA MUNICIPAL BOND FUND R ROBERT W BAIRD & CO. INC. 6,467.01 6.73 0.00 INVESTOR A A/C 7656-0853 777 EAST WISCONSIN AVENUE MILWAUKEE WI 53202-5391 VA MUNICIPAL BOND FUND R REBECCA C BELL 6,844.88 7.12 0.00 INVESTOR A 1092 OAKLAWN DR CULPEPER VA 22701 VA MUNICIPAL BOND FUND R NFSC FEBO # W26-065471 7,772.25 8.09 0.00 INVESTOR A SUSAN E WILLIAMS 7 RAMSBURY CT RICHMOND VA 23233 VA MUNICIPAL BOND FUND R RODNEY M CARLSON AND 8,010.00 8.34 0.00 INVESTOR A JOYCE L CARLSON JTTEN 3608 SOUTH CREEK CT CHESAPEAKE VA 23325 VA MUNICIPAL BOND FUND R CIBC WORLD MARKETS CORP. 8,959.78 9.33 0.00 INVESTOR A FBO 033-23264-12 P.O. BOX 3484 CHURCH STREET STATION NEW YORK, NY 10008-3484 VA MUNICIPAL BOND FUND R STEPHENS INC 316.25 5.61 0.00 INVESTOR C ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201 VA MUNICIPAL BOND FUND R NFSC FEBO # W26-049425 5,211.25 92.50 0.00 INVESTOR C COLLIN PEEL MARGIE PEEL 195 FAIRWAY LN WYTHEVILLE, VA 24382 VA MUNICIPAL BOND FUND B BANK OF AMERICA NA 2,483,798.97 100.00 0.68 PRIMARY A ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911
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VALUE FUND INVESTOR C B STUART K COLONNA TTEE 72,799.51 9.93 0.00 BAYSHORE CONCRETE PRODUCTS CORP RETIREMENT SAVINGS PLAN 1 BAYSHORE RD P O BOX 230 CAPE CHARLES VA 23310 VALUE FUND PRIMARY A B BANK OF AMERICA NA 52,418,776.13 76.09 0.63 ATTN TONY FARRER 1401 ELM STREET 11TH FLOOR DALLAS TX 75202-2911 VALUE FUND PRIMARY A B BANK OF AMERICA NA TTEE 9,309,268.92 13.51 0.11 NB 401K PLAN U/A DTD 01/01/1983 P O BOX 2518/TX4-213-06-14 HOUSTON TX 77252-2518 VALUE FUND PRIMARY B R STEPHENS INC 1.40 100.00 0.00 ATTN: CINDY COLE 111 CENTER STREET LITTLE ROCK AR 72201
As of July 1, 2001, the Board Members and officers of the Companies as a group owned less than 1% of each class of shares of each Fund. INVESTMENT ADVISORY AND OTHER SERVICES Investment Adviser and Sub-Advisers BA Advisors, BACAP and Marsico Capital BA Advisors is the primary investment adviser to the Funds, except the Feeder Funds which have no investment adviser. BA Advisors is also the investment adviser to the Master Portfolios. BACAP is the investment sub-adviser to all other Funds (except the Feeder Funds), and is co-investment sub-adviser to the Asset Allocation Fund. Marsico Capital is investment sub-adviser to the Marsico Focused Equities Master Portfolio, Marsico Growth & Income Master Portfolio, Marsico 21st Century Master Portfolio, Marsico International Opportunities Master Portfolio. BA Advisors also serves as the investment adviser to the portfolios of Nations Separate Account Trust, a registered investment company that is part of the Nations Funds Family. In addition, BA Advisors serves as the investment adviser to Hatteras Income Securities, Inc., Nations Government Income Term Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc. and Nations Balanced Target Maturity Fund, Inc., each a closed-end diversified management investment company traded on the NYSE. BACAP also serves as the investment sub-adviser to Hatteras Income Securities, Inc., Nations Government Income Term Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc., and Nations Balanced Target Maturity Fund, Inc. BA Advisors and BACAP are each wholly owned subsidiaries of Bank of America, which in turn is a wholly owned banking subsidiary of Bank of America Corporation, a financial services holding company organized as a Delaware corporation. The respective principal offices of BA Advisors and BACAP are located at One Bank of America Plaza, Charlotte, N.C. 28255. Marsico Capital is located at 1200 17th Street, Suite 1300, Denver, CO 80202. Thomas F. Marsico is Chairman and Chief Executive Officer of Marsico Capital. Prior to forming Marsico Capital in September 1997, Mr. Marsico had 18 years of experience as a securities analyst/portfolio manager. Marsico Capital is an indirect, wholly-owned subsidiary of Bank of America. 99 Since 1874, Bank of America and its predecessors have been managing money for foundations, universities, corporations, institutions and individuals. Today, Bank of America affiliates collectively manage in excess of $xxx billion, including the more than $120 billion in mutual fund assets. It is a company dedicated to a goal of providing responsible investment management and superior service. Bank of America is recognized for its sound investment approaches, which place it among the nation's foremost financial institutions. Bank of America and its affiliates organization makes available a wide range of financial services to its over 6 million customers through over 1700 banking and investment centers. Sub-Advisers Unaffiliated with BA Advisors Brandes is the investment sub-adviser to the International Value Master Portfolio. Brandes Investment Partners, Inc. owns a controlling interest in Brandes and serves as its General Partner. Charles Brandes is the controlling shareholder of Brandes Investment Partners, Inc. The principal offices of Brandes are located at 11988 El Camino Real, Suite 500, San Diego, California 92130. MacKay Shields is the investment sub-adviser to the High Yield Master Portfolio. MacKay Shields is located at 9 West 57th Street, New York, NY 10019. Chicago Equity Partners, LLC ("Chicago Equity") is co-investment sub-adviser to the Blue Chip Master Portfolio and the equity portion of the Asset Allocation Fund. Chicago Equity Partners was established in 1998 as a wholly owned subsidiary of Bank of America and was the successor to the Bank of America Institutional Equity Group. On April 30, 2000, Chicago Equity Partners Corporation merged into Chicago Equity, a limited liability company formed in the state of Delaware. Chicago Equity is an investment adviser registered under the Investment Advisers Act of 1940, as amended. The principal source of Chicago Equity's income is professional fees received from the management of client portfolios. Chicago Equity manages the assets of fiduciary and other institutional accounts. Chicago Equity is located at 180 N. LaSalle Street, Suite 3800, Chicago, Illinois 60601. Gartmore is the investment sub-adviser to the Emerging Markets Fund and co-investment sub-adviser to International Equity Master Portfolio. Gartmore is registered as an investment adviser under the Investment Advisers Act of 1940, with principal offices at Gartmore House, 8 Fenchurch Place, London EC3M 4PH England. Gartmore's former indirect parent was Bank of America Corporation. As of May 31, 2000, Gartmore's indirect parent became Nationwide, which is an Ohio mutual insurance company with its principal executive offices located at One Nationwide Plaza, Columbus, Ohio 43215. INVESCO, with principal offices located at 1315 Peachtree Street, N.E., Atlanta, Georgia 30309, was founded in 1997 as a division of INVESCO Global a publicly traded investment management firm located in London, England, and a wholly owned subsidiary of AMVESCAP PLC, a publicly traded UK financial holding company also located in London, England that, through its subsidiaries, engages in international investment management. The "management team" responsible for the day-to-day investment decisions for INVESCO's managed portion of the assets of the International Equity Master Portfolio are: John D. Rogers, CFA; W. Linsay Davidson; Michele T. Garren, CFA; Erik B. Granade, CFA; Kent A. Stark; and Ingrid Baker, CFA. Putnam Investment Management, LLC, with principal offices located at One Post Office Square, Boston, Massachusetts 02109, is a wholly owned subsidiary of Putnam Investments, LLC, an investment management firm founded in 1937 which, except for shares held by employees is owned by Marsh & McLennan Companies, a publicly traded professional services firm that engages, through its subsidiaries in the business of insurance brokerage, investment management and consulting. Putnam's Core International Equity Team, led by Omid Kamshad, CFA, is responsible for the day-to-day investment decisions for Putnam's managed portion of the assets of the International Equity Master Portfolio. The Funds, in any advertisement or sales literature, may advertise the names, experience and/or qualifications of any Adviser, including the individual portfolio manager(s) of any Fund, or if a Fund is managed by team or committee, such Fund may advertise the names, experience and/or qualifications of any such team or committee member. Investment Advisory and Sub-Advisory Agreements Pursuant to the terms of the Companies' respective Investment Advisory Agreements, BA Advisors, as investment adviser to the Funds, is responsible for the overall management and supervision of the investment 100 management of each Fund. Pursuant to the terms of the Companies' respective Investment Sub-Advisory Agreements, BACAP, Gartmore, Chicago Equity, Brandes, MacKay Shields, INVESCO, Putnam and/or Marsico Capital select and manage the respective investments of the Funds. Each Adviser performs its duties subject at all times to the control of the respective Companies' Boards and in conformity with the stated policies of each Fund. The Investment Advisory Agreements and Investment Sub-Advisory Agreements are sometimes referred to as the "Advisory Agreements." The Advisory Agreements generally provide that in the absence of willful misfeasance, bad faith, negligence or reckless disregard of an Adviser's obligations or duties thereunder, or any of its respective officers, directors, employees or agents, the Adviser shall not be subject to liability to a Company or to any shareholder of the Company for any act or omission in the course of rendering services under thereunder or for any losses that may be sustained in the purchase, holding or sale of any security. Each Advisory Agreement became effective with respect to a Fund after approved by the Board, and after an initial two year period, continues from year to year, provided that such continuation of the Advisory Agreement is specifically approved at least annually by a Company's Board, including its Independent Board Members. The respective Advisory Agreement terminates automatically in the event of its assignment, and is terminable with respect to a Fund at any time without penalty by a Company (by vote of the Board or by vote of a majority of the outstanding voting securities of the Fund) or by BA Advisors on 60 days' written notice. The Funds pay BA Advisors an annual fee for its investment advisory services, as set forth in the Investment Advisory Agreements. The fee is calculated as a percentage of the average daily net assets of each Fund and is paid monthly. BA Advisors, in turn, from these fees it receives, pays investment sub-advisers for the services they provide to each Fund based on the percentage of the average daily net assets of each Fund, as set forth in the Investment Sub-Advisory Agreements. BA Advisors also may pay amounts from its own assets to Stephens or to selling or servicing agents for services they provide. The investment advisory agreements and the investment sub-advisory agreements for the Master Portfolios are generally similar to the Advisory Agreements. Expense Limitations BA Advisors has committed to: (i) waive investment advisory fees and/or co-administration fees payable to it; and (ii) limit certain Fund level expenses to the extent necessary to maintain the expense ratios (through fee waivers or expense reimbursements) reflected in the schedules below. CONTRACTUAL ADVISORY/CO-ADMINISTRATION FEE WAIVERS PERIOD FROM AUGUST 1, 2001, TO JULY 31, 2002 Advisory Co-Administration Funds Waivers Waivers - ----- -------- ----------------- Short-Term Income Fund 0.10% n/a Government Securities Fund 0.10%(1) 0.05% Strategic Income Fund 0.10% n/a
(1) Contractual advisory fees are based on asset breakpoints, causing the advisory fee waiver to fluctuate to maintain a 0.40% net advisory rate. The advisory fee waiver presented reflects the maximum advisory fee waiver. EXPENSE COMMITMENTS ESTABLISHED AT OVERALL FUND LEVEL PERIOD FROM AUGUST 1, 2001, TO JULY 31, 2002 Funds Fund Level Expense Commitment * - ----- ----------------------------- Intermediate Municipal Fund 0.50% Municipal Income Fund 0.60% Short Term Municipal Fund 0.40% Florida Intermediate Municipal Fund 0.50% Georgia Intermediate Municipal Fund 0.50% Maryland Intermediate Municipal Fund 0.50% North Carolina Intermediate Municipal Fund 0.50%
101 South Carolina Intermediate Municipal Fund 0.50% Tennessee Intermediate Municipal Fund 0.50% Texas Intermediate Municipal Fund 0.50% Virginia Intermediate Municipal Fund 0.50% California Municipal Bond Fund 0.60% Florida Municipal Bond Fund 0.60% Georgia Municipal Bond Fund 0.60% Kansas Municipal Income Fund 0.60% Maryland Municipal Bond Fund 0.60% North Carolina Municipal Bond Fund 0.60% South Carolina Municipal Bond Fund 0.60% Tennessee Municipal Bond Fund 0.60% Texas Municipal Bond Fund 0.60% Virginia Municipal Bond Fund 0.60% High Yield Bond Fund 0.93% Intermediate Bond Fund 0.81% LargeCap Index Fund 0.35% Managed Index Fund 0.50% MidCap Index Fund 0.35% SmallCap Index Fund 0.40% Classic Value Fund** 1.13% Financial Services Fund** 1.30% Small Company Fund 1.15% Global Value Fund** 1.40% Marsico International Opportunities Fund 1.50%
* As to these Funds, waivers of BA Advisors advisory and/or co-administration fees and/or other expense reimbursements (excluding 12b-1 distribution/shareholder servicing/shareholder administration fees). ** As to these Funds, BA Advisors is entitled to reimbursement from the Fund of any fees waived and/or expenses reimbursed for a three year period following the date of such fee waiver and/or reimbursement if such reimbursements do not cause the Fund's total operating expenses to exceed any expense commitment then in effect. EXPENSE COMMITMENTS ESTABLISHED AT OVERALL FUND LEVEL PERIOD FROM AUGUST 1, 2001, TO JULY 31, 2002 Funds Fund Level Expense Cap * - ----- ---------------------- Prime Fund 0.30% Government Money Market Fund 0.30% Tax Exempt Fund 0.30% Treasury Fund 0.30% California Tax-Exempt Reserves Fund 0.20% Cash Reserves Fund 0.20% Government Reserves Fund 0.20% Money Market Reserves Fund 0.20% Municipal Reserves Fund 0.20% Treasury Reserves Fund 0.20%
Advisory Fee Rates The maximum advisory fee rate payable by a Fund, along with the actual advisory fee rate (after taking into account any waivers) paid by a Fund last fiscal year, are shown in the Funds' prospectuses. Advisory Fees Paid BA Advisors (or its predecessor) received fees from the Funds for its services as reflected in the following chart, which shows the net advisory fees paid to BA Advisors, the advisory fees waived and expense reimbursements, where applicable, for the fiscal year ended March 31, 2001.
Net Amount Reimbursed Amount Paid Waived by Adviser ----------- ------ ---------- Money Market Funds Prime Fund $10,923,673 $648,288 -- Treasury Fund 3,288,897 261,868 -- Government Money Market Fund 693,293 191,051 --
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Net Amount Reimbursed Amount Paid Waived by Adviser ----------- ------ ---------- Tax Exempt Fund 4,559,708 460,917 -- Cash Reserves 64,535,411 1,952,428 -- Treasury Reserves 11,368,588 -- -- Money Market Reserves 11,937,174 433,874 -- Government Reserves 3,404,245 295,529 -- Municipal Reserves 2,148,980 168,322 -- California Tax-Exempt Reserves 2,536,411 -- -- Stock Funds Convertible Securities Fund 2,608,763 11,672 -- Asset Allocation Fund 2,565,587 82,677 -- Equity Income Fund 2,907,439 16,786 -- Classic Value Fund* n/a n/a n/a Value Fund 8,461,521 -- -- Blue Chip Fund(a) n/a n/a n/a Strategic Growth Fund 8,005,892 -- -- Marsico Growth & Income Fund(a) n/a n/a n/a Capital Growth Fund 5,351,636 -- -- Aggressive Growth Fund 1,972,140 -- -- Marsico Focused Equities Fund(a) n/a n/a n/a MidCap Growth Fund 2,271,101 -- -- Marsico 21st Century Fund(a) n/a n/a n/a Small Company Fund 7,372,166 496,038 -- Financial Services Fund* n/a n/a n/a International/Global Stock Funds Global Value Fund* n/a n/a n/a International Value Fund(a) n/a n/a n/a International Equity Fund(a) n/a n/a n/a Marsico International Opportunities Fund(a) n/a n/a n/a Emerging Markets Fund 468,327 8,175 -- Index Funds LargeCap Index Fund 1,785,004 8,419,477 -- MidCap Index Fund 390,577 -- -- SmallCap Index Fund 45,344 851,334 -- Managed Index Fund 1,050,073 975,067 -- Government & Corporate Bond Funds Short-Term Income Fund 764,098 382,049 -- Short-Intermediate Government Fund 1,668,046 -- -- Government Securities Fund 894,401 210,434 -- Intermediate Bond Fund(a) n/a n/a n/a Bond Fund 9,000,170 -- -- Strategic Income Fund 940,869 257,368 -- High Yield Bond Fund(a) n/a n/a n/a Municipal Bond Funds Short-Term Municipal Income Fund 75,729 297,330 -- Intermediate Municipal Bond Fund 2,639,691 1,761,372 -- Municipal Income Fund 2,734,689 1,395,598 -- California Municipal Bond Fund 556,565 370,790 -- Florida Intermediate Municipal Bond Fund 484,491 418,654 -- Florida Municipal Bond Fund 409,429 296,144 -- Georgia Intermediate Municipal Bond Fund 270,055 295,541 -- Georgia Municipal Bond Fund 10,142 123,567 -- Kansas Municipal Income Fund n/a n/a n/a Maryland Intermediate Municipal Bond Fund 404,437 385,463 -- Maryland Municipal Bond Fund 43,288 139,813 -- North Carolina Intermediate Municipal Bond Fund 397,341 375,029 -- North Carolina Municipal Bond Fund 55,051 142,644 -- South Carolina Intermediate Municipal Bond Fund 505,560 435,423 -- South Carolina Municipal Bond Fund 45,311 135,971 -- Tennessee Intermediate Municipal Bond Fund 36,773 154,136 -- Tennessee Municipal Bond Fund -- 51,264 45,670
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Net Amount Reimbursed Amount Paid Waived by Adviser ----------- ------ ---------- Texas Intermediate Municipal Bond Fund 675,275 532,923 -- Texas Municipal Bond Fund -- 67,615 33,786 Virginia Intermediate Municipal Bond Fund 659,389 530,703 -- Virginia Municipal Bond Fund 13,723 130,470 -- LifeGoal Portfolios LifeGoal Balanced Growth Portfolio 442,504 -- -- LifeGoal Growth Portfolio 174,694 -- -- LifeGoal Income and Growth Portfolio 35,056 -- --
* There are no amounts shown for this Fund because it has not yet completed a full fiscal year. (a)There are no amounts shown for this Fund because its advisory fees are paid at the Master Portfolio level. BA Advisors (or its predecessor) received fees from the Funds for its services as reflected in the following chart, which shows the net advisory fees paid to BA Advisors, the advisory fees waived and expense reimbursements, where applicable, for the fiscal year ended March 31, 2000.
Net Amount Reimbursed Amount Paid Waived by Adviser ----------- ------ ---------- Money Market Funds Prime Fund $10,473,000 $1,545,853 $0 Treasury Fund 3,690,808 554,688 0 Government Money Market Fund 639,946 91,223 0 Tax Exempt Fund 4,157,168 2,375,631 0 Cash Reserves 41,917,028 0 0 Treasury Reserves 9,455,978 0 0 Money Market Reserves 3,492,118 1,626,671 0 Government Reserves 2,507,819 166,533 0 Municipal Reserves 1,809,661 223,731 0 California Tax-Exempt Reserves* 2,198,602 37,697 0 Stock Funds Convertible Securities Fund* 2,002,135 0 0 Asset Allocation Fund* 1,920,669 246,996 0 Equity Income Fund 3,649,120 3,282 0 Classic Value Fund(b) n/a n/a n/a Value Fund 13,096,565 37,291 0 Blue Chip Fund(a) n/a n/a n/a Strategic Growth Fund 3,061,314 0 0 Marsico Growth & Income Fund 1,027,192 0 0 Capital Growth Fund 5,725,787 0 0 Aggressive Growth Fund 3,348,866 447 0 Marsico Focused Equities Fund 3,616,135 0 0 MidCap Growth Fund(b) n/a n/a n/a Marsico 21st Century Fund(b) n/a n/a n/a Small Company Fund 4,886,606 554,663 0 Financial Services Fund(b) n/a n/a n/a International/Global Stock Funds Global Value Fund(b) n/a n/a n/a International Value Fund 1,160,122 142,388 0 International Equity Fund 3,330,623 35,663 0 Marsico International Opportunities Fund(b) n/a n/a n/a Emerging Markets Fund 132,817 222,899 0 Index Funds LargeCap Index Fund 578,210 3,748,074 0 MidCap Index Fund 1,731,609 0 0 SmallCap Index Fund 302,157 537,268 0 Managed Index Fund 1,382,193 1,559,621 0 Government & Corporate Bond Funds Short-Term Income Fund 893,075 525,771 0
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Net Amount Reimbursed Amount Paid Waived by Adviser ----------- ------ ---------- Short-Intermediate Government Fund 1,919,241 113,613 0 Government Securities Fund 824,307 225,795 0 Intermediate Bond Fund(a) n/a n/a n/a Bond Fund 7,426,720 217,923 0 Strategic Income Fund 837,734 455,939 0 High Yield Bond Fund(b) n/a n/a n/a Municipal Bond Funds Short-Term Municipal Income Fund (26,406) 0 410,899 Intermediate Municipal Bond Fund 2,041,136 1,632,783 0 Municipal Income Fund 2,009,025 1,263,949 0 California Municipal Bond Fund* [insert] [insert] [insert] Florida Intermediate Municipal Bond Fund 49,122 527,742 0 Florida Municipal Bond Fund 396,783 362,065 0 Georgia Intermediate Municipal Bond Fund 228,313 392,163 0 Georgia Municipal Bond Fund (58,899) 0 180,511 Kansas Municipal Income Fund(b) n/a n/a n/a Maryland Intermediate Municipal Bond Fund 349,789 475,432 0 Maryland Municipal Bond Fund (32,320) 0 215,423 North Carolina Intermediate Municipal Bond 345,899 476,833 0 Fund North Carolina Municipal Bond Fund 758 212,249 0 South Carolina Intermediate Municipal Bond 491,652 559,670 0 Fund South Carolina Municipal Bond Fund (47,207) 0 205,454 Tennessee Intermediate Municipal Bond Fund (3,302) 0 218,100 Tennessee Municipal Bond Fund (106,990) 0 161,632 Texas Intermediate Municipal Bond Fund 805,727 723,266 0 Texas Municipal Bond Fund (91,993) 0 169,070 Virginia Intermediate Municipal Bond Fund 578,309 603,026 0 Virginia Municipal Bond Fund (58,933) 0 199,694 LifeGoal Portfolios LifeGoal Balanced Growth Portfolio 63,702 0 0 LifeGoal Growth Portfolio 59,433 0 0 LifeGoal Income and Growth Portfolio 29,068 0 0
* The amounts shown for this Fund represent fees for the fiscal period from May 16, 1999 to March 31, 2000 (a)There are no amounts shown for this Fund because its advisory fees are paid at the Master Portfolio level. (b)There are no amounts shown for this Fund because it had not yet commenced operations. BA Advisors (or its predecessor) received fees from the Funds for its services as reflected in the following chart, which shows the net advisory fees paid to BA Advisors, the advisory fees waived and expense reimbursements, where applicable, for the fiscal year ended March 31, 1999.
Net Amount Reimbursed Amount Paid Waived by Adviser ----------- ------ ---------- Money Market Funds Prime Fund $12,225,631 $1,340,369 $0 Treasury Fund 4,286,160 1,248,840 0 Government Money Market Fund 613,516 1,017,484 0 Tax Exempt Fund 4,507,216 6,378,784 0 Cash Reserves(c) 10,651,186 9,394,814 0 Treasury Reserves(c) 2,472,643 3,183,357 0 Money Market Reserves(d) 672,666 1,448,334 0 Government Reserves(c) 757,681 982,319 0 Municipal Reserves(c) 343,134 619,866 0 California Tax-Exempt Reserves* (60,767) 0 384,798 Stock Funds Convertible Securities Fund 2,002,135 0 0 Asset Allocation Fund* 132,667 111,809 0 Equity Income Fund 5,845,269 42,731 0 Classic Value Fund(b) n/a n/a n/a Value Fund 17,721,908 0 0
105
Net Amount Reimbursed Amount Paid Waived by Adviser ----------- ------ ---------- Blue Chip Fund(a) n/a n/a n/a Strategic Growth Fund 701,840 0 0 Marsico Growth & Income Fund 687,321 0 0 Capital Growth Fund 6,256,638 0 0 Aggressive Growth Fund 3,580,240 0 0 Marsico Focused Equities Fund 1,951,845 0 0 MidCap Growth Fund(b) n/a n/a n/a Marsico 21st Century Fund(b) n/a n/a n/a Small Company Fund 2,742,154 1,024,846 0 Financial Services Fund(b) n/a n/a n/a International/Global Stock Funds Global Value Fund(b) n/a n/a n/a International Value Fund 1,048,847 116,153 0 International Equity Fund 7,491,086 0 0 Marsico International Opportunities Fund(b) n/a n/a n/a Emerging Markets Fund 324,702 82,712 0 Index Funds LargeCap Index Fund 1,077,496 2,753,504 0 MidCap Index Fund 2,082,133 0 0 SmallCap Index Fund 397,736 637,832 0 Managed Index Fund 1,665,990 1,375,010 0 Government & Corporate Bond Funds Short-Term Income Fund 1,290,670 1,290,330 0 Short-Intermediate Government Fund 2,761,572 1,380,428 0 Government Securities Fund 837,334 180,666 0 Intermediate Bond Fund(a) n/a n/a n/a Bond Fund 9,334,703 1,867,297 0 Strategic Income Fund 1,914,951 383,049 0 High Yield Bond Fund(b) n/a n/a n/a Municipal Bond Funds Short-Term Municipal Income Fund 179,149 479,111 0 Intermediate Municipal Bond Fund 3,120,856 1,454,144 0 Municipal Income Fund 2,651,245 1,131,755 0 California Municipal Bond Fund* 119,243 13,794 0 Florida Intermediate Municipal Bond Fund 750,898 419,102 0 Florida Municipal Bond Fund 552,208 340,792 0 Georgia Intermediate Municipal Bond Fund 446,861 334,883 0 Georgia Municipal Bond Fund 50,789 185,961 0 Kansas Municipal Income Fund(b) n/a n/a n/a Maryland Intermediate Municipal Bond Fund 512,685 397,315 0 Maryland Municipal Bond Fund 76,086 167,416 0 North Carolina Intermediate Municipal Bond Fund 626,613 379,387 0 North Carolina Municipal Bond Fund 113,404 173,856 0 South Carolina Intermediate Municipal Bond Fund 900,188 451,812 0 South Carolina Municipal Bond Fund 59,273 179,721 0 Tennessee Intermediate Municipal Bond Fund 124,633 210,153 0 Tennessee Municipal Bond Fund 9,144 145,172 0 Texas Intermediate Municipal Bond Fund 1,350,723 620,277 0 Texas Municipal Bond Fund 32,331 139,869 0 Virginia Intermediate Municipal Bond Fund 849,701 485,299 0 Virginia Municipal Bond Fund 74,830 177,686 0 LifeGoal Portfolios LifeGoal Balanced Growth Portfolio 49,521 0 0 LifeGoal Growth Portfolio 33,010 0 0 LifeGoal Income and Growth Portfolio 17,390 0 0
* The amounts shown for this Fund represent fees for the fiscal period from March 1, 1999 to May 14, 1999. For the fiscal year from March 1, 1998 to February 28, 1999, California Tax Reserves, Asset Allocation Fund and California Municipal Bond Fund paid BA Advisors (or its predecessor) net advisory fees of $1,548,799, $1,089,007 and $687,688, respectively; for that fiscal year no fees were waived or reimbursed. (a)There are no amounts shown for this Fund because its advisory fees are paid at the Master Portfolio level. 106 (b)There are no amounts shown for this Fund because it had not yet commenced operations. (c)For the 11-month fiscal period from May 1, 1998 to March 31, 1999 (the Funds changed their fiscal year end from April 30th to March 31st), Cash Reserves, Treasury Reserves, Government Reserves and Municipal Reserves paid Advisory fees to BA Advisors (or its predecessor) as indicated. (d)For the fiscal period from May 16, 1998 to March 31, 1999 Money Market Reserves paid Advisory fees to BA Advisors (or its predecessor) as indicated. Sub-Advisory Fee Rates The maximum advisory fee rate payable by a Fund, along with the actual advisory fee rate (after taking into account any waivers) paid by a Fund last fiscal year, are shown in the Funds' prospectuses. BA Advisors, from the fees that it receives pays the Funds' investment sub-advisers. The rate at which the various investment sub-advisers are paid are reflected in the related Investment Sub-Advisory Agreements (or the investment sub-advisory agreement with the Master Portfolios), which have been filed with the SEC on the Form N-1A registration statement for each of NFI, NFT, NR and NFST (or NMIT, if a Master Portfolio). An investor may view these filings by going to the SEC's website (www.sec.gov). Sub-Advisory Fees Paid The Funds' Investment Sub-Advisers (or their predecessors) received sub-advisory fees from BA Advisors for their services as reflected in the following chart, which shows the net sub-advisory fees paid to the indicated sub-adviser, the advisory fees waived and expense reimbursements where applicable for the fiscal year ended March 31, 2001. Sub-advisory fees paid by BA Advisors to affiliated sub-advisers are not required to be shown; accordingly, sub-advisory fees paid to BACAP and Marsico Capital are not shown separately.
Net Amount Reimbursed Amount Paid Waived by Adviser ----------- ------ ---------- Domestic Stock Funds (Sub-Adviser) Asset Allocation Fund (Chicago Equity) 569,082 0 0 Classic Value Fund* (Brandes) n/a n/a n/a Blue Chip Fund(a) (Chicago Equity) n/a n/a n/a International/Global Stock Funds (Sub-Adviser) Global Value Fund* (Brandes) n/a n/a n/a International Value Fund(a) (Brandes) n/a n/a n/a International Equity Fund(a) (Gartmore, n/a n/a n/a INVESCO, Putnam) Emerging Markets Fund (Gartmore) 286,478 0 0 Government & Corporate Bond Funds (Sub-Adviser) High Yield Bond Fund(a) (McKay Shields) n/a n/a n/a
*There are no amounts shown for this Fund because it has not yet completed a full fiscal year. (a)There are no amounts shown for this Fund because its advisory fees are paid at the Master Portfolio level. The Funds' investment sub-advisers (or their predecessors) received sub-advisory fees from BA Advisors for their services as reflected in the following chart, which shows the net sub-advisory fees paid to the indicated sub-adviser, the advisory fees waived and expense reimbursements, where applicable, for the fiscal year ended March 31, 2000. Sub-advisory fees paid by BA Advisors to affiliated sub-advisers are not required to be shown; accordingly, sub-advisory fees paid to BACAP and Marsico Capital are not shown, or broken out separately.
Net Amount Reimbursed Amount Paid Waived by Adviser ----------- ------ ---------- Stock Funds (Sub-Adviser) Asset Allocation Fund (Chicago Equity) $820,193 0 0 Classic Value Fund* (Brandes) n/a n/a n/a Blue Chip Fund(a) (Chicago Equity) n/a n/a n/a International/Global Stock Funds (Sub-Adviser) Global Value Fund* (Brandes) n/a n/a n/a International Value Fund(a) (Brandes) $613,897 0 0
107
Net Amount Reimbursed Amount Paid Waived by Adviser ----------- ------ ---------- International Equity Fund (Gartmore) $1,179,182 0 0 International Equity Fund (INVESCO) $489,476 International Equity Fund (Putnam) $490,887 Emerging Markets Fund (Gartmore) 102,346 0 0 Government & Corporate Bond Funds (Sub-Adviser) High Yield Bond Fund(a) (McKay Shields) n/a n/a n/a
*There are no amounts shown for this Fund because it has not yet completed a full fiscal year. (a)There are no amounts shown for this Fund because its advisory fees are paid at the Master Portfolio level. The Funds' investment sub-advisers (or their predecessors) received sub-advisory fees from BA Advisors for their services as reflected in the following chart, which shows the net sub-advisory fees paid to the indicated sub-adviser, the advisory fees waived and expense reimbursements, where applicable, for the fiscal year ended March 31, 1999. Sub-advisory fees paid by BA Advisors to affiliated sub-advisers are not required to be shown; accordingly, sub-advisory fees paid to BACAP and Marsico Capital are not shown, or broken out separately.
Net Amount Reimbursed Amount Paid Waived by Adviser ----------- ------ ---------- Stock Funds (Sub-Adviser) Asset Allocation Fund (Chicago Equity) Classic Value Fund* (Brandes) n/a n/a n/a Blue Chip Fund(a) (Chicago Equity) n/a n/a n/a International/Global Stock Funds (Sub-Adviser) Global Value Fund* (Brandes) n/a n/a n/a International Value Fund(a) (Brandes) $570,822 0 0 International Equity Fund (Gartmore) Emerging Markets Fund (Gartmore) Government & Corporate Bond Funds (Sub-Adviser) High Yield Bond Fund*(a) (McKay Shields) n/a n/a n/a
*There are no amounts shown for this Fund because it has not yet completed a full fiscal year. (a)There are no amounts shown for this Fund because its advisory fees are paid at the Master Portfolio level. Co-Administrators and Sub-Administrator Co-Administrators Stephens and BA Advisors serve as Co-Administrators of each Company. The Co-Administrators serve under Co-Administration Agreements which provide that the Co-Administrators may receive, as compensation for their services, fees, computed daily and paid monthly, at the annual rate of: 0.10% of the Money Market Funds; 0.22% of the Government & Corporate Bond Funds, Municipal Bond Funds and International/Global Stock Funds; and 0.23% of the Stock Funds. Each percentage amount is of the average daily net assets of a Fund. BA Advisors also may pay amounts from its own assets to Stephens or to selling or servicing agents for services they provide. Pursuant to its Co-Administration Agreement, Stephens has agreed to, among other things, (i) maintain office facilities for the Funds, (ii) furnish statistical and research data, data processing, clerical, and internal executive and administrative services to each Company, (iii) furnish corporate secretarial services to each Company, including coordinating the preparation and distribution of materials for Board meetings, (iv) coordinate the provision of legal advice to each Company with respect to regulatory matters, (v) coordinate the preparation of reports to each Fund's shareholders and the SEC, including annual and semi-annual reports, (vi) coordinate the provision of services to each Company by the Transfer Agent, Sub-Transfer Agent and the Custodian, and (vii) generally assist in all aspects of each Company's operations. Stephens bears all expenses incurred in connection with the performance of its services. 108 Also, pursuant to its Co-Administration Agreement, BA Advisors has agreed to, among other things, (i) provide accounting and bookkeeping services for the Funds, (ii) compute each Fund's net asset value and net income, (iii) accumulate information required for each Company's reports to shareholders and the SEC, (iv) prepare and file each Company's federal and state tax returns, (v) perform monthly compliance testing for each Company, and (vi) prepare and furnish each Company monthly broker security transaction summaries and transaction listings and performance information. BA Advisors bears all expenses incurred in connection with the performance of its services. The Co-Administration Agreement may be terminated by a vote of a majority of a Company's Board Members, by Stephens or by BA Advisors, respectively, on 60 days' written notice without penalty. The Co-Administration Agreements are not assignable without the written consent of the other party. Furthermore, the Co-Administration Agreements provide that Stephens and BA Advisors shall not be liable to the Funds or to their shareholders except in the case of willful misfeasance, bad faith, gross negligence or reckless disregard of duty on the part of either Stephens or BA Advisors. Sub-Administrator BNY serves as Sub-Administrator for the Funds pursuant to Sub-Administration Agreements. Pursuant to their terms, BNY assists Stephens and BA Advisors in supervising, coordinating and monitoring various aspects of the Funds' administrative operations. For providing such services, BNY is entitled to receive a monthly fee from Stephens and BA Advisors based on an annual rate of the Funds' average daily net assets, as shown below. Money Market Funds Breakpoints Rate - --------------------------------------- ------------------- < or equal to $2 billion 0.0100% >$2 billion to $3 billion 0.0075% In excess of $3 billion 0.0025% Municipal Funds Breakpoints Rate - ---------------------------------------- ------------------- < or equal to $500 million 0.0450% >$500 million to $1 billion 0.0350% > $1 billion to $1.25 billion 0.0225% > $1.25 billion to $1.5 billion 0.0100% In excess of $1.5 billion 0.0050% Government & Corporate Bond Funds Breakpoints Rate - ---------------------------------------- ------------------- < or equal to $500 million 0.0450% > $500 million to $1 billion 0.0350% > $1 billion to $1.25 billion 0.0225% > $1.25 billion to $1.5 billion 0.0100% In excess of $1.5 billion 0.0050% Domestic Stock Funds Breakpoints Rate - ---------------------------------------- ------------------- < or equal to $500 million 0.0550% > $500 million to $1 billion 0.0450% > $1 billion to $1.5 billion 0.0250% $1.5 billion to $2 billion 0.0150% In excess of $2 billion 0.0050% International/Global Stock Funds Breakpoints Rate - ---------------------------------------- ------------------- < or equal to $500 million 0.0600%
109 > $500 million to $1 billion 0.0500% > $1 billion to $1.25 billion 0.0400% > $1.25 billion to $1.5 billion 0.0300% In excess of $1.5 billion 0.0050%
Co-Administration and Sub-Administration Fees Paid The table set forth below states the net co-administration fees paid to BA Advisors and Stephens and the sub-administration fees paid to BNY for the fiscal year ended March 31, 2001.
Net Net Net Co-Administration Co-Administration Sub-Administration Fees Paid to BA Fees Paid to Fees Paid to BNY Advisors by the Stephens by the by the Fund(a) Fund(a) Fund(a) ----------------- ---------------- ------------------- Money Market Funds Prime Fund $574,998 $3,740,842 $484,901 Treasury Fund 176,445 1,090,998 198,548 Government Money Market Fund 44,294 274,409 48,907 Tax Exempt Fund 251,550 1,572,011 274,119 Cash Reserves 7,732,817 3,291,794 1,523,440 Treasury Reserves 1,256,962 561,689 568,459 Money Market Reserves 1,315,239 611,718 582,038 Government Reserves 68,412 185,375 255,082 Municipal Reserves 23,818 115,259 174,081 California Tax-Exempt Reserves 22,788 133,051 200,229 Stock Funds Convertible Securities Fund 444,005 251,491 231,736 Asset Allocation Fund 448,718 253,325 235,037 Equity Income Fund 577,745 326,083 303,080 Classic Value Fund* n/a n/a n/a Value Fund 1,433,242 900,989 659,853 Blue Chip Fund 552,179 573,754 512,137 Strategic Growth Fund 1,355,798 857,222 619,845 Marsico Growth & Income Fund 61,562 388,324 349,663 Capital Growth Fund 905,578 525,220 462,859 Aggressive Growth Fund 333,801 187,545 176,330 Marsico Focused Equities Fund 226,551 1,895,698 820,150 MidCap Growth Fund 385,056 217,631 200,935 Marsico 21st Century Fund n/a n/a n/a Small Company Fund 959,959 558,019 486,530 Financial Services Fund* n/a n/a n/a International/Global Stock Funds Global Value Fund* n/a n/a n/a International Value Fund 760,259 674,374 715,033 International Equity Fund 565,704 377,487 656,412 Marsico International Opportunities Fund n/a n/a n/a Emerging Markets Fund 52,473 20,930 31,427 Index Funds LargeCap Index Fund 2,808,051 2,213,197 846,333 MidCap Index Fund 430,054 (127,306) 225,048 SmallCap Index Fund 247,120 139,776 128,695 Managed Index Fund 557,521 314,830 292,997 Government & Corporate Bond Funds Short-Term Income Fund 421,202 237,016 182,290 Short-Intermediate Government Fund 613,022 348,268 261,944 Government Securities Fund 246,498 100,050 106,188 Intermediate Bond Fund 58,561 36,520 46,205 Bond Fund 2,480,212 1,844,144 625,739 Strategic Income Fund 264,204 149,245 113,775 High Yield Bond Fund 20,641 (155,359) 21,545 Municipal Bond Funds Short-Term Municipal Income Fund 137,454 52,583 59,336
110
Net Net Net Co-Administration Co-Administration Sub-Administration Fees Paid to BA Fees Paid to Fees Paid to BNY Advisors by the Stephens by the by the Fund(a) Fund(a) Fund(a) ----------------- ---------------- ------------------- Intermediate Municipal Bond Fund 1,212,901 522,003 465,628 Municipal Income Fund 910,700 372,166 369,251 California Municipal Bond Fund 204,486 78,239 88,218 Florida Intermediate Municipal Bond Fund 248,904 95,419 107,251 Florida Municipal Bond Fund 155,583 59,497 67,150 Georgia Intermediate Municipal Bond Fund 155,884 59,628 67,286 Georgia Municipal Bond Fund 29,485 11,277 12,721 Kansas Municipal Income Fund n/a n/a n/a Maryland Intermediate Municipal Bond Fund 217,695 83,347 93,908 Maryland Municipal Bond Fund 40,378 15,450 17,413 North Carolina Intermediate Municipal Bond 212,876 81,419 91,891 Fund North Carolina Municipal Bond Fund 43,592 16,678 18,808 South Carolina Intermediate Municipal Bond 259,353 99,225 111,914 Fund South Carolina Municipal Bond Fund 39,977 15,279 17,257 Tennessee Intermediate Municipal Bond Fund 52,618 20,112 22,726 Tennessee Municipal Bond Fund 11,306 4,314 4,886 Texas Intermediate Municipal Bond Fund 333,003 127,052 144,046 Texas Municipal Bond Fund 14,909 5,700 6,436 Virginia Intermediate Municipal Bond Fund 327,998 125,571 141,477 Virginia Municipal Bond Fund 31,794 12,179 13,704 LifeGoal Portfolios LifeGoal Balanced Growth Portfolio -- -- -- LifeGoal Growth Portfolio -- -- -- LifeGoal Income and Growth Portfolio -- -- --
*There are no amounts shown for this Fund because it has not yet completed a full fiscal year. (a)A certain amount of co-administration fees and sub-administration fees are also paid at the Master Portfolio level. The table set forth below states the net co-administration fees paid to BA Advisors and Stephens and the sub-administration fees paid to BNY for the fiscal year ended March 31, 2000.
Net Net Net Co-Administration Co-Administration Sub-Administration Fees Paid to BA Fees Paid to Fees Paid to BNY Advisors by the Stephens by the by the Fund(a) Fund(a) Fund(a) ----------------- ---------------- ----------------- Money Market Funds Prime Fund $593,138 $3,529,994 $659,433 Treasury Fund 209,505 1,215,399 264,326 Government Money Market Fund 47,442 274,853 59,736 Tax Exempt Fund 282,587 1,384,832 257,352 Cash Reserves 1,113,257 2,010,983 1,294,123 Treasury Reserves 227,937 448,018 650,728 Money Market Reserves 17,089 241,385 375,048 Government Reserves 0 126,655 210,738 Municipal Reserves (199) 98,213 163,412 California Tax-Exempt Reserves (49,171) 109,923 183,206 Stock Funds Convertible Securities Fund 331,021 179,186 180,558 Asset Allocation Fund 360,382 196,260 196,572 Equity Income Fund 620,120 391,816 391,324 Classic Value Fund* n/a n/a n/a Value Fund 1,883,413 1,490,058 885,891 Blue Chip Fund 371,641 259,581 469,361 Strategic Growth Fund 475,051 278,951 279,665 Marsico Growth & Income Fund 181,239 212,496 212,943 Capital Growth Fund 842,870 518,471 519,822 Aggressive Growth Fund 487,245 303,701 303,339 Marsico Focused Equities Fund 647,723 849,604 672,587 MidCap Growth Fund 259,259 156,640 157,660 Marsico 21st Century Fund* n/a n/a n/a Small Company Fund 615,968 360,306 361,001 Financial Services Fund* n/a n/a n/a
111
Net Net Net Co-Administration Co-Administration Sub-Administration Fees Paid to BA Fees Paid to Fees Paid to BNY Advisors by the Stephens by the by the Fund(a) Fund(a) Fund(a) ----------------- ---------------- ----------------- International/Global Stock Funds Global Value Fund* n/a n/a n/a International Value Fund 294,060 169,114 296,329 International Equity Fund 588,271 (42,082) 629,092 Marsico International Opportunities Fund* n/a n/a n/a Emerging Markets Fund 35,672 13,984 24,755 Index Funds LargeCap Index Fund 1,031,332 641,390 620,995 MidCap Index Fund* n/a n/a n/a SmallCap Index Fund 198,238 122,199 122,303 Managed Index Fund 688,841 427,658 427,965 Government & Corporate Bond Funds Short-Term Income Fund 409,185 252,740 210,308 Short-Intermediate Government Fund 577,009 359,425 299,160 Government Securities Fund 205,715 124,194 103,347 Intermediate Bond Fund 44,794 (126,787) 39,378 Bond Fund 1,742,529 1,282,937 695,519 Strategic Income Fund 227,764 150,040 124,984 High Yield Bond Fund* n/a n/a n/a Municipal Bond Funds Short-Term Municipal Income Fund 115,124 47,452 59,184 Intermediate Municipal Bond Fund 860,494 356,849 445,145 Municipal Income Fund 616,848 255,948 319,268 California Municipal Bond Fund 180,645 65,472 82,112 Florida Intermediate Municipal Bond Fund 228,065 94,817 118,295 Florida Municipal Bond Fund 142,783 59,301 74,010 Georgia Intermediate Municipal Bond Fund 145,010 60,248 75,148 Georgia Municipal Bond Fund 23,126 9,520 11,879 Kansas Municipal Income Fund* n/a n/a n/a Maryland Intermediate Municipal Bond Fund 193,877 80,206 100,043 Maryland Municipal Bond Fund 34,857 14,336 17,889 North Carolina Intermediate Municipal Bond Fund 192,601 79,902 99,677 North Carolina Municipal Bond Fund 40,396 16,677 20,797 South Carolina Intermediate Municipal Bond Fund 245,858 102,081 127,349 South Carolina Municipal Bond Fund 31,020 12,452 15,529 Tennessee Intermediate Municipal Bond Fund 50,260 20,860 26,021 Tennessee Municipal Bond Fund 10,322 4,275 5,331 Texas Intermediate Municipal Bond Fund 356,530 148,383 185,113 Texas Municipal Bond Fund 14,400 6,017 7,510 Virginia Intermediate Municipal Bond Fund 278,270 114,867 143,281 Virginia Municipal Bond Fund 26,738 11,021 13,748 LifeGoal Portfolios LifeGoal Balanced Growth Portfolio LifeGoal Growth Portfolio LifeGoal Income and Growth Portfolio
*There are no amounts shown for this Fund because it had not yet completed a full fiscal year. (a)A certain amount of co-administration fees and sub-administration fees are also paid at the Master Portfolio level. Co-administration and sub-administration fees (based upon current contractual arrangements) are not shown for the fiscal year ended March 31, 1999 because such arrangements had not been in effect for this fiscal year. Other Agreements Because this SAI combines disclosures on four separate investment companies, there is a possibility that one investment company could become liable for a misstatement, inaccuracy or incomplete disclosure in this SAI concerning another investment company. NFT, NFI, NR, and NFST have entered into a cross-indemnification 112 agreement that creates a right of indemnification from the investment company responsible for any such misstatement, inaccuracy or incomplete disclosure that may appear in this SAI. 12b-1 Plans The Companies have adopted a Rule 12b-1, or distribution plan, for the Investor A, Investor B, Investor C, Daily Shares, Investor Shares, Liquidity Shares, Market Shares and Service Shares of the Funds that offer those classes. See "Capital Stock--Description of Shares" for information about which Funds offer which classes of shares. With respect to a Fund's Investor A Shares, the Companies have adopted combined distribution and shareholder servicing plans. The Investor A Distribution and Shareholder Servicing Plans provide that a Fund may compensate or reimburse the Distributor for distribution services provided by it and related expenses incurred, including payments by the Distributor to Selling agents for sales support services they may provide or to Servicing Agents for shareholder services they may provide, up to 0.10% (on an annualized basis) of the average daily net asset value of the Investor A Shares of the Money Market Funds and up to 0.25% (on an annualized basis) of the average daily net asset value of the Non-Money Market Funds. With respect to a Fund's Investor B Shares, the Companies have adopted distribution plans. The Investor B Distribution Plans provides that a Fund may compensate or reimburse the Distributor for distribution services provided by it and related expenses incurred, including payments by the Distributor to Selling agents for sales support services they may provide, up to 0.10% (on an annualized basis) of the average daily net asset value of the Investor B Shares of the Money Market Funds and up to 0.75% (on an annualized basis) of the average daily net asset value of the Non-Money Market Funds. Stephens has entered into an arrangement whereby sales commissions payable to broker/dealers with respect to sales of Investor B Shares of the Funds are financed by an unaffiliated third party lender. Under this financing arrangement, Stephens has assigned certain amounts that it is entitled to receive pursuant to the Investor B Distribution Plan to the third party lender, as reimbursement and consideration for these payments. With respect to a Fund's Investor C Shares, the Companies have adopted distribution plans. The Investor C Distribution Plans provide that a Fund may compensate or reimburse the Distributor for distribution services provided by it and related expenses incurred, including payments by the Distributor to Selling agents for sales support services they may provide, up to 0.10% (on an annualized basis) of the average daily net asset value of the Investor C Shares of the Money Market Funds and up to 0.75% (on an annualized basis) of the average daily net asset value of the Non-Money Market Funds. With respect to a Fund's Daily Shares, the Companies have adopted distribution plans. The Daily Distribution Plans provide that a Fund may compensate or reimburse the Distributor for distribution services provided by it and related expenses incurred, including payments by the Distributor to Selling agents for sales support services they may provide, up to 0.45% (on an annualized basis) of the average daily net asset value of the Daily Shares of the Funds (except the NR Money Market Funds) and up to 0.35% (on an annualized basis) of the average daily net asset value of the NR Money Market Funds. With respect to a Fund's Liquidity Shares, NR has adopted a distribution plan. The Liquidity Distribution Plan provides that a Fund may pay the Distributor up to 0.30% (on an annualized basis) of the average daily net asset value of the Liquidity Shares of the Funds and up to 0.35% (on an annualized basis) of Treasury Reserves, that the Distributor may use to compensate certain financial institutions which provide administrative and/or distribution services. With respect to a Fund's Market Shares, NR has adopted a distribution plan. The Market Distribution Plan provides that a Fund may compensate or reimburse the Distributor for distribution services provided by it and related expenses incurred, including payments by the Distributor to Selling agents for sales support services they may provide, up to 0.20% (on an annualized basis) of the average daily net asset value of the Daily Shares of the Funds. 113 With respect to a Fund's Service Class Shares, NR has adopted a distribution plan. The Service Class Distribution Plan provides that a Fund may pay the Distributor up to 0.75% (on an annualized basis) of the average daily net asset value of the Service Class Shares of the Funds, that the Distributor may use to compensate Selling Agents. Payments under the Investor A Distribution Plans, Investor B Distribution Plans, Investor C Distribution Plans, Daily Class Distribution Plans, Market Class Distribution Plan and Investor Class Distribution Plan generally may be made with respect to the following: (i) preparation, printing and distribution of prospectuses, sales literature and advertising materials; (ii) commissions, incentive compensation or other compensation to, and expenses of, account executives or other employees of the Distributor or Selling Agents, attributable to distribution or sales support activities, respectively; (iii) overhead and other office expenses of the Distributor or Selling Agents, attributable to distribution or sales support activities, respectively; (iv) opportunity costs relating to the foregoing (which may be calculated as a carrying charge on the Distributor's or Selling Agents' unreimbursed expenses incurred in connection with distribution or sales support activities, respectively); and (v) any other costs and expenses relating to distribution or sales support activities. Payments under the Liquidity Distribution Plan may be made with respect to the following: (i) the incremental printing costs incurred in producing for and distributing to persons other than current shareholders, the reports, prospectuses, notices and similar materials that are prepared for current shareholders; (ii) the cost of complying with state and federal laws pertaining to the distribution of the shares; (iii) advertising; (iv) the costs of preparing, printing and distributing any literature used in connection with the offering of the shares; (v) expenses incurred in connection with the promotion and sale of the shares including, travel and communication expenses and expenses for the compensation of and benefits for sales personnel; and (vi) any other expenses reasonably incurred in connection with the distribution and marketing of the shares. Payments under the Market Class Distribution Plan may be made with respect to the following: (i) to compensate Selling Agents for providing distribution assistance relating to that shares; (ii) for promotional activities intended to result in the sale of the shares such as by paying for the preparation, printing and distribution of prospectuses for other than current shareholders; and (iii) to compensate Selling Agents for providing distribution services with regard to their customers who are, from time to time, beneficial, and record owners of shares. All of the Distribution Plans may be terminated with respect to their respective shares by vote of a majority of the Board Members, including a majority of the Independent Board Members, or by vote of a majority of the holders of the outstanding voting securities of the appropriate share class. Any change in a 12b-1 Plan that would increase materially the distribution expenses paid by the appropriate share class requires shareholder approval. Expenses incurred by the Distributor pursuant to a Distribution Plan in any given year may exceed the sum of the fees received under the Distribution Plan. Any such excess may be recovered by the Distributor in future years so long as the Distribution Plan is in effect. If the Distribution Plan were terminated or not continued, a Fund would not be contractually obligated to pay the Distributor for any expenses not previously reimbursed by the Fund. There were no unreimbursed expenses incurred under any of the Distribution Plans in the previous year to be carried over to the current year from August 1, 2001 to August 1, 2002. The Funds participate in joint distribution activities with other Funds in the Nations Funds Family. The fees paid under each Distribution Plan adopted by a Fund may be used to finance the distribution of the shares of other Funds in the Nations Funds Family. Such distribution costs are allocated based on the relative net asset size of the respective Funds. For the Investor A Distribution and Shareholder Servicing Plan, the Funds paid the following 12b-1 fees for the fiscal year ended March 31, 2001 for the indicated activities: 114
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying or Other than Compensation Compensation Other Current Compensation to Broker/ to Sales Financial Advertising Shareholders to Distributor Dealers Personnel Charges ----------- ------------ -------------- ------- --------- ------- Money Market Funds Prime Fund $0 $0 $601,971 $0 $0 $0 Treasury Fund 0 0 910,281 0 0 0 Government Money Market Fund 0 0 19,113 0 0 0 Tax Exempt Fund 0 0 44,393 0 0 0 Domestic Stock Funds Convertible Securities Fund 0 0 858,952 0 0 0 Asset Allocation Fund 0 0 558,181 0 0 0 Equity Income Fund 0 0 70,750 0 0 0 Classic Value Fund* 0 0 0 0 0 0 Value Fund 0 0 200,377 0 0 0 Blue Chip Fund 0 0 1,677,464 0 0 0 Strategic Growth Fund 0 0 29,057 0 0 0 Marsico Growth & Income Fund 0 0 459,345 0 0 0 Capital Growth Fund 0 0 127,392 0 0 0 Aggressive Growth Fund 0 0 95,276 0 0 0 Marsico Focused Equities Fund 0 0 1,683,439 0 0 0 MidCap Growth Fund 0 0 51,544 0 0 0 Marsico 21st Century Fund* 0 0 59,680 0 0 0 Small Company Fund 0 0 502,493 0 0 0 Financial Services Fund* 0 0 0 0 0 0 International/Global Stock Funds Global Value Fund* 0 0 0 0 0 0 International Value Fund 0 0 711,910 0 0 0 International Equity Fund 0 0 106,607 0 0 0 Marsico International 0 0 4,277 0 0 0 Opportunities Fund* Emerging Markets Fund 0 0 7,726 0 0 0 Index Funds LargeCap Index Fund 0 0 76,352 0 0 0 MidCap Index Fund 0 0 81 0 0 0 SmallCap Index Fund 0 0 17,672 0 0 0 Managed Index Fund 0 0 109,799 0 0 0 Government & Corporate Bond Funds Short-Term Income Fund 0 0 22,169 0 0 0 Short-Intermediate Gov't Fund 0 0 99,118 0 0 0 Government Securities Fund 0 0 139,121 0 0 0 Intermediate Bond Fund 0 0 151,166 0 0 0 Bond Fund 0 0 62,445 0 0 0 Strategic Income Fund 0 0 71,516 0 0 0 High Yield Bond Fund 0 0 7,273 0 0 0 Municipal Bond Funds Short-Term Municipal Income Fund 0 0 52,386 0 0 0 Intermediate Municipal Bond Fund 0 0 46,231 0 0 0 Municipal Income Fund 0 0 84,400 0 0 0 California Municipal Bond Fund 0 0 352,398 0 0 0 Florida Int. Municipal Bond Fund 0 0 19,210 0 0 0 Florida Municipal Bond Fund 0 0 116,285 0 0 0 Georgia Int. Municipal Bond Fund 0 0 29,969 0 0 0 Georgia Municipal Bond Fund 0 0 4,501 0 0 0 Kansas Municipal Income Fund 0 0 2,318 0 0 0 Maryland Int. Municipal Bond Fund 0 0 42,270 0 0 0 Maryland Municipal Bond Fund 0 0 5,172 0 0 0
115
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying or Other than Compensation Compensation Other Current Compensation to Broker/ to Sales Financial Advertising Shareholders to Distributor Dealers Personnel Charges ----------- ------------ -------------- ------- --------- ------- North Carolina Int. Mun. Bond Fund 0 0 25,588 0 0 0 North Carolina Mun. Bond Fund 0 0 5,226 0 0 0 South Carolina Int. Mun. Bond Fund 0 0 40,197 0 0 0 South Carolina Mun. Bond Fund 0 0 2,515 0 0 0 Tennessee Int. Municipal Bond Fund 0 0 19,815 0 0 0 Tennessee Municipal Bond Fund 0 0 4,045 0 0 0 Texas Int. Municipal Bond Fund 0 0 10,269 0 0 0 Texas Municipal Bond Fund 0 0 820 0 0 0 Virginia Int. Municipal Bond Fund 0 0 111,343 0 0 0 Virginia Municipal Bond Fund 0 0 1,609 0 0 0 LifeGoal Portfolios LifeGoal Balanced Growth Portfolio 0 0 7,383 0 0 0 LifeGoal Growth Portfolio 0 0 17,077 0 0 0 LifeGoal Inc. and Growth Portfolio 0 0 2,349 0 0 0
*There are no amounts shown for this Fund because it has not yet completed a full fiscal year. For the Investor B Distribution Plan, the Funds paid the following 12b-1 fees for the fiscal year ended March 31, 2001 for the indicated activities:
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying or Other than Compensation Compensation Other Current Compensation to Broker/ to Sales Financial Advertising Shareholders to Distributor Dealers Personnel Charges ----------- ------------ -------------- ------- --------- ------- Money Market Funds Prime Fund 0 0 n/a 0 0 0 Treasury Fund 0 0 n/a 0 0 0 Government Money Market Fund 0 0 n/a 0 0 0 Tax Exempt Fund 0 0 n/a 0 0 0 Cash Reserves 0 0 93,410 0 0 0 Treasury Reserves 0 0 1,384 0 0 0 Money Market Reserves 0 0 20,719 0 0 0 Government Reserves 0 0 2,589 0 0 0 Municipal Reserves 0 0 688 0 0 0 California Tax-Exempt Reserves 0 0 122 0 0 0 Domestic Stock Funds Convertible Securities Fund 0 0 190,285 0 0 0 Asset Allocation Fund 0 0 889,535 0 0 0 Equity Income Fund 0 0 448,688 0 0 0 Classic Value Fund* 0 0 0 0 0 0 Value Fund 0 0 812,168 0 0 0 Blue Chip Fund 0 0 644,861 0 0 0 Strategic Growth Fund 0 0 52,293 0 0 0 Marsico Growth & Income Fund 0 0 2,184,816 0 0 0 Capital Growth Fund 0 0 489,326 0 0 0 Aggressive Growth Fund 0 0 226,422 0 0 0 Marsico Focused Equities Fund 0 0 7,052,386 0 0 0 MidCap Growth Fund 0 0 375,205 0 0 0
116
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying or Other than Compensation Compensation Other Current Compensation to Broker/ to Sales Financial Advertising Shareholders to Distributor Dealers Personnel Charges ----------- ------------ -------------- ------- --------- ------- Marsico 21st Century Fund* 0 0 431,583 0 0 0 Small Company Fund 0 0 104,275 0 0 0 Financial Services Fund* 0 0 0 0 0 0 International/Global Stock Funds Global Value Fund* 0 0 0 0 0 0 International Value Fund 0 0 522,856 0 0 0 International Equity Fund 0 0 200,940 0 0 0 Marsico Int. Opportunities Fund* 0 0 9,674 0 0 0 Emerging Markets Fund 18,332 Index Funds LargeCap Index Fund 0 0 n/a 0 0 0 MidCap Index Fund 0 0 n/a 0 0 0 SmallCap Index Fund 0 0 n/a 0 0 0 Managed Index Fund 0 0 n/a 0 0 0 Government & Corporate Bond Fund Short-Term Income Fund 0 0 20,066 0 0 0 Short-Int. Government Fund 0 0 55,975 0 0 0 Government Securities Fund 0 0 192,311 0 0 0 Intermediate Bond Fund 0 0 4,007 0 0 0 Bond Fund 0 0 42,261 0 0 0 Strategic Income Fund 0 0 384,150 0 0 0 High Yield Bond Fund 0 0 82,526 0 0 0 Municipal Bond Funds Short-Term Municipal Income Fund 0 0 40,674 0 0 0 Intermediate Municipal Bond Fund 0 0 19,259 0 0 0 Municipal Income Fund 0 0 65,495 0 0 0 California Municipal Bond Fund 0 0 34,423 0 0 0 Florida Int. Municipal Bond Fund 0 0 31,529 0 0 0 Florida Municipal Bond Fund 0 0 86,272 0 0 0 Georgia Int. Municipal Bond Fund 0 0 50,181 0 0 0 Georgia Municipal Bond Fund 0 0 73,732 0 0 0 Kansas Municipal Income Fund 0 0 1,108 0 0 0 Maryland Int. Municipal Bond Fund 0 0 40,500 0 0 0 Maryland Municipal Bond Fund 0 0 121,091 0 0 0 North Carolina Int. Mun. Bond Fund 0 0 38,635 0 0 0 North Carolina Mun. Bond Fund 0 0 135,569 0 0 0 South Carolina Int. Mun. Bond Fund 0 0 53,300 0 0 0 South Carolina Mun. Bond Fund 0 0 64,307 0 0 0 Tennessee Int. Municipal Bond Fund 0 0 11,688 0 0 0 Tennessee Municipal Bond Fund 0 0 28,419 0 0 0 Texas Int. Municipal Bond Fund 0 0 15,381 0 0 0 Texas Municipal Bond Fund 0 0 39,948 0 0 0 Virginia Int. Municipal Bond Fund 0 0 66,247 0 0 0 Virginia Municipal Bond Fund 0 0 78,682 0 0 0 LifeGoal Portfolios LifeGoal Balanced Growth Portfolio 0 0 82,225 0 0 0
117
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying or Other than Compensation Compensation Other Current Compensation to Broker/ to Sales Financial Advertising Shareholders to Distributor Dealers Personnel Charges ----------- ------------ -------------- ------- --------- ------- LifeGoal Growth Portfolio 0 0 83,367 0 0 0 LifeGoal Inc. and Growth Portfolio 0 0 34,402 0 0 0
For the Investor C Distribution Plan, the Funds paid the following 12b-1 fees for the fiscal year ended March 31, 2001 for the indicated activities:
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying or Other than Compensation Compensation Other Current Compensation to Broker/ to Sales Financial Advertising Shareholders to Distributor Dealers Personnel Charges ----------- ------------ -------------- ------- --------- ------- Money Market Funds Prime Fund 0 0 n/a 0 0 0 Treasury Fund 0 0 n/a 0 0 0 Government Money Market Fund 0 0 n/a 0 0 0 Tax Exempt Fund 0 0 n/a 0 0 0 Cash Reserves 0 0 5,025 0 0 0 Treasury Reserves 0 0 0 0 0 0 Money Market Reserves 0 0 269 0 0 0 Government Reserves 0 0 1,626 0 0 0 Municipal Reserves 0 0 16 0 0 0 California Tax-Exempt Reserves 0 0 0 0 0 0 Domestic Stock Funds Convertible Securities Fund 0 0 45,634 0 0 0 Asset Allocation Fund 0 0 19,671 0 0 0 Equity Income Fund 0 0 27,527 0 0 0 Classic Value Fund* 0 0 0 0 0 0 Value Fund 0 0 70,328 0 0 0 Blue Chip Fund 0 0 140,859 0 0 0 Strategic Growth Fund 0 0 17,074 0 0 0 Marsico Growth & Income Fund 0 0 277,933 0 0 0 Capital Growth Fund 0 0 33,507 0 0 0 Aggressive Growth Fund 0 0 7,963 0 0 0 Marsico Focused Equities Fund 0 0 1,886,414 0 0 0 MidCap Growth Fund 0 0 24,644 0 0 0 Marsico 21st Century Fund* 0 0 54,664 0 0 0 Small Company Fund 0 0 26,007 0 0 0 Financial Services Fund* 0 0 0 0 0 0 International/Global Stock Funds Global Value Fund* 0 0 0 0 0 0 International Value Fund 0 0 196,403 0 0 0 International Equity Fund 0 0 8,969 0 0 0 Marsico International 0 0 4,557 0 0 0 Opportunities Fund* Emerging Markets Fund 0 0 638 0 0 0 Index Funds LargeCap Index Fund 0 0 n/a 0 0 0 MidCap Index Fund 0 0 n/a 0 0 0 SmallCap Index Fund 0 0 n/a 0 0 0 Managed Index Fund 0 0 n/a 0 0 0
118
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying or Other than Compensation Compensation Other Current Compensation to Broker/ to Sales Financial Advertising Shareholders to Distributor Dealers Personnel Charges ----------- ------------ -------------- ------- --------- ------- Government & Corporate Bond Funds Short-Term Income Fund 0 0 5,611 0 0 0 Short-Int. Government Fund 0 0 4,614 0 0 0 Government Securities Fund 0 0 2,342 0 0 0 Intermediate Bond Fund 0 0 929 0 0 0 Bond Fund 0 0 7,441 0 0 0 Strategic Income Fund 0 0 10,037 0 0 0 High Yield Bond Fund 0 0 4,626 0 0 0 Municipal Bond Funds Short-Term Municipal Income Fund 0 0 10,252 0 0 0 Intermediate Municipal Bond Fund 0 0 4,048 0 0 0 Municipal Income Fund 0 0 9,538 0 0 0 California Municipal Bond Fund 0 0 4,271 0 0 0 Florida Int. Municipal Bond Fund 0 0 1,110 0 0 0 Florida Municipal Bond Fund 0 0 285 0 0 0 Georgia Int. Municipal Bond Fund 0 0 5,624 0 0 0 Georgia Municipal Bond Fund 0 0 427 0 0 0 Kansas Municipal Income Fund 0 0 0 0 0 0 Maryland Int. Municipal Bond Fund 0 0 2,291 0 0 0 Maryland Municipal Bond Fund 0 0 1,675 0 0 0 North Carolina Int. Mun. Bond Fund 0 0 612 0 0 0 North Carolina Mun. Bond Fund 0 0 441 0 0 0 South Carolina Int. Mun. Bond Fund 0 0 15,772 0 0 0 South Carolina Mun. Bond Fund 0 0 321 0 0 0 Tennessee Int. Municipal Bond Fund 0 0 24 0 0 0 Tennessee Mun. Bond Fund 0 0 1,139 0 0 0 Texas Int. Municipal Bond Fund 0 0 21 0 0 0 Texas Municipal Bond Fund 0 0 647 0 0 0 Virginia Int. Municipal Bond Fund 0 0 5,477 0 0 0 Virginia Municipal Bond Fund 0 0 87 0 0 0 LifeGoal Portfolios LifeGoal Balanced Growth Portfolio 0 0 14,087 0 0 0 LifeGoal Growth Portfolio 0 0 15,684 0 0 0 LifeGoal Inc. and Growth Portfolio 0 0 7,728 0 0 0
For the Daily Class Distribution Plan, the Funds paid the following 12b-1 fees for the fiscal year ended March 31, 2001 for the indicated activities:
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying or Other than Compensation Compensation Other Current Compensation to Broker/ to Sales Financial Advertising Shareholders to Distributor Dealers Personnel Charges ----------- ------------ -------------- ------- --------- ------- Money Market Funds Prime Fund 0 0 2,692,512 0 0 0 Treasury Fund 0 0 262,371 0 0 0 Government Money Market Fund 0 0 58,735 0 0 0 Tax Exempt Fund 0 0 248,613 0 0 0
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Printing and Mailing of Prospectuses to Interest, Shareholders Carrying or Other than Compensation Compensation Other Current Compensation to Broker/ to Sales Financial Advertising Shareholders to Distributor Dealers Personnel Charges ----------- ------------ -------------- ------- --------- ------- Cash Reserves 0 0 41,202,781 0 0 0 Treasury Reserves 0 0 3,264,301 0 0 0 Money Market Reserves 0 0 16,643 0 0 0 Government Reserves 0 0 794,080 0 0 0 Municipal Reserves 0 0 1,752,701 0 0 0 California Tax-Exempt Reserves 0 0 2,438,478 0 0 0
For the Investor Class Distribution Plan, the Funds paid the following 12b-1 fees for the fiscal year ended March 31, 2001 for the indicated activities:
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying or Other than Compensation Compensation Other Current Compensation to Broker/ to Sales Financial Advertising Shareholders to Distributor Dealers Personnel Charges ----------- ------------ -------------- ------- --------- ------- Money Market Funds Cash Reserves 0 0 7,631,768 0 0 0 Treasury Reserves 0 0 992,523 0 0 0 Money Market Reserves 0 0 34,227 0 0 0 Government Reserves 0 0 164,500 0 0 0 Municipal Reserves 0 0 56,260 0 0 0 California Tax-Exempt Reserves 0 0 267,712 0 0 0
For the Liquidity Class Distribution Plan, the Funds paid the following 12b-1 fees for the fiscal year ended March 31, 2001 for the indicated activities:
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying or Other than Compensation Compensation Other Current Compensation to Broker/ to Sales Financial Advertising Shareholders to Distributor Dealers Personnel Charges ----------- ------------ -------------- ------- --------- ------- Money Market Funds Cash Reserves 0 0 0 0 0 0 Treasury Reserves 0 0 0 0 0 0 Money Market Reserves 0 0 0 0 0 0 Government Reserves 0 0 0 0 0 0 Municipal Reserves 0 0 0 0 0 0 California Tax-Exempt Reserves 0 0 0 0 0 0
For the Market Class Distribution Plan, the Funds paid the following 12b-1 fees for the fiscal year ended March 31, 2001 for the indicated activities:
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying or Other than Compensation Compensation Other Current Compensation to Broker/ to Sales Financial Advertising Shareholders to Distributor Dealers Personnel Charges ----------- ------------ -------------- ------- --------- -------
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Printing and Mailing of Prospectuses to Interest, Shareholders Carrying or Other than Compensation Compensation Other Current Compensation to Broker/ to Sales Financial Advertising Shareholders to Distributor Dealers Personnel Charges ----------- ------------ -------------- ------- --------- ------- Money Market Funds Cash Reserves 0 0 6,072,371 0 0 0 Treasury Reserves 0 0 2,910,085 0 0 0 Money Market Reserves 0 0 2,763,633 0 0 0 Government Reserves 0 0 892,218 0 0 0 Municipal Reserves 0 0 326,317 0 0 0 California Tax-Exempt Reserves 0 0 0 0 0 0
For the Service Class Distribution Plan, the Funds paid the following 12b-1 fees for the fiscal year ended March 31, 2001 for the indicated activities:
Printing and Mailing of Prospectuses to Interest, Shareholders Carrying or Other than Compensation Compensation Other Current Compensation to Broker/ to Sales Financial Advertising Shareholders to Distributor Dealers Personnel Charges ----------- ------------ -------------- ------- --------- ------- Money Market Funds Cash Reserves 0 0 5,155,560 0 0 0 Treasury Reserves 0 0 2,081,089 0 0 0 Money Market Reserves 0 0 1,155,956 0 0 0 Government Reserves 0 0 147,161 0 0 0 Municipal Reserves 0 0 58,752 0 0 0 California Tax-Exempt Reserves 0 0 (0) 0 0 0
Expenses The Distributor and Co-Administrators furnish, without additional cost to each Company, the services of the Treasurer and Secretary of each Company and such other personnel (other than the personnel of an Adviser) as are required for the proper conduct of each Company's affairs. The Distributor bears the incremental expenses of printing and distributing prospectuses used by the Distributor or furnished by the Distributor to investors in connection with the public offering of each Company's shares and the costs of any other promotional or sales literature, except that to the extent permitted under the Distribution Plans relating to the Investor A, Investor B or Investor C Shares of each Fund, sales-related expenses incurred by the Distributor may be reimbursed by each Company. Each Company pays or causes to be paid all other expenses of each Company, including, without limitation: the fees of the Adviser, the Distributor, Co-Administrators and Sub-Administrator; the charges and expenses of any registrar, any custodian or depository appointed by each Company for the safekeeping of its cash, Fund securities and other property, and any stock transfer, dividend or accounting agent or agents appointed by each Company; brokerage commissions chargeable to each Company in connection with Fund securities transactions to which a Company is a party; all taxes, including securities issuance and transfer taxes; corporate fees payable by each Company to federal, state or other governmental agencies; all costs and expenses in connection with the registration and maintenance of registration of each Company and its Funds' shares with the SEC and various states and other jurisdictions (including filing fees, legal fees and disbursements of counsel); the costs and expenses of typesetting prospectuses and statements of additional information of each Company (including supplements thereto) and periodic reports and of printing and distributing such prospectuses and statements of additional information (including supplements thereto) to each Company's shareholders; all expenses of shareholders' and directors' meetings and of preparing, printing and mailing proxy statements and reports to shareholders; fees and travel 121 expenses of directors or director members of any advisory board or committee; all expenses incident to the payment of any dividend or distribution, whether in shares or cash; charges and expenses of any outside service used for pricing of each Company's shares; fees and expenses of legal counsel and of independent auditors in connection with any matter relating to each Company; membership dues of industry associations; interest payable on Company borrowings; postage and long-distance telephone charges; insurance premiums on property or personnel (including officers and directors) of each Company which inure to its benefit; extraordinary expenses (including, but not limited to, legal claims and liabilities and litigation costs and any indemnification related thereto); and all other charges and costs of each Company's operation unless otherwise explicitly assumed by the Adviser), the Co-Administrators or Sub-Administrator. Expenses of each Company which are not attributable to the operations of any class of shares or Fund are pro-rated among all classes of shares or Fund of each Company based upon the relative net assets of each class or Fund. Expenses of each Company which are not directly attributable to a specific class of shares but are attributable to a specific Fund are prorated among all the classes of shares of such Fund based upon the relative net assets of each such class of shares. Expenses of each Company which are directly attributable to a class of shares are charged against the income available for distribution as dividends to such class of shares. Other Service Providers Transfer Agents and Custodians PFPC Inc. is located at 400 Bellevue Parkway, Wilmington, Delaware 19809, and acts as Transfer Agent for each Fund's shares. Under the Transfer Agency Agreements, the transfer agent maintains shareholder account records for the Company, handles certain communications between shareholders and the Companies, and distributes dividends and distributions payable by the Companies to shareholders, and produces statements with respect to account activity for the Companies and its shareholders for these services. The Transfer Agent receives a monthly fee computed on the basis of the number of shareholder accounts that it maintains for each Company during the month and is reimbursed for out-of-pocket expenses. Bank of America serves as Sub-Transfer Agent for each Fund's Primary A, Primary B Shares, Trust Class Shares and Capital Class Shares. BNY 100 Church Street, New York, N.Y. 10286 serves as Custodian for the Funds' assets. As Custodian, BNY maintains the Funds' securities cash and other property, delivers securities against payment upon sale and pays for securities against delivery upon purchase, makes payments on behalf of such Funds for payments of dividends, distributions and redemptions, endorses and collects on behalf of such Funds all checks, and receives all dividends and other distributions made on securities owned by such Funds. With respect to foreign custody activities, the SEC has amended Rule 17f-5 under the 1940 Act and adopted Rule 17f-7 to permit the Boards to delegate certain foreign custody matters to foreign custody managers and to modify the criteria applied in the selection process. Accordingly, BNY serves as Foreign Custody Manager, pursuant to a Foreign Custody Manager Agreement, under which the Boards retain the responsibility for selecting foreign compulsory depositories, although BNY agrees to make certain findings with respect to such depositories and to monitor such depositories. Independent Accountants The Companies issue unaudited financial information semi-annually and audited financial statements annually. The annual financial statements for the Funds fiscal year ended March 31, 2001 have been audited by PwC. The Boards have selected PwC, 1177 Avenue of the Americas, New York, New York 10036, as each Company's independent accountant to audit the Companies books and review their tax returns for the fiscal year ended March 31, 2002. The Funds' Annual Reports for the fiscal period ended March 31, 2001 are incorporated herein by reference into this SAI. Counsel Morrison & Foerster LLP serves as legal counsel to the Companies. Its address is 2000 Pennsylvania Avenue, N.W., Washington, D.C. 20006. 122 BROKERAGE ALLOCATION AND OTHER PRACTICES General Brokerage Policy, Brokerage Transactions and Broker Selection Subject to policies established by the Boards, the Adviser (which in this context refers to the investment sub-adviser(s) as well who make the day to day decisions for a Fund) is responsible for decisions to buy and sell securities for each Fund, for the selection of broker/dealers, for the execution of a Fund's securities transactions, and for the allocation of brokerage in connection with such transactions. The Adviser's primary consideration in effecting a security transaction is to obtain the best net price and the most favorable execution of the order. Purchases and sales of securities on a securities exchange are effected through brokers who charge negotiated commissions for their services. Orders may be directed to any broker to the extent and in the manner permitted by applicable law. In the over-the-counter market, securities are generally traded on a "net" basis with dealers acting as principal for their own accounts without stated commissions, although the price of a security usually includes a profit to the dealer. In underwritten offerings, securities are purchased at a fixed price that includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. On occasion, certain money market instruments may be purchased directly from an issuer, in which case no commissions or discounts are paid. In placing orders for portfolio securities of a Fund, the Adviser gives primary consideration to obtaining the most favorable price and efficient execution. This means that the Adviser will seek to execute each transaction at a price and commission, if any, which provide the most favorable total cost or proceeds reasonably attainable in the circumstances. In seeking such execution, the Adviser will use its best judgment in evaluating the terms of a transaction, and will give consideration to various relevant factors, including, without limitation, the size and type of the transaction, the nature and character of the market for the security, the confidentiality, speed and certainty of effective execution required for the transaction, the general execution and operational capabilities of the broker/dealer, the reputation, reliability, experience and financial condition of the broker/dealer, the value and quality of the services rendered by the broker/dealer in this instant and other transactions, and the reasonableness of the spread or commission, if any. Research services received from broker/dealers supplement the Adviser's own research and may include the following types of information: statistical and background information on industry groups and individual companies; forecasts and interpretations with respect to U.S. and foreign economies, securities, markets, specific industry groups and individual companies; information on political developments; Fund management strategies; performance information on securities and information concerning prices of securities; and information supplied by specialized services to the Adviser and to a Company's Board with respect to the performance, investment activities and fees and expenses of other mutual funds. Such information may be communicated electronically, orally or in written form. Research services may also include the providing of equipment used to communicate research information, the arranging of meetings with management of companies and the providing of access to consultants who supply research information. The outside research is useful to the Adviser since, in certain instances, the broker/dealers utilized by the Adviser may follow a different universe of securities issuers and other matters than the Adviser's staff can follow. In addition, this research provides the Adviser with a different perspective on financial markets, even if the securities research obtained relates to issues followed by the Adviser . Research services which are provided to the Adviser by broker/dealers are available for the benefit of all accounts managed or advised by the Adviser. In some cases, the research services are available only from the broker/dealer providing such services. In other cases, the research services may be obtainable from alternative sources. The Adviser is of the opinion that because the broker/dealer research supplements rather than replaces its research, the receipt of such research does not tend to decrease its expenses, but tends to improve the quality of its investment advice. However, to the extent that the Adviser would have purchased any such research services had such services not been provided by broker/dealers, the expenses of such services to the Adviser could be considered to have been reduced accordingly. Certain research services furnished by broker/dealers may be useful to the Adviser with clients other than the Funds. Similarly, any research services received by the Adviser through the placement of transactions of other clients may be of value to the Adviser in fulfilling its obligations to the Funds. The Adviser is of the opinion that this material is beneficial in supplementing its research and analysis; and, therefore, it may benefit the Companies by improving the quality of the 123 Adviser's investment advice. The advisory fees paid by the Companies are not reduced because the Adviser receives such services. Under Section 28(e) of the 1934 Act, the Adviser shall not be "deemed to have acted unlawfully or to have breached its fiduciary duty" solely because under certain circumstances it has caused the account to pay a higher commission than the lowest available. To obtain the benefit of Section 28(e), the Adviser must make a good faith determination that the commissions paid are "reasonable in relation to the value of the brokerage and research services provided...viewed in terms of either that particular transaction or its overall responsibilities with respect to the accounts as to which it exercises investment discretion and that the services provided by a broker/dealer provide an adviser with lawful and appropriate assistance in the performance of its investment decision making responsibilities." Accordingly, the price to a Fund in any transaction may be less favorable than that available from another broker/dealer if the difference is reasonably justified by other aspects of the portfolio execution services offered. Some broker/dealers may indicate that the provision of research services is dependent upon the generation of certain specified levels of commissions and underwriting concessions by the Adviser's clients, including the Funds. Commission rates are established pursuant to negotiations with the broker/dealers based on the quality and quantity of execution services provided by the broker/dealer in the light of generally prevailing rates. On exchanges on which commissions are negotiated, the cost of transactions may vary among different broker/dealers. Transactions on foreign stock exchanges involve payment of brokerage commissions which are generally fixed. Transactions in both foreign and domestic over-the-counter markets are generally principal transactions with dealers, and the costs of such transactions involve dealer spreads rather than brokerage commissions. With respect to over-the-counter transactions, the Adviser, where possible, will deal directly with dealers who make a market in the securities involved except in those circumstances in which better prices and execution are available elsewhere. In certain instances there may be securities which are suitable for more than one Fund as well as for one or more of the other clients of the Adviser. Investment decisions for each Fund and for the Adviser's other clients are made with the goal of achieving their respective investment objectives. A particular security may be bought or sold for only one client even though it may be held by, or bought or sold for, other clients. Likewise, a particular security may be bought for one or more clients when one or more other clients are selling that same security. Some simultaneous transactions are inevitable when a number of accounts receive investment advice from the same investment adviser, particularly when the same security is suitable for the investment objectives of more than one client. When two or more clients are simultaneously engaged in the purchase or sale of the same security, the securities are allocated among clients in a manner believed to be equitable to each. In some cases, this policy could have a detrimental effect on the price or volume of the security in a particular transaction as far as a Fund is concerned. The Funds may participate, if and when practicable, in bidding for the purchase of portfolio securities directly from an issuer in order to take advantage of the lower purchase price available to members of a bidding group. A Fund will engage in this practice, however, only when the Adviser, in its sole discretion, believes such practice to be otherwise in the Fund's interests. The Companies will not execute portfolio transactions through, or purchase or sell portfolio securities from or to the Distributor, the Adviser, the Administrator, the Co-Administrator or their affiliates, acting as principal (including repurchase and reverse repurchase agreements), except to the extent permitted by applicable law, regulation or order. In addition, the Companies will not give preference to Bank of America or any of its affiliates, with respect to such transactions or securities. (However, the Adviser is authorized to allocate purchase and sale orders for portfolio securities to certain broker/dealers and financial institutions, including, in the case of agency transactions, broker/dealers and financial institutions which are affiliated with Bank of America. To the extent that a Fund executes any securities trades with an affiliate of Bank of America, a Fund does so in conformity with Rule 17e-1 under the 1940 Act and the procedures that each Fund has adopted pursuant to the rule. In this regard, for each transaction, the appropriate Board will determine that: (a) the transaction resulted in prices for and execution of securities transactions at least as favorable to the particular Fund as those likely to be derived from a non-affiliated qualified broker/dealer; (b) the affiliated broker/dealer charged the Fund commission rates consistent with those charged by the affiliated broker/dealer in similar transactions to clients comparable to the Fund and that are not affiliated with the broker/dealer in question; and (c) the fees, commissions or other remuneration paid by the Fund 124 did not exceed 2% of the sales price of the securities if the sale was effected in connection with a secondary distribution, or 1% of the purchase or sale price of such securities if effected in other than a secondary distribution. Certain affiliates of Bank of America Corporation, such as its subsidiary banks may have deposit, loan or commercial banking relationships with the corporate users of facilities financed by industrial development revenue bonds or private activity bonds purchased by certain of the Funds. Bank of America or certain of its affiliates may serve as trustee, custodian, tender agent, guarantor, placement agent, underwriter, or in some other capacity, with respect to certain issues of municipal securities. Under certain circumstances, the Funds may purchase municipal securities from a member of an underwriting syndicate in which an affiliate of Bank of America is a member. The Companies have adopted procedures pursuant to Rule 10f-3 under the 1940 Act, and intend to comply with the requirements of Rule 10f-3, in connection with any purchases of municipal securities that may be subject to the Rule. Particularly given the breadth of the Adviser's investment management activities, investment decisions for each Fund are not always made independently from those for each Company's other investment portfolios, other investment companies, and accounts advised or managed by the Adviser. When a purchase or sale of the same security is made at substantially the same time on behalf of one or more of the Funds and another investment portfolio, investment company, or account, the transaction will be averaged as to price and available investments allocated as to amount, in a manner which the Adviser believes to be equitable to each Fund and such other investment portfolio, investment company or account. In some instances, this investment procedure may adversely affect the price paid or received by a Fund or the size of the position obtained or sold by the Fund. To the extent permitted by law, the Adviser may aggregate the securities to be sold or purchased for the Funds with those to be sold or purchased for other investment portfolios, investment companies, or accounts in executing transactions. Aggregate Brokerage Commissions
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended March 31, 2000 March 31, 2000 March 31, 1999 Money Market Funds Prime Fund $0 $0 $0 Treasury Fund 0 0 0 Government Money Market Fund 0 0 0 Tax Exempt Fund 0 0 0 Cash Reserves 0 0 0 Treasury Reserves 0 0 0 Money Market Reserves 0 0 0 Government Reserves 0 0 0 Municipal Reserves 0 0 0 California Tax-Exempt Reserves 0 0 0 Stock Funds Convertible Securities Fund 262,022 106,048 $235,157 Asset Allocation Fund 351,804 358,923 $213,085 Equity Income Fund 1,238,589 712,971 1,472,491 Classic Value Fund* n/a n/a n/a Value Fund 5,004,600 4,529,543 2,871,137 Blue Chip Fund(a) n/a n/a n/a Strategic Growth Fund 1,355,837 411,252 96,069 Marsico Growth & Income Fund(a) n/a 501,608 265,230 Capital Growth Fund 1,213,901 698,225 1,102,071 Aggressive Growth Fund 574,418 0 0 Marsico Focused Equities Fund(a) n/a 2,288,935 830,511 MidCap Growth Fund 181,601 0 0 Marsico 21st Century Fund(a) 399,084 0 0 Small Company Fund 705,127 311,001 596,033 Financial Services Fund* n/a n/a n/a International/Global Stock Funds Global Value Fund* n/a n/a n/a International Value Fund(a) n/a n/a n/a International Equity Fund(a) n/a 975,342 2,201,631 Marsico International Opportunities Fund(a) 100,611 n/a n/a Emerging Markets Fund 206,024 132,465 35,689
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Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended March 31, 2000 March 31, 2000 March 31, 1999 Index Funds LargeCap Index Fund 139,356 0 0 MidCap Index Fund 169,671 0 0 SmallCap Index Fund 291,972 256,848 $ 375,659 Managed Index Fund 533,076 467,939 313,849 Government & Corporate Bond Funds Short-Term Income Fund 0 0 0 Short-Intermediate Government Fund 0 0 0 Government Securities Fund 0 0 0 Intermediate Bond Fund(a) n/a n/a n/a Bond Fund 0 0 0 Strategic Income Fund 0 0 0 High Yield Bond Fund(a) n/a n/a n/a Municipal Bond Funds Short-Term Municipal Income Fund 0 0 0 Intermediate Municipal Bond Fund 0 0 0 Municipal Income Fund 0 0 0 California Municipal Bond Fund 0 0 0 Florida Intermediate Municipal Bond Fund 0 0 0 Florida Municipal Bond Fund 0 0 0 Georgia Intermediate Municipal Bond Fund 0 0 0 Georgia Municipal Bond Fund 0 0 0 Kansas Municipal Income Fund 0 0 0 Maryland Intermediate Municipal Bond Fund 0 0 0 Maryland Municipal Bond Fund 0 0 0 North Carolina Intermediate Municipal Bond Fund 0 0 0 North Carolina Municipal Bond Fund 0 0 0 South Carolina Intermediate Municipal Bond Fund 0 0 0 South Carolina Municipal Bond Fund 0 0 0 Tennessee Intermediate Municipal Bond Fund 0 0 0 Tennessee Municipal Bond Fund 0 0 0 Texas Intermediate Municipal Bond Fund 0 0 0 Texas Municipal Bond Fund 0 0 0 Virginia Intermediate Municipal Bond Fund 0 0 0 Virginia Municipal Bond Fund 0 0 0 LifeGoal Portfolios LifeGoal Balanced Growth Portfolio 0 0 0 LifeGoal Growth Portfolio 0 0 0 LifeGoal Income and Growth Portfolio 0 0 0
* There are no amounts shown for this Fund because it has not yet completed a full fiscal year. (a)Brokerage commissions are paid at the Master Portfolio level. If amounts are shown, it is for periods when the Fund was not a Feeder Fund. Brokerage Commissions Paid to Affiliates In certain instances the Funds pay brokerage commissions to broker/dealers that are affiliates of Bank of America. As indicated above, all such transactions involving the payment of brokerage commissions are done in compliance with Rule 17e-1 under the 1940 Act. The following Funds have paid brokerage commissions to the indicated affiliated broker/dealers for the fiscal year ended March 31, 2001 as follows:
Percentage of Fund's Aggregate Brokerage Affiliated Broker/Dealer Aggregate Brokerage Commission Paid to Fund (relationship to Fund) Commission Affiliated Broker/Dealer - ------------------------------------------------------------------------------------------------------------------- Marsico Focused Equities Fund Banc of America 318,814 8.79% Securities, Inc (a broker/dealer subsidiary of Bank of America). - ------------------------------------------------------------------------------------------------------------------- Marsico Growth & Income Fund Banc of America 68,542 7.83% Securities, Inc (a broker/dealer subsidiary - -------------------------------------------------------------------------------------------------------------------
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- ------------------------------------------------------------------------------------------------------------------- of Bank of America). - -------------------------------------------------------------------------------------------------------------------
The following Funds have paid brokerage commissions to the indicated affiliated broker/dealers for the fiscal year ended March 31, 2000 as follows:
Percentage of Fund's Aggregate Brokerage Affiliated Broker/Dealer Aggregate Brokerage Commission Paid to Fund (relationship to Fund) Commission Affiliated Broker/Dealer - ------------------------------------------------------------------------------------------------------------------- Marsico Focused Equities Fund* Banc of America $221,646 9.68% Securities, Inc. (a broker/dealer subsidiary of Bank of America) - ------------------------------------------------------------------------------------------------------------------- Marsico Growth & Income Fund* Banc of America $45,740 9.12% Securities, Inc. (a broker/dealer subsidiary of Bank of America) - -------------------------------------------------------------------------------------------------------------------
*During the fiscal year ended March 31, 2000, Marsico Focused Equities Fund and Marsico Growth & Income Fund converted to Feeder Funds. The commission shown were paid while the Funds were operating on a stand-alone basis. The following Funds have paid brokerage commissions to the indicated affiliated broker/dealers for the fiscal year ended March 31, 1999 as follows:
Percentage of Fund's Aggregate Brokerage Affiliated Broker/Dealer Aggregate Brokerage Commission Paid to Fund (relationship to Fund) Commission Affiliated Broker/Dealer - ------------------------------------------------------------------------------------------------------------------- Marsico Focused Equities Fund* Banc of America Montgomery $56,267.46 6.77% Securities LLC (a securities underwriting subsidiary of Bank of America) - ------------------------------------------------------------------------------------------------------------------- Marsico Focused Equities Fund* Westminster Research $1,361.74 0.16% Clearing NMS (a securities underwriting affiliate of Bank of America Corporation) ("NMS") - ------------------------------------------------------------------------------------------------------------------- Marsico Focused Equities Fund* NMS $16,886.60 6.36% - ------------------------------------------------------------------------------------------------------------------- Small Company Fund* NMS $7,212 1.21% - -------------------------------------------------------------------------------------------------------------------
*During the fiscal year ended March 31, 2000, Marsico Focused Equities Fund and Marsico Growth & Income Fund converted to Feeder Funds. The commission shown were paid while the Funds were operating on a stand-alone basis. No other Funds paid brokerage fees during the fiscal years ended March 31, 2001, 2000 and 1999. Directed Brokerage A Fund or the Adviser, through an agreement or understanding with a broker/dealer, or otherwise through an internal allocation procedure, may direct, subject to applicable legal requirements, the Fund's brokerage transactions to a broker/dealer because of the research services it provides the Fund or the Adviser. During the fiscal year ended March 31, 2001, the Funds directed brokerage transactions in this manner as follows:
Amount of Related Transaction(s) Commission(s) Money Market Funds Prime Fund $0 $0 Treasury Fund 0 0 Government Money Market Fund 0 0 Tax Exempt Fund 0 0 Cash Reserves 0 0 Treasury Reserves 0 0 Money Market Reserves 0 0 Government Reserves 0 0 Municipal Reserves 0 0 California Tax-Exempt Reserves 0 0
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Amount of Related Transaction(s) Commission(s) Stock Funds Convertible Securities Fund 31,190,382 51,011 Asset Allocation Fund 341,527,962 65,576 Equity Income Fund 552,220,649 589,064 Classic Value Fund* n/a n/a Value Fund 814,501,081 851,183 Blue Chip Fund(a) 1,328,934,652 132,426 Strategic Growth Fund 362,628,869 380,071 Marsico Growth & Income Fund(a) 82,995,181 70,973 Capital Growth Fund 456,686,170 399,879 Aggressive Growth Fund 245,118,673 217,660 Marsico Focused Equities Fund(a) 330,086,461 297,548 MidCap Growth Fund 67,124,709 81,230 Marsico 21st Century Fund(a) 8,549,944 8,019 Small Company Fund 34,609,505 51,470 Financial Services Fund* n/a n/a International/Global Stock Funds Global Value Fund* n/a n/a International Value Fund(a) 0 0 International Equity Fund(a) 10,790,000 16,454 Marsico International Opportunities Fund(a) 0 0 Emerging Markets Fund 9,271,000 29,824 Index Funds LargeCap Index Fund 0 0 MidCap Index Fund 4,072,119 2,395 SmallCap Index Fund 446,875 313 Managed Index Fund 11,551,567 4,698 Government & Corporate Bond Funds Short-Term Income Fund 0 0 Short-Intermediate Government Fund 0 0 Government Securities Fund 0 0 Intermediate Bond Fund(a) 0 0 Bond Fund 0 0 Strategic Income Fund 0 0 High Yield Bond Fund(a) 0 0 Municipal Bond Funds Short-Term Municipal Income Fund 0 0 Intermediate Municipal Bond Fund 0 0 Municipal Income Fund 0 0 California Municipal Bond Fund 0 0 Florida Intermediate Municipal Bond Fund 0 0 Florida Municipal Bond Fund 0 0 Georgia Intermediate Municipal Bond Fund 0 0 Georgia Municipal Bond Fund 0 0 Kansas Municipal Income Fund 0 0 Maryland Intermediate Municipal Bond Fund 0 0 Maryland Municipal Bond Fund 0 0 North Carolina Intermediate Municipal Bond 0 0 Fund North Carolina Municipal Bond Fund 0 0 South Carolina Intermediate Municipal Bond 0 0 Fund South Carolina Municipal Bond Fund 0 0 Tennessee Intermediate Municipal Bond Fund 0 0 Tennessee Municipal Bond Fund 0 0 Texas Intermediate Municipal Bond Fund 0 0 Texas Municipal Bond Fund 0 0 Virginia Intermediate Municipal Bond Fund 0 0 Virginia Municipal Bond Fund 0 0 LifeGoal Portfolios 0 0 LifeGoal Balanced Growth Portfolio 0 0 LifeGoal Growth Portfolio 0 0
128
Amount of Related Transaction(s) Commission(s) LifeGoal Income and Growth Portfolio 0 0
*There are no amounts shown for this Fund because it has not yet completed a full fiscal year. (a) Brokerage commissions are paid at the Master Portfolio level. If amounts are shown, it is for periods when the Fund was not a Feeder Fund. Securities of Regular Broker/Dealers In certain cases, the Funds as part of their principal investment strategy, or otherwise as a permissible investment, will invest in the common stock or debt obligations of the regular broker/dealers that the Adviser uses to transact brokerage for the Nations Funds Family. As of March 31, 2001, the Funds owned securities of its "regular brokers or dealers" or their parents, as defined in Rule 10b-1 of the 1940 Act, as follows:
Dollar Amount of Fund Broker/Dealer Securities Held ---- ------------- --------------- Aggressive Growth Fund Charles Schwab Corporation 631,834 Asset Allocation Fund A.G. Edwards, Inc. 74,000 J.P. Morgan Chase & Company 1,845,839 Lehman Brothers Holdings Inc. 1,053,360 Merrill Lynch & Company, Inc. 1,312,980 Morgan Stanley Dean Witter & Company 695,500 Blue Chip Fund J.P. Morgan Chase & Company 7,879,950 Lehman Brothers Holdings Inc. 4,420,350 Merrill Lynch & Company, Inc. 5,534,460 Morgan Stanley Dean Witter & Company 2,889,000 Capital Growth Fund Bank of New York Company, Inc. 7,450,012 Merrill Lynch & Company, Inc. 12,121,520 Morgan Stanley Dean Witter & Company 6,522,987 Equity Income Fund J.P. Morgan Chase & Company 6,016,600
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LargeCap Index Fund J.P. Morgan Chase & Company 16,519,832 Lehman Brothers Holdings Inc. 3,033,112 Merrill Lynch & Company, Inc. 8,656,250 Managed Index Fund Lehman Brothers Holdings Inc. 1,617,660 Merrill Lynch & Company, Inc. 2,022,100 Morgan Stanley Dean Witter & Company 1,642,450 Marsico 21st Century Fund Lehman Brothers Holdings Inc. 2,508,000 Merrill Lynch & Company, Inc. 3,394,690 Marsico Focused Equities Fund Goldman Sachs Group, Inc. 57,789,367 Lehman Brothers Holdings Inc. 45,994,212 Merrill Lynch & Company, Inc. 75,726,038 Marsico Growth & Income Fund Goldman Sachs Group, Inc. 16,069,603 Lehman Brothers Holdings Inc. 8,637,552 Merrill Lynch & Company, Inc. 21,368,500 Strategic Growth Fund Bank of New York Company, Inc. 24,128,831 Merrill Lynch & Company, Inc. 17,975,915 Morgan Stanley Dean Witter & Company 11,697,775 Value Fund Goldman Sachs Group, Inc. 15,913,700 J.P. Morgan Chase & Company 18,094,700 Merrill Lynch & Company, Inc. 17,229,400
Monies Paid to Broker/Dealers from the Adviser's or Distributor's Profit In addition to payments received from the Funds, Selling or Servicing Agents may receive significant payments from the Adviser or Distributor, or their affiliates, in connection with the sale of Fund shares. This information is provided in order to satisfy certain requirements of Rule 10b-10 under the 1934 Act, which provides that broker/dealers must provide information to customers regarding any remuneration that a broker receives in connection with a sales transaction. CAPITAL STOCK Description of Shares of the Companies The Companies' Boards have authorized the issuance of the classes of shares of the Funds indicated below and may, in the future, authorize the creation of additional investment portfolios or classes of shares. The Funds of NFT offer shares in the following classes:
Fund Primary A Primary B Investor Investor Investor Daily Shares Shares A Shares B Shares C Shares Shares - --------------------------------------------------------------------------------------------------------------------- Money Market Funds Government Money Market Fund X X X X X Tax Exempt Fund X X X X X X - --------------------------------------------------------------------------------------------------------------------- Government & Corporate Bond Funds Short-Term Income Fund X X X X X Short-Intermediate Government Fund X X X X X Bond Fund X X X X X Strategic Income Fund X X X X X - --------------------------------------------------------------------------------------------------------------------- Municipal Bond Funds Short-Term Municipal Income Fund X X X X X Intermediate Municipal Bond Fund X X X X X Municipal Income Fund X X X X X - --------------------------------------------------------------------------------------------------------------------- State Bond Funds
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Fund Primary A Primary B Investor Investor Investor Daily Shares Shares A Shares B Shares C Shares Shares - --------------------------------------------------------------------------------------------------------------------- Florida Intermediate Municipal Bond Fund X X X X X Florida Municipal Bond Fund X X X X X Georgia Intermediate Municipal Bond Fund X X X X X Georgia Municipal Bond Fund X X X X X Maryland Intermediate Municipal Bond Fund X X X X X Maryland Municipal Bond Fund X X X X X North Carolina Intermediate Municipal Bond Fund X X X X X North Carolina Municipal Bond Fund X X X X X South Carolina Intermediate Municipal Bond Fund X X X X X South Carolina Municipal Bond Fund X X X X X Tennessee Intermediate Municipal Bond Fund X X X X X Tennessee Municipal Bond Fund X X X X X Texas Intermediate Municipal Bond Fund X X X X X Texas Municipal Bond Fund X X X X X Virginia Intermediate Municipal Bond Fund X X X X X Virginia Municipal Bond Fund X X X X X - --------------------------------------------------------------------------------------------------------------------- Index Funds Managed Index Fund X X X X LargeCap Index Fund X X X X X SmallCap Index Fund X X X X - --------------------------------------------------------------------------------------------------------------------- Stock Funds Value Fund X X X X X Strategic Growth Fund X X X X Capital Growth Fund X X X X X Aggressive Growth Fund X X X X X MidCap Growth Fund X X X X X
The Funds of NFI offer shares in the following classes:
Fund Primary A Primary B Investor Investor Investor Daily Marsico Shares Shares A Shares B Shares C Shares Shares Shares - --------------------------------------------------------------------------------------------------------------------- Money Market Funds Prime Fund X X X X X X X Treasury Fund X X X X X X - --------------------------------------------------------------------------------------------------------------------- Stock Funds Equity Income Fund X X X X X Small Company Fund X X X X X
The Funds of NR offer shares in the following classes:
Fund Service Daily Market Adviser Liquidity Daily Capital Investor Trust Institutional Class Class Class Class Class Shares Class Class Shares Class Shares Shares Shares Shares Shares Shares Shares Shares - ---------------------------------------------------------------------------------------------------------------------------- Money Market Funds Cash Reserves X X X X X X X X X X Money Market Reserves X X X X X X X X X X Treasury Reserves X X X X X X X X X X Government Reserves X X X X X X X X X X Municipal Reserves X X X X X X X X X X California Reserves X X X X X X X X X X
Fund Primary A Primary B Investor Investor Investor Shares Shares A Shares B Shares C Shares - ----------------------------------------------------------------------------------------------- StateBond Fund
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California Bond Fund X X X X - ----------------------------------------------------------------------------------------------- Government & Corporate Bond Fund Intermediate Bond Fund X X X X - ----------------------------------------------------------------------------------------------- Stock Funds Convertible Securities Fund X X X X Blue Chip Fund X X X X X - ----------------------------------------------------------------------------------------------- International/Global Stock Funds International Value Fund X X X X International Equity Fund X X X X Emerging Markets Fund X X X X X
The Funds of NFST offer shares in the following classes:
Fund Primary A Primary B Investor Investor Investor Shares Shares A Shares B Shares C Shares - ----------------------------------------------------------------------------------------------- StateBond Fund Kansas Bond Fund X X X X - ----------------------------------------------------------------------------------------------- Government & Corporate Bond Funds Government Securities Fund X X X X X High Yield Bond Fund X X X X X - ----------------------------------------------------------------------------------------------- Stock Funds Asset Allocation Fund X X X X Convertible Securities Fund X X X X Classic Value Fund X X X X Blue Chip Fund X X X X X Financial Services Fund X X X X Marsico Focused Equities Fund X X X X Marsico Growth & Income Fund X X X X Marsico 21st Century Fund X X X X - ----------------------------------------------------------------------------------------------- Index Fund MidCap Index Fund X X - ----------------------------------------------------------------------------------------------- International/Global Stock Funds Marsico International Opportunities X X X X Fund Global Value Fund X X X X - ----------------------------------------------------------------------------------------------- LifeGoal Portfolios (Funds of Funds) LifeGoal Balanced Growth Portfolio X X X X LifeGoal Growth Portfolio X X X X LifeGoal Income and Growth Portfolio X X X X
NR's Funds NR's Agreement and Declaration of Trust and By-Laws permit it to issue an unlimited number of full and fractional shares of beneficial interest of each Fund, without par value, and to divide or combine the shares of any series into a greater or lesser number of shares of that Fund without thereby changing the proportionate beneficial interests in that Fund and to divide such shares into classes. Each share of a class of a Fund represents an equal proportional interest in the Fund with each other share in the same class and is entitled to such dividends and distributions out of the income earned on the assets belonging to the Fund as are declared in the discretion of the Board. However, different share classes of a Fund pay different distribution amounts, because each share class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. 132 In the event of the liquidation or dissolution of NR or a Fund, shareholders of the Fund are entitled to receive the assets attributable to the relevant class of shares of the Fund that are available for distribution, and a distribution of any general assets not attributable to a particular investment portfolio that are available for distribution in such manner and on such basis as the Board may determine. Shareholders have no preemptive or other right to receive, purchase or subscribe for any additional shares of a Fund. Shareholders have the right, which is subject to change by the Board, to convert or "exchange" shares of one class for another, as outlined, and subject to certain conditions set forth, in the Funds' prospectuses. All shares are issued in uncertificated form only, and, when issued will be fully paid and non-assessable by NR. Shareholders have the power to vote only (i) for the election or removal of Board Members; (ii) with respect to any investment adviser; (iii) with respect to any termination of NR or a Fund; (iv) with respect to any amendment to the Agreement and Declaration of Trust; (v) generally to the same extent that stockholders of a Massachusetts business corporation; and (vi) with respect to such additional matters relating to NR as may be required by law, or as the Board Members determine. With respect to matters that affect one class but not another, shareholders vote as a class; for example, the approval of a distribution plan applicable to that class. Subject to the foregoing, all shares of NR have equal voting rights and will be voted in the aggregate, and not by Fund, except where voting by Fund is required by law or where the matter involved only affects one Fund. For example, a change in the Fund's fundamental investment policy affects only one Fund and would be voted upon only by shareholders of the Fund involved. Additionally, approval of an Advisory Agreement, since it only affects one Fund, is a matter to be determined separately by each Fund. Approval by the shareholders of one Fund is effective as to that Fund whether or not sufficient votes are received from the shareholders of the other series to approve the proposal as to those Funds. Shareholders are entitled to one vote for each whole share held a proportional fractional vote for each fractional vote held, on matters on which they are entitled to vote. Fund shareholders do not have cumulative voting rights. NR is not required to hold, and has no present intention of holding, annual meetings of shareholders. Subject to certain conditions, shareholders have the right to ask the Secretary of NR to call special shareholder meetings. Each Fund's dividend, distribution and redemption policies can be found in its prospectus under the headings "About Your Investment--Information for investors--Buying, selling and exchanging shares" and "About Your Investment--Information for investors--Distributions and taxes." However, the Board may suspend the right of shareholders to redeem shares when permitted or required to do so by law, or compel redemptions of shares in certain cases. Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of NR. However, NR's Agreement and Declaration of Trust disclaims liability of the shareholders, Board Members, or officers of NR for acts or obligations of NR, which are binding only on the assets and property of NR, and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by NR or the Board Members. NR's Agreement and Declaration of Trust provides for indemnification out of NR property for all loss and expense of any shareholder held personally liable for the obligations of NR. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is considered remote since it is limited to circumstances in which the disclaimer is inoperative and NR itself is unable to meet its obligations. NFT's Funds NFT's Declaration of Trust and Code of Regulations permit it to issue an unlimited number of full and fractional shares of beneficial interest of each Fund, without par value, and to divide or combine the shares of any series into a greater or lesser number of shares of that Fund without thereby changing the proportionate beneficial interests in that Fund and to divide such shares into classes. Each share of a class of a Fund represents an equal proportional interest in the Fund with each other share in the same class and is entitled to such dividends and distributions out of the income earned on the assets belonging to the Fund as are declared in the discretion of the Board. However, different share classes of a Fund pay different distribution amounts, because each share class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. In the event of the liquidation or dissolution of NFT or a Fund, shareholders of the Fund are entitled to receive the assets attributable to the relevant class of shares of the Fund that are available for distribution, and a distribution of any general assets not attributable to a particular investment portfolio that are available for 133 distribution in such manner and on such basis as the Board may determine. Shareholders have no preemptive or other right to receive, purchase or subscribe for any additional shares of a Fund. Shareholders have the right, which is subject to change by the Board, to convert or "exchange" shares of one class for another, as outlined, and subject to certain conditions set forth, in the Funds' prospectuses. All shares are issued in uncertificated form only, and, when issued will be fully paid and non-assessable by NFT. Shareholders have the power to vote for: (i) the election of Board Members; (ii) to the same extent as the shareholders of a Massachusetts business corporation when considering whether a court action, proceeding or claim should or should not be brought or maintained derivatively or as a class action on behalf of NFT or its shareholders; (iii) with respect to merger, consolidation or sales of assets; (iv) with respect to amending the Declaration of Trust; and (v) with respect to such additional matters and to the extent required by law, or as the Board Members may consider desirable. The Board may, without shareholder vote, terminate a Fund's share class. Subject to certain conditions, shareholders have the right to ask the Secretary of NFT to call special shareholder meetings. With respect to matters that affect one class but not another, shareholders vote as a class; for example, the approval of a distribution plan applicable to that class. Subject to the foregoing, all shares of NFT have equal voting rights and will be voted in the aggregate, and not by Fund, except where voting by Fund is required by law or where the matter involved only affects one Fund. For example, a change in the Fund's fundamental investment policy affects only one Fund and would be voted upon only by shareholders of the Fund involved. Additionally, approval of an Advisory Agreement, since it only affects one Fund, is a matter to be determined separately by each Fund. Approval by the shareholders of one Fund is effective as to that Fund whether or not sufficient votes are received from the shareholders of the other series to approve the proposal as to those Funds. Shareholders are entitled to one vote for each whole share held a proportional fractional vote for each fractional vote held, on matters on which they are entitled to vote. Fund shareholders do not have cumulative voting rights. NFT is not required to hold, and has no present intention of holding, annual meetings of shareholders. Each Fund's dividend, distribution and redemption policies can be found in its prospectus under the headings "About Your Investment--Information for investors--Buying, selling and exchanging shares" and "About Your Investment--Information for investors--Distributions and taxes." However, the Board may suspend the right of shareholders to redeem shares when permitted or required to do so by law, or compel redemptions of shares in certain cases. Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of NFT. However, NFT's Declaration of Trust disclaims liability of the shareholders, Board Members, or officers of NFT for acts or obligations of NFT, which are binding only on the assets and property of NFT, and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by NFT or the Board Members. NFT's Declaration of Trust provides for indemnification out of NFT property for all loss and expense of any shareholder held personally liable for the obligations of NFT. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is considered remote since it is limited to circumstances in which the disclaimer is inoperative and NFT itself is unable to meet its obligations. NFI's Funds NFI's Articles of Incorporation (as amended by Articles Supplementary) and By-Laws permit it to issue full and fractional shares of capital stock of each Fund, with par value of $.001, and to issue shares of any class of a Fund as set forth in the NFI's Articles of Incorporation (as amended by Articles Supplementary). Each share of a class of a Fund represents an equal proportional interest in the Fund with each other share in the same class and is entitled to such dividends and distributions out of the income earned on the assets belonging to the Fund as are declared in the discretion of the Board. However, different share classes of a Fund pay different distribution amounts, because each share class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. In the event of the liquidation or dissolution of NFI or a Fund, shareholders of the Fund are entitled to receive the assets attributable to the relevant class of shares of the Fund that are available for distribution, and a distribution of any general assets not attributable to a particular investment portfolio that are available for distribution in such manner and on such basis as the Board may determine. Shareholders have no preemptive rights. Shareholders have the right, which is subject to change by the Board, to convert or "exchange" shares of one class 134 for another, as outlined, and subject to certain conditions set forth, in the Funds' prospectuses. All shares are issued in uncertificated form only, and, when issued will be fully paid and non-assessable by the Trust. Shareholders have the power to vote for: (i) the removal of any Board Member prior to the expiration of his term for cause by the affirmative vote of a majority of all votes entitled to be case for the election of Board Members; and (ii) with respect to such additional matters and to the extent required by law, or as the Board Members may consider desirable. Subject to certain conditions, shareholders have the right to have the Secretary of NFI call special shareholder meetings. With respect to matters that affect one class but not another, shareholders vote as a class; for example, the approval of a distribution plan applicable to that class. Subject to the foregoing, all shares of NFI have equal voting rights and will be voted in the aggregate, and not by Fund, except where voting by Fund is required by law or where the matter involved only affects one Fund. For example, a change in the Fund's fundamental investment policy affects only one Fund and would be voted upon only by shareholders of the Fund involved. Additionally, approval of an Advisory Agreement, since it only affects one Fund, is a matter to be determined separately by each Fund. Approval by the shareholders of one Fund is effective as to that Fund whether or not sufficient votes are received from the shareholders of the other series to approve the proposal as to those Funds. Shareholders are entitled to one vote for each whole share held a proportional fractional vote for each fractional vote held, on matters on which they are entitled to vote. Fund shareholders do not have cumulative voting rights. NFI is not required to hold, and has no present intention of holding, annual meetings of shareholders. In addition, the Board may suspend the right of shareholders to redeem shares when permitted or required to do so by law. Each Fund's dividend, distribution and redemption policies can be found in the relevant prospectus under the headings "About Your Investment--Information for investors--Buying, selling and exchanging shares" and "About Your Investment--Information for investors--Distributions and taxes." However, when the Board, including a majority of the Independent Board Members, determines that the action is necessary for the business success and general welfare of NFI in order to reduce disproportionate and unduly burdensome expenses in the operation of NFI's affairs, to achieve efficiencies in the administration of its activities, or to reduce or eliminate excessive expenditures and undue difficulties in servicing, accounting and reporting requirements with respect to the accounts of shareholders, it may order the redemption of all shares of the stock of NFI at the net asset value of such shares. NFST's Funds NFST's Amended and Restated Declaration of Trust permit it to issue an unlimited number of full and fractional shares of beneficial interest of each Fund, without par value, and to divide or combine the shares of any series into a greater or lesser number of shares of that Fund without thereby changing the proportionate beneficial interests in that Fund and to divide such shares into classes. Each share of a class of a Fund represents an equal proportional interest in the Fund with each other share in the same class and is entitled to such dividends and distributions out of the income earned on the assets belonging to the Fund as are declared in the discretion of the Board. However, different share classes of a Fund pay different distribution amounts, because each share class has different expenses. Each time a distribution is made, the net asset value per share of the share class is reduced by the amount of the distribution. In the event of the liquidation or dissolution of NFST or a Fund, shareholders of the Fund are entitled to receive the assets attributable to the relevant class of shares of the Fund that are available for distribution, and a distribution of any general assets not attributable to a particular investment portfolio that are available for distribution in such manner and on such basis as the Board may determine. Shareholders have no preemptive or other right to receive, purchase or subscribe for any additional shares of a Fund. Shareholders have the right, which is subject to change by the Board, to convert or "exchange" shares of one class for another, as outlined, and subject to certain conditions set forth, in the Funds' prospectuses. All shares are issued in uncertificated form only, and, when issued will be fully paid and non-assessable by NFST. Shareholders have the power to vote only as expressly granted under the 1940 Act or under Delaware business trust law. Shareholders have no independent right to vote on any matter, including the creation, operation, dissolution or termination of NFST. Shareholders have the right to vote on other matters only as the Board authorizes. Currently, the 1940 Act requires that shareholders have the right to vote, under certain circumstances, to: (i) elect Board Members; (ii) approve investment advisory agreements and principal underwriting agreements; (iii) 135 approve a change in subclassification of a Fund; (iv) approve any change in fundamental investment policies; (v) approve a distribution plan under Rule 12b-1 under the 1940 Act; and (vi) to terminate the independent accountant. With respect to matters that affect one class but not another, shareholders vote as a class; for example, the approval of a distribution plan applicable to that class. Subject to the foregoing, all shares of NFST have equal voting rights and will be voted in the aggregate, and not by Fund, except where voting by Fund is required by law or where the matter involved only affects one Fund. For example, a change in the Fund's fundamental investment policy affects only one Fund and would be voted upon only by shareholders of the Fund involved. Additionally, approval of an Advisory Agreement, since it only affects one Fund, is a matter to be determined separately by each Fund. Approval by the shareholders of one Fund is effective as to that Fund whether or not sufficient votes are received from the shareholders of the other series to approve the proposal as to those Funds. Shareholders are entitled to one vote for each whole share held a proportional fractional vote for each fractional vote held, on matters on which they are entitled to vote. Fund shareholders do not have cumulative voting rights. NFST is not required to hold, and has no present intention of holding, annual meetings of shareholders. Each Fund's dividend, distribution and redemption policies can be found in its prospectus under the headings "About Your Investment--Information for investors--Buying, selling and exchanging shares" and "About Your Investment--Information for investors--Distributions and taxes." However, the Board may suspend the right of shareholders to redeem shares when permitted or required to do so by law, or compel redemptions of shares in certain cases. PURCHASE, REDEMPTION AND PRICING OF SHARES Purchase, Redemption and Exchange An investor may purchase, redeem and exchange shares in the Funds utilizing the methods, and subject to the restrictions, described in the Funds' prospectuses. The following information supplements that which can be found in the Funds' prospectuses. Sales Charge Waivers In addition to the categories of investors who do not have to pay a sales charge, which can be found in the Funds' prospectuses (offering Investor A, Investor B and/or Investor C Shares) under the heading "When you might not have to pay a sales charge," the following category of investors does not have to pay either a front-end sales charge or contingent deferred sales charge on any purchase of Investor A, Investor B or Investor C Shares: >> pension funds in Chile that are permitted to invest in offshore funds Redemptions A Company may redeem shares involuntarily to reimburse the Funds for any loss sustained by reason of the failure of a shareholder to make full payment for Investor Shares purchased by the shareholder or to collect any charge relating to a transaction effected for the benefit of a shareholder which is applicable to Investor Shares as provided in the related prospectuses from time to time. A Company also may make payment for redemptions in readily marketable securities or other property if it is appropriate to do so in light of such Company's responsibilities under the 1940 Act. Under the 1940 Act, the Funds may suspend the right of redemption or postpone the date of payment for Shares during any period when (a) trading on the Exchange is restricted by applicable rules and regulations of the SEC; (b) the Exchange is closed for other than customary weekend and holiday closings; (c) the SEC has by order permitted such suspension; (d) an emergency exists as determined by the SEC. (The Funds may also suspend or postpone the recordation of the transfer of their shares upon the occurrence of any of the foregoing conditions). NFI, NFT, NR and NFST have elected to be governed by Rule 18f-1 under the 1940 Act, as a result of which a Fund is obligated to redeem shares, with respect to any one shareholder during any 90-day period, solely in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund at the beginning of the period. 136 Offering Price Money Market Funds The Money Market Funds use the amortized cost method of valuation to value their shares in such Funds. Pursuant to this method, a security is valued at its cost initially and thereafter a constant amortization to maturity of any discount or premium is assumed, regardless of the impact of fluctuating interest rates on the market value of the security. Where it is not appropriate to value a security by the amortized cost method, the security will be valued either by market quotations or by procedures adopted by the Boards. This method may result in periods during which value, as determined by amortized cost, is higher or lower than the price the Fund would receive if it sold the security. The net asset value per share of the Money Market Funds will be determined (unless the Funds close earlier) as of the following time on each day that the Federal Reserve Bank of New York is open: >> California Tax-Exempt Reserves--as of 10:30 a.m., Eastern time. >> Municipal Reserves, Government Money Market Fund and Tax Exempt Fund--12 Noon, Eastern time. >> Government Reserves--as of 2:00 p.m., Eastern time. >> Prime Fund and Treasury Fund--as of 3:00 p.m., Eastern time. >> Cash Reserves, Money Market Reserves and Treasury Reserves--as of 5:00 p.m., Eastern time. Each of the Money Market Funds invests only in high-quality instruments and maintains a dollar-weighted average portfolio maturity appropriate to its objective of maintaining a stable net asset value per share, provided that a Fund will neither purchase any security deemed to have a remaining maturity of more than 397 days within the meaning of the 1940 Act nor maintain a dollar-weighted average portfolio maturity which exceeds 90 days. The Boards have established procedures reasonably designed, taking into account current market conditions and each Money Market Fund's investment objective, to stabilize the net asset value per share of each Money Market Fund for purposes of sales and redemptions at $1.00. These procedures include review by the Board at such intervals as it deems appropriate to determine the extent, if any, to which the net asset value per share of each Money Market Fund calculated by using available market quotations deviates from $1.00 per share. In the event such deviation exceeds one-half of one percent, a Board will promptly consider what action, if any, should be initiated. If the Board believes that the extent of any deviation from a Money Market Fund's $1.00 amortized cost price per share may result in material dilution or other unfair results to new or existing investors, it has agreed to take such steps as it considers appropriate to eliminate or reduce, to the extent reasonably practicable, any such dilution or unfair results. These steps may include selling portfolio instruments prior to maturity; shortening the average portfolio maturity; withholding or reducing dividends; redeeming shares in kind; reducing the number of a Fund's outstanding shares without monetary consideration; or utilizing a net asset value per share determined by using available market quotations. Non-Money Market Funds The share price of the Non-Money Market Funds is based on a Fund's net asset value per share, which is calculated for each class of shares at the end of each business day. A business day is any day the NYSE is open. A business day ends at the close of regular trading on the NYSE, which usually is at 4:00 p.m., Eastern time. If the NYSE closes early, the business day ends as of the time the NYSE closes. With respect to the Non-Money Market Funds, a security listed or traded on an exchange is valued at its last sale price on the exchange where the security is principally traded or, lacking any sales on a particular day, the security is valued at the mean between the closing bid and asked prices on that day. Each security traded in the over-the-counter market (but not including securities reported on the NASDAQ National Market System) is valued at the mean between the last bid and asked prices based upon quotes furnished by market makers for such securities. Each security reported on the NASDAQ National Market System is valued at the last sale price on the valuation date. Certain fixed-income securities may be valued on the basis of prices provided by an independent pricing service. Prices provided by the pricing service may be determined without exclusive reliance on quoted prices, and may 137 reflect appropriate factors such as yield, type of issue, coupon rate maturity and seasoning differential. Securities for which prices are not provided by the pricing service are valued at the average of the last bid prices based upon quotes furnished by market makers for such securities. Securities for which market quotations are not readily available are valued under procedures adopted by the Boards. Under these procedures when the value of a security has been materially affected by events occurring after a foreign exchange closes, the price of the security is based on fair value. Short-term obligations having 60 days or less to maturity are valued at amortized cost, which approximates current market value. Generally, trading in foreign securities, as well as U.S. Government securities, money market instruments and repurchase agreements, is substantially completed each day at various times prior to the close of the NYSE. The values of such securities used in computing the net asset value of the shares of the Fund are determined as of such times. Foreign currency exchange rates are also generally determined prior to the close of the NYSE. Occasionally, events affecting the value of such securities and such exchange rates may occur between the times at which they are determined and the close of the NYSE, which will not be reflected in the computation of net asset value. If during such periods events occur which materially affect the value of such securities, the securities will be valued at their fair value under procedures adopted by the Boards. For purposes of determining the net asset value per share of the International Funds, all assets and liabilities of the International Funds initially expressed in foreign currencies will be converted into U.S. dollars at the mean between the bid and offer prices of such currencies against U.S. dollars quoted by a major bank that is a regular participant in the foreign exchange market or on the basis of a pricing service that takes into account the quotes provided by a number of such major banks. INFORMATION CONCERNING TAXES The following information supplements and should be read in conjunction with the Funds' prospectuses, which generally describe the federal income tax treatment of the Funds and their shareholders. Unless otherwise indicated, the use of the term "Fund" in this section generally shall be understood to include the Master Portfolio that any Feeder Fund may invest its assets. General The Companies intend to continue to qualify each Fund as a "regulated investment company" under Subchapter M of the Code, as long as such qualification is in the best interests of the Fund's shareholders. Each Fund will be treated as a separate entity for federal income tax purposes. Thus, the provisions of the Code applicable to regulated investment companies generally will apply separately to each Fund, rather than to a Company as a whole. Furthermore, each Fund will separately determine its income, gains and expenses for federal income tax purposes. In order to qualify as a regulated investment company under the Code, each Fund must, among other things, (a) derive at least 90% of its annual gross income from dividends, interest, certain payments with respect to securities loans, gains from the sale or other disposition of stock or securities or foreign currencies (to the extent such currency gains are directly related to the regulated investment company's principal business of investing in stock or securities) and other income (including but not limited to gains from options, futures or forward contracts) attributable to its business of investing in such stock, securities or currencies; and (b) diversify its holdings so that, at the end of each quarter of the taxable year, (i) at least 50% of the fair market value of its assets consists of cash, government securities and other securities limited in respect of any one issuer to an amount not greater than 5% of the Fund's assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of the Fund's assets consists of the securities of any one issuer (other than U.S. Government obligations and the securities of other regulated investment companies), or in two or more issuers that the Fund controls and are engaged in the same or similar trades or businesses. In addition, each Fund generally must distribute to its shareholders at least 90% of its (a) "investment company taxable income," which generally includes its net investment income, net short-term capital gain (generally, the excess of short-term capital gain over long-term capital loss) and certain other items, and (b) net tax-exempt income earned in each taxable year. As long as a Fund distributes its investment company taxable income and net capital gain (generally, the excess of net long-term capital gain over net short-term capital loss) to its shareholders, 138 the Fund generally will not be subject to federal income taxation on such income and gain. For these purposes, the Fund generally must make the distributions in the same year that it realizes the income and gain. However, in certain circumstances, the Fund may make the distributions in the following taxable year. Furthermore, if a Fund declares a distribution to shareholders of record in October, November or December of one taxable year and pays the distribution by January 31 of the following taxable year, the Fund and the shareholders will be treated as if the Fund paid the distribution by December 31 the first taxable year. Each Fund intends to distribute its income and gain in a timely manner to maintain its status as a regulated investment company and eliminate Fund-level federal income taxation of such income and gain. Equalization Accounting A Fund may use the so-called "equalization accounting method" to allocate a portion of its "earnings and profits," as determined for federal income tax purposes (generally, a Fund's net investment income and realized capital gains with certain adjustments), to redemption proceeds for such purposes. This method permits a Fund to achieve more balanced distributions for both continuing and redeeming shareholders. Although using this method will not affect a Fund's total returns, it may reduce the amount that the Fund would otherwise distribute to continuing shareholders by reducing the effect of purchases and redemptions of Fund shares on Fund distributions to shareholders. However, the IRS may not have expressly sanctioned the equalization accounting method used by the Funds. Therefore, the use of the method may be subject to IRS scrutiny. Excise Tax A 4% nondeductible excise tax will be imposed on each Fund, other than to the extent of its tax-exempt interest income, to the extent it does not meet certain minimum distribution requirements of its income and gains by the end of each calendar year. Each Fund intends to actually or be deemed to distribute substantially all of its income and gains, if any, by the end of each calendar year and, thus, expects not to be subject to the excise tax. Investment through Master Portfolios The Master Portfolios corresponding to each of the Feeder Funds each will be treated as a partnership (or, in the event that a Feeder Fund is the sole investor in a Master Portfolio, as disregarded from the Feeder Fund) for federal income tax. The Master Portfolios will not be treated as regulated investment companies or otherwise taxable as a corporation under the Code. Under the rules applicable to partnerships (and disregarded entities), a proportionate share of any interest, dividends, gains and losses of a Master Portfolio will "pass-through" to its investors, regardless of whether the Master Portfolio distributes any amounts to its investors. Each investor in a Master Portfolio will be taxed on its share (as determined in accordance with the governing instruments of the particular Master Portfolio) of the Master Portfolio's income and gains in determining its federal income tax liability. The Master Portfolios will be managed in such a manner such that an investor in a Master Portfolio can continue to qualify as a regulated investment company by investing substantially all of its assets through the Master Portfolio. Taxation of Fund Investments Except as otherwise noted, if a Fund realizes gains or losses on the sale of portfolio securities, such gains or losses generally will be capital gains or losses. Such gains or losses generally will be long-term capital gains or losses if the Fund held the disposed securities for more than one year at the time of disposition of the securities. In general, if a Fund purchases a debt obligation with original issue discount (generally at a price less than its principal amount), the Fund may be required to annually include in its taxable income a portion of the original issue discount as ordinary income, even though the Fund will not receive cash payments for such discount until maturity or disposition of the obligations. Gains recognized on the disposition of a debt obligation (including a tax-exempt obligation) purchased by a Fund at a market discount (generally at a price less than its principal amount) generally will be treated as ordinary income to the extent of the portion of market discount which accrued, but was not previously recognized pursuant to an available election, during the term that the Fund held the debt obligation. If an option granted by a Fund lapses or is terminated through a closing transaction, such as a repurchase by the Fund of the option from its holder, the Fund will realize a short-term capital gain or loss, depending on whether the premium income is greater or less than the amount paid by the Fund in the closing transaction. Some realized capital losses may be deferred if they result from a position that is part of a "straddle," discussed below. If securities are sold by a Fund pursuant to the exercise of a call option granted by it, the Fund will add the premium received to 139 the sale price of the securities delivered in determining the amount of gain or loss on the sale. If securities are purchased by a Fund pursuant to the exercise of a put option written by it, the Fund will subtract the premium received from its cost basis in the securities purchased. Under Section 1256 of the Code, a Fund will be required to "mark to market" its positions in "Section 1256 contracts," which generally include regulated futures contracts, certain foreign currency contracts, and non-equity, listed options but generally exclude securities futures (as defined in Section 3(a)(55)(A) of the Securities Act of 1934). In this regard, Section 1256 contracts will be deemed to have been sold at market value at the end of each taxable year. Under Section 1256 of the Code, 60% of any net gain or loss realized on all dispositions of Section 1256 contracts, including deemed dispositions under the mark-to-market rule, generally will be treated as long-term capital gain or loss, and the remaining 40% will be treated as short-term capital gain or loss. Transactions that qualify as designated hedges are excepted from the "mark-to-market" rule and the 60%/40% rule. Under Section 988 of the Code, a Fund generally will recognize ordinary income or loss to the extent gain or loss realized on the disposition of portfolio securities is attributable to changes in foreign currency exchange rates. In addition, gain or loss realized on the disposition of a foreign currency forward contract, futures contract, option or similar financial instrument, or of foreign currency itself, will generally be treated as ordinary income or loss. Each Fund will attempt to monitor Section 988 transactions, where applicable, to avoid adverse federal income tax impact. Offsetting positions held by a Fund involving certain financial forward, futures or options contracts may be considered, for tax purposes, to constitute "straddles." "Straddles" are defined to include "offsetting positions" in actively traded personal property. The tax treatment of "straddles" is governed by Section 1092 of the Code which, in certain circumstances, overrides or modifies the provisions of Section 1256. If a Fund were treated as entering into "straddles" by engaging in certain financial forward, futures or option contracts, such straddles could be characterized as "mixed straddles" if the futures, forwards, or options comprising a part of such straddles were governed by Section 1256 of the Code, described above. A Fund may make one or more elections with respect to "mixed straddles." Depending upon which election is made, if any, the results with respect to the Fund may differ. Generally, to the extent the straddle rules apply to positions established by the Fund, losses realized by the Fund may be deferred to the extent of unrealized gain in any offsetting positions. Moreover, as a result of the straddle and the conversion transaction rules, short-term capital loss on straddle positions may be recharacterized as long-term capital loss, and long-term capital gain may be characterized as short-term capital gain or ordinary income. If a Fund enters into a "constructive sale" of any appreciated position in stock, a partnership interest, or certain debt instruments, the Fund must recognize gain (but not loss) with respect to that position. For this purpose, a constructive sale occurs when the Fund enters into one of the following transactions with respect to the same or substantially identical property: (i) a short sale; (ii) an offsetting notional principal contract; or (iii) a futures or forward contract, or (iv) other transactions identified in future Treasury Regulations. Under Section 1260 of the Code, the amount of long-term capital gain a taxpayer may recognize from derivative transactions is limited with respect to certain pass-through entities. The amount of long-term capital gain is limited to the amount of such gain the taxpayer would have had if the taxpayer owned a direct interest in the pass-through entity during the term of the derivative contract. Any gain in excess of this amount is treated as ordinary income. An interest charge is imposed on the amount of gain that is treated as ordinary income. A Fund does not anticipate engaging in any derivative transactions that would be subject to these rules. If a Fund purchases shares in a "passive foreign investment company" ("PFIC"), the Fund may be subject to federal income tax and an interest charge imposed by the IRS upon certain distributions from the PFIC or the Fund's disposition of its PFIC shares. If the Fund invests in a PFIC, the Fund intends to make an available election to mark-to-market its interest in PFIC shares. Under the election, the Fund will be treated as recognizing at the end of each taxable year the difference, if any, between the fair market value of its interest in the PFIC shares and its basis in such shares. In some circumstances, the recognition of loss may be suspended. The Fund will adjust its basis in the PFIC shares by the amount of income (or loss) recognized. Although such income (or loss) will be taxable to the Fund as ordinary income (or loss) notwithstanding any distributions by the PFIC, the Fund will not be subject to federal income tax or the interest charge with respect to its indirect interest in the PFIC, if the Fund makes the available election. 140 Foreign Taxes Income and dividends received by a Fund from foreign securities and gains realized by a Fund on the disposition of foreign securities may be subject to withholding and other taxes imposed by such foreign countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. If more than 50% of the value of a Fund's total assets at the close of its taxable year consists of securities of non-U.S. corporations, the Fund will be eligible to file an election with the IRS pursuant to which the regulated investment company may pass-through to its shareholders foreign taxes paid by the regulated investment company, which may be claimed either as a credit or deduction by the shareholders. Only the International Stock Funds expect to qualify for the election. However, even if a Fund qualifies for the election, foreign taxes will only pass-through to a Fund shareholder if (i) the shareholder holds the Fund shares for at least 16 days during the 30 day period beginning 15 days prior to the date upon which the shareholder becomes entitled to receive Fund distributions corresponding with the pass-through of the foreign taxes paid by the Fund, and (ii) with respect to foreign source dividends received by the Fund on shares giving rise to foreign tax, the Fund holds the shares for at least 16 days during the 30 day period beginning 15 days prior to the date upon which the Fund becomes entitled to the dividend. An individual with $300 or less of creditable foreign taxes generally is exempt from foreign source income and certain other limitations imposed by the Code on claiming a credit for such taxes. The $300 amount is increased to $600 for joint filers. Distributions, Generally For federal income tax purposes, a Fund's "earnings and profits," as determined for federal income tax purposes, will be determined at the end of the Fund's taxable year and will be allocated pro rata over the entire year. For federal income tax purposes, only amounts paid out of earnings and profits will qualify as taxable distributions, subject to special rules applicable to the tax-exempt Funds discussed below. Thus, if during a taxable year a Fund's declared distributions exceed the Fund's earnings and profits (as determined at the end of the year), only that portion of the year's distributions which equals the year's earnings and profits will be deemed to have constituted a taxable distribution. Distributions in excess of earnings and profits will first be treated as a return of capital up to the amount of a shareholder's basis in its Fund shares and then capital gain. It is expected that each Fund's distributions will not exceed the Fund's cumulative earnings and profits. Capital Gain Distributions Distributions that are designated by a Fund as capital gain distributions will be taxed to shareholders as long-term capital gain (to the extent such distributions do not exceed the Fund's actual net long-term capital gain for the taxable year), regardless of how long a shareholder has held Fund shares. Such distributions will be designated as capital gain distributions in a written notice mailed by the Fund to its shareholders not later than 60 days after the close of the Fund's taxable year. Disposition of Fund Shares In general, a disposition of Fund shares pursuant to a redemption (including a redemption in-kind) or an exchange will result in a taxable capital gain or loss to the redeeming shareholder, depending on the amount received for the shares (or are deemed received in the case of an exchange) and the cost of the shares, and long-term capital gain or loss if the shareholder has held such Fund shares for greater than one year at the time of disposition. If a shareholder exchanges or otherwise disposes of Fund shares within 90 days of having acquired such shares and if, as a result of having acquired those shares, the shareholder subsequently pays a reduced sales charge on a new purchase of shares of the Fund or a different regulated investment company, the sales charge previously incurred acquiring the Fund's shares shall not be taken into account (to the extent such previous sales charges do not exceed the reduction in sales charges on the new purchase) for the purpose of determining the amount of gain or loss on the disposition, but will be treated as having been incurred in the acquisition of such other shares. Also, any loss realized on a redemption or exchange of shares of the Fund will be disallowed to the extent that substantially identical shares are acquired within the 61-day period beginning 30 days before and ending 30 days after the shares are disposed of. If a shareholder receives a capital gain distribution with respect to any Fund share and such Fund share is held for six months or less, then (unless otherwise disallowed) any loss on the sale or exchange of that Fund share 141 will be treated as a long-term capital loss to the extent of the capital gain distribution. In addition, if a shareholder holds Fund shares for six months or less, any loss on the sale or exchange of those shares will be disallowed to the extent of the amount of exempt-interest distributions (defined below) received with respect to the shares. The Treasury Department is authorized to issue regulations reducing the six months holding requirement to a period of not less than the greater of 31 days or the period between regular distributions where a Fund regularly distributes at least 90% of its net tax-exempt interest, if any. No such regulations have been issued as of the date of this SAI. This loss disallowance rule does not apply to losses realized under a periodic redemption plan. Federal Income Tax Rates As of the printing of this SAI, the maximum individual federal income tax rate applicable to ordinary income is 39.1% (marginal tax rates may be higher for some individuals to reduce or eliminate the benefit of exemptions and deductions); the maximum individual marginal federal income tax rate applicable to net capital gain generally is 20%; and the maximum corporate federal income tax rate applicable to ordinary income and net capital gain is 35% (marginal tax rates may be higher for some corporations to reduce or eliminate the benefit of lower marginal income tax rates). A maximum individual income tax rate of 18% on net capital gain will apply to the extent the gain is derived from investments acquired after December 31, 2000 and are held for more than five years. Under the Economic Growth and Tax Relief Recovery Act, individual federal income tax rates are set to decrease over the next several calendar years. Naturally, the amount of tax payable by any taxpayer will be affected by a combination of tax laws covering, for example, deductions, credits, deferrals, exemptions, sources of income and other matters. Corporate Shareholders Corporate shareholders of a Fund may be eligible for the dividends-received deduction on distributions attributable to dividends received by the Fund from domestic corporations, which, if received directly by the corporate shareholder, would qualify for such deduction. A distribution by a Fund attributable to dividends of a domestic corporation will only qualify for the dividends-received deduction if (i) the corporate shareholder generally holds the Fund shares upon which the distribution is made for at least 46 days during the 90 day period beginning 45 days prior to the date upon which the shareholder becomes entitled to the distribution; and (ii) the Fund generally holds the shares of the domestic corporation producing the dividend income for at least 46 days during the 90 day period beginning 45 days prior to the date upon which the Fund becomes entitled to such dividend income. Foreign Shareholders Under the Code, distributions attributable to ordinary income, net short-term capital gain and certain other items realized by a Fund and paid to a nonresident alien individual, foreign trust (i.e., a trust other than a trust which a U.S. court is able to exercise primary supervision over administration of that trust and one or more U.S. persons have authority to control substantial decisions of that trust), foreign estate (i.e., the income of which is not subject to U.S. tax regardless of source), foreign corporation, or foreign partnership (each, a "foreign shareholder") will be subject to federal income tax withholding (at a rate of 30% or, if an income tax treaty applies, at the lower treaty rate, if any). This tax generally is not refundable. Withholding will not apply if a distribution paid by a Fund to a foreign shareholder is "effectively connected" with a U.S. trade or business (or, if an income tax treaty applies, is attributable to a U.S. permanent establishment) of the foreign shareholder, in which case the reporting and withholding requirements applicable to U.S. persons will apply. In general, foreign shareholders are not subject to federal income tax, including withholding tax, on gain realized on the disposition of Fund shares and capital gain distributions. Backup Withholding The Companies may be required to withhold, subject to certain exemptions, at a rate of 30.5% ("backup withholding") on all distributions and redemption proceeds (including proceeds from exchanges and redemptions in-kind) paid or credited to an individual Fund shareholder, unless the shareholder certifies that the "taxpayer identification number" ("TIN") provided is correct and that the shareholder is not subject to backup withholding, or the IRS notifies a Company that the shareholder's TIN is incorrect or that the shareholder is subject to backup withholding. This tax is not additional federal income tax imposed on the shareholder, and the shareholder may claim the tax as a tax payment on its federal income tax return. An investor must provide a valid TIN upon opening 142 or reopening an account. If a shareholder fails furnish a valid TIN upon request, the shareholder can also be subject to IRS penalties. The rate of backup withholding is set to decrease in future years. Tax-Deferred Plans The Funds may be available for a variety of tax-deferred retirement and other plans, including Individual Retirement Accounts ("IRA"), Simplified Employee Pension Plans ("SEP-IRA"), Savings Incentive Match Plans for Employees ("SIMPLE plans"), Roth IRAs, and Education IRAs, which permit shareholders to defer some of their income from taxes. Shareholders should contact their selling agents for details concerning retirement plans. The tax-exempt Funds are not suitable investments for such plans. Special Tax Considerations Pertaining to all the Tax-Exempt Funds If at least 50% of the value of a regulated investment company's total assets at the close of each quarter of its taxable years consists of obligations the interest on which is exempt from federal income tax, it will qualify under the Code to pay "exempt-interest distributions." The Tax-Exempt Funds intend to so qualify and are designed to provide shareholders with a high level of income exempt from federal income tax in the form of exempt-interest distributions. Distributions of capital gains or income not attributable to interest on a Tax-Exempt Fund's tax-exempt obligations will not constitute exempt-interest distributions and will be taxable to its shareholders. The exemption of interest income derived from investments in tax-exempt obligations for federal income tax purposes may not result in a similar exemption under the laws of a particular state or local taxing authority. Not later than 60 days after the close of its taxable year, each Tax-Exempt Fund will notify its shareholders of the portion of the distributions for the taxable year which constitutes exempt-interest distributions. The designated portion cannot exceed the excess of the amount of interest excludable from gross income under Section 103 of the Code received by the Tax-Exempt Fund during the taxable year over any amounts disallowed as deductions under Sections 265 and 171(a)(2) of the Code. Interest on indebtedness incurred to purchase or carry shares of a Tax-Exempt Fund will not be deductible to the extent that the Fund's distributions are exempt from federal income tax. In addition, certain deductions and exemptions have been designated "tax preference items" which must be added back to taxable income for purposes of calculating federal alternative minimum tax ("AMT"). Tax preference items include tax-exempt interest on "private activity bonds." To the extent that a Tax-Exempt Fund invests in private activity bonds, its shareholders will be required to report that portion of a Tax-Exempt Fund's distributions attributable to income from the bonds as a tax preference item in determining their AMT, if any. Shareholders will be notified of the tax status of distributions made by a Tax-Exempt Fund. Persons who may be "substantial users" (or "related persons" of substantial users) of facilities financed by private activity bonds should consult their tax advisors before purchasing shares in a Tax-Exempt Fund. Furthermore, shareholders will not be permitted to deduct any of their share of a Tax-Exempt Fund's expenses in computing their AMT. In addition, Exempt-interest distributions paid by a Tax-Exempt Fund to a corporate shareholder is included in the shareholder's "adjusted current earnings" as part of its AMT calculation. As of the printing of this SAI, individuals are subject to an AMT at a maximum rate of 28% and corporations at a maximum rate of 20%. Shareholders with questions or concerns about the AMT should consult own their tax advisors. Special Tax Considerations Pertaining to the California Funds If, at the close of each quarter of its taxable year, at least 50% of the value of the total assets of a regulated investment company consists of obligations the interest on which, if held by an individual, is exempt from taxation by California ("California Exempt Securities"), then the regulated investment company will be qualified to make distributions that are exempt from California state individual income tax ("California exempt-interest distributions"). For this purpose, California Exempt Securities generally are limited to California municipal securities and certain U.S. Government and U.S. possession obligations. The California Funds intend to qualify under the above requirements so that they can pay California exempt-interest distributions. Within sixty days after the close of its taxable year, each California Fund will notify its shareholders of the portion of the distributions made the Fund that is exempt from California state individual income tax. The total amount of California exempt-interest distributions paid by a California Fund attributable to any taxable year cannot 143 exceed the excess of the amount of interest received by the Fund for such year on California Exempt Securities over any amounts that, if the Fund was treated as an individual, would be considered expenses related to tax exempt income or amortizable bond premium and would thus not be deductible under federal income or California state individual income tax law. In cases where a shareholder of a California Fund is a "substantial user" or "related person" with respect to California Exempt Securities held by the Fund, such shareholders should consult their tax advisors to determine whether California exempt-interest distributions paid by the Fund with respect to such obligations retain California state individual income tax exclusion. In this connection, rules similar to those regarding the possible unavailability of federal exempt-interest distributions treatment to "substantial users" are applicable for California state income tax purposes. Interest on indebtedness incurred by a shareholder in a taxable year to purchase or carry shares of a California Fund is not deductible for California state personal income tax purposes if the Fund distributes California exempt-interest distributions to the shareholder for taxable year. The foregoing is only a summary of some of the important California state individual income tax considerations generally affecting the California Funds and their shareholders. No attempt is made to present a detailed explanation of the California state income tax treatment of the California Funds or their shareholders, and this discussion is not intended as a substitute for careful planning. Further, it should be noted that the portion of any California Fund distributions constituting California exempt-interest distributions is excludable from income for California state individual income tax purposes only. Any distributions paid to shareholders subject to California state franchise tax or California state corporate income tax may be taxable for such purposes. Accordingly, potential investors in the California Funds, including, in particular, corporate investors which may be subject to either California franchise tax or California corporate income tax, should consult their own tax advisors with respect to the application of such taxes to the receipt of the California Funds' distributions and as to their own California state tax situation, in general. Special Tax Considerations Pertaining to the Florida Funds Florida does not impose a personal income tax. Thus individual shareholders of the Florida Funds will not be subject to any Florida income tax on distribution received from the Florida Funds. However, Florida does impose an income tax on corporations. Florida also imposes an annual intangible personal property tax on intangible personal property (including but not limited to stocks or shares of business trusts or mutual funds) held by persons domiciled in the State of Florida, regardless of where such property is kept. Florida counsel has, however, advised NFT that shares in the Florida Funds shall not be subject to Florida's intangible personal property tax if on January 1 of each tax year at least 90 percent of the net assets of the portfolio of such Florida Fund consists of obligations of the government of the United States of America, its agencies, instrumentalities, the Commonwealth of Puerto Rico, the government of Guam, the government of American Samoa, the government of the Northern Mariana Islands, the State of Florida, its political subdivisions, municipalities or other taxing districts. The Florida Funds anticipate that at least 90 percent of the net assets of the portfolio will contain assets that are exempt from Florida's intangible personal property tax on January 1 of each tax year. If the portfolio of a Florida Fund did not, however, meet this 90 percent test, the only the portion of the net asset value of the portfolio which is made up of direct obligations of the United States of America, its agencies, territories and possessions (as described above) may be removed from the net asset value for purposes of computing the intangible personal property tax. The remaining net asset value of the portfolio and hence a portion of the net asset value of the shares in the Florida Funds would be subject to the intangible personal property tax. Notice as to the tax status of your shares will be mailed to you annually. Shareholders of a Florida Fund should consult their own tax advisors with specific reference to their own tax situation if advised that a portion of the portfolio of such Fund consisted on January 1 of any year of assets which are not exempt from Florida's annual intangible personal property tax. Such annual intangible personal property tax, if any, is due and payable on June 30 of such year in which the tax liability arises. Special Tax Considerations Pertaining to the Georgia Funds The portion of Nations Funds Georgia Funds exempt interest dividends paid to Georgia investors from interest received by the Georgia Funds from tax-exempt obligations of the State of Georgia or its political subdivisions or authorities and dividend distributions attributable to interest received from U.S. Government obligations will be exempt from Georgia personal and corporate income taxes. There is no Georgia intangibles tax or other personal property tax applicable to the shares of the Georgia Funds owned by investors residing in Georgia. 144 The Georgia intangibles tax was repealed by the Georgia General Assembly on March 21, 1996, further ratified by a Constitutional Amendment approved in the November 1996 General Election (GA. L 1996, P.130 ss. 9). The Georgia intangibles tax was repealed for taxable years beginning after January 1, 1996. Distributions attributable to capital gains realized from the sale of Georgia municipal bonds and U.S. Government obligations will be subject to the State of Georgia short-term or long-term capital gains tax, which follows the federal income tax treatment. Interest received by a Georgia resident received from non-Georgia municipal state bonds and dividends or distributions received from mutual funds that derive income from non-Georgia municipal or state bonds will be subject to Georgia income tax. Special Tax Considerations Pertaining to the Kansas Bond Fund The Kansas Bond Fund's regular monthly dividends will not be subject to the Kansas income tax to the extent that they are paid out of income earned on Kansas municipal securities that are exempt from Kansas income taxes. The portion of dividends, if any, that is derived from interest on municipal securities or other obligations that are not exempt from Kansas income taxes will be subject to Kansas income tax. You will be subject to Kansas income tax to the extent the fund distributes any taxable income or realized capital gains, or if you sell or exchange a fund's shares and realize a capital gain on the transaction. Distributions treated as long-term capital gains for federal tax purposes are generally treated the same for Kansas state tax purposes. Special Tax Considerations Pertaining to the Maryland Funds The portion of a Maryland Fund's exempt-interest dividends paid from interest received by such Funds from tax-exempt obligations of the state of Maryland or its political subdivisions or authorities, or obligations issued by the government of Puerto Rico, the U.S. Virgin Islands or Guam or their authorities ("Maryland Municipal Bonds") and distributions attributable to gains from Maryland Municipal Bonds (other than obligations issued by U.S. possessions) or interest on U.S. Government obligations will be exempt from Maryland personal and corporate income taxes; any other dividends from a Maryland Fund will be subject to Maryland income tax. However, shareholders of a Maryland Fund that are financial institutions otherwise subject to Maryland financial institution franchise taxes (which taxes have been repealed for taxable years beginning after December 31,2000) will be subject to such taxes on distributions received from the Fund (including exempt-interest dividends). Shareholders will be informed annually regarding the portion of a Maryland Fund's distributions that constitutes exempt-interest dividends and the portion that is exempt from Maryland income taxes. Maryland presently includes in Maryland taxable income a portion of certain items of tax preference as defined in the Code. Interest paid on certain private activity bonds constitutes such a tax preference if the bonds (i) are not Maryland Municipal Bonds or (ii) are Maryland Municipal Bonds issued by U.S. possessions. Accordingly, up to 50% of any distributions from a Maryland Fund attributable to interest on such private activity bonds may not be exempt from Maryland state and local individual income taxes. Shares of a Maryland Fund will not be subject to the Maryland personal property tax. Special Tax Considerations Pertaining to the North Carolina Funds The portion of a North Carolina Fund's exempt interest dividends paid from interest received by such Fund from tax-exempt obligations of the State of North Carolina or its political subdivisions, commissions, authorities, agencies or non-profit educational institutions organized or chartered under the laws of North Carolina, or obligations issued by the United States or its possessions will be exempt from North Carolina individual and corporate income taxes. Although capital gain distributions generally are subject to tax in North Carolina, individual shareholders of a North Carolina Fund may deduct the amount of capital gain distributions (if any) attributable to the sale of certain obligations issued before July 1, 1995 from their federal taxable income for purposes of determining their North Carolina taxable income. The North Carolina intangibles tax was repealed effective for taxable years beginning on or after January 1, 1995. Special Tax Considerations Pertaining to the South Carolina Funds The portion of the South Carolina Funds' exempt interest dividends paid from interest received by these funds from tax-exempt obligations of the State of South Carolina, its political subdivisions or exempt interest upon obligations of the United States will be exempt from South Carolina income taxes. Distributions of capital gains or income attributable to interest from tax-exempt obligations of the State of South Carolina, its political subdivisions or exempt interest upon obligations of the United States will not constitute exempt interest dividends and may be subject to South Carolina income taxes. 145 Although any net capital gain recognized with respect to the sale or exchange of shares of a Fund may be subject to the South Carolina state income tax, individuals, estates and trusts are entitled to a deduction for South Carolina taxable income purposes equal to 44% of the net capital gain recognized from the sale or exchange of an asset which has been held for a period of two or more years. For the taxable years beginning after 2000, the above-described deduction will be available for net capital gains recognized from the sale or exchange of an asset that has been held for a period of more than one year. In the case of estates or trusts, the deduction is applicable only to income taxed to the estate or trust or individual beneficiaries and not income passed through to nonindividual beneficiaries. Special Tax Considerations Pertaining to the Tennessee Funds The Tennessee Hall Income Tax imposes a tax on income received by way of dividends from stock or interest on bonds. Dividends from a qualified regulated investment company are exempt from the Hall Income Tax, but only to the extent attributable to interest on bonds or securities of the U.S. Government or any agency or instrumentality thereof or on bonds of the State of Tennessee or any county or any municipality or political subdivision thereof, including any agency, board, authority or commission of any of the above. Special Tax Considerations Pertaining to the Virginia Funds Distributions will not be subject to Virginia income tax if the Virginia Funds pay distributions to Shareholders that they derived from (i) interest on debt obligations of Virginia or its political subdivisions, (ii) debt obligations of the United States excludable from Virginia income tax under the laws of the United States, or (iii) debt obligations of Puerto Rico, Guam, or the Virgin islands, that are backed by the full faith and credit of the borrowing government. Other Matters You should be aware that the investments made by a Fund may involve sophisticated tax rules that may result in income or gain recognition by a Fund without corresponding current cash receipts. Although each Fund seeks to avoid significant non-cash income, such non-cash income could be recognized by a Fund, in which case a Fund may distribute cash derived from other sources in order to meet the minimum distribution requirements described above. A Fund could be required at times to liquidate investments prematurely in order to satisfy the Fund's minimum distribution requirements. The foregoing discussion and the discussions in the Prospectus applicable to each shareholder address only some of the federal income tax considerations generally affecting investments in a Fund. Prospective investors urged to consult their own tax advisors regarding federal state, local and foreign taxes applicable to them. Underwriter Compensation and Payments Stephens serves as the principal underwriter and Distributor of the shares of the Funds. Its address is: 111 Center Street, Suite 300, Little Rock, Arkansas 72201 Pursuant to a Distribution Agreement, the Distributor, as agent, sells shares of the Funds on a continuous basis and transmits purchase and redemption orders that its receives to the Companies or the Transfer Agent. Additionally, the Distributor has agreed to use appropriate efforts to solicit orders for the sale of shares and to undertake advertising and promotion as it believes appropriate in connection with such solicitation. Pursuant to the Distribution Agreement, the Distributor, at its own expense, finances those activities which are primarily intended to result in the sale of shares of the Funds, including, but not limited to, advertising, compensation of underwriters, dealers and sales personnel, the printing of prospectuses to other than existing shareholders, and the printing and mailing of sales literature. The Distributor, however, may be reimbursed for all or a portion of such expenses to the extent permitted by a Distribution Plan adopted by the Companies pursuant to Rule 12b-1 under the 1940 Act. The Distribution Agreement became effective with respect to a Fund after approved by its Board, and continues from year to year, provided that such continuation of the Distribution Agreement is specifically approved at least annually by a Company's Board, including its Independent Board Members. The Distribution Agreement terminates automatically in the event of its assignment, and is terminable with respect to a Fund at any time without 146 penalty by a Company (by vote of the Board or by vote of a majority of the outstanding voting securities of the Fund) or by BA Advisors or the Distributor on 60 days' written notice. During the fiscal years ended March 31, 2001, March 31, 2000 and March 31, 1999, the Distributor received the following amount of underwriting commissions, respectively: $xxxxxxx, $xxxxxxx and $xxxxxxx. Of this amount, the Distributor retained $0, $0 and $0, respectively. Fund Performance Advertising Fund Performance Performance information for each Company's Funds may be obtained by calling (800) 321-7854 or (800) 765-2668 or by visiting www.bankofamerica.com/nationsfunds/enter.cfm. From time-to-time, the performance of a Fund's shares may be quoted in advertisements, shareholder reports, and other communications to shareholders. Quotations of yield and total return reflect only the performance of a hypothetical investment in a Fund or class of shares during the particular time period shown. Yield and total return vary based on changes in the market conditions and the level of a Fund's expenses, and no reported performance figure should be considered an indication of performance which may be expected in the future. Standardized performance for the Funds, i.e., that required in both form and content by Form N-1A, is either shown below or incorporated by reference from the Funds' Annual Reports, and may be advertised by the Funds. The main purpose of standardized performance is to allow an investor to review the performance of a Fund's class of shares and compare such performance with that of investment alternatives, including other mutual funds. Non-standardized performance also may be advertised by the Funds. One purpose of providing non-standardized performance to an investor is to give that investor a different performance perspective that may not be captured by standardized performance. The non-standardized performance of a Fund's class of shares, however, may not be directly comparable to the performance of investment alternatives because of differences in specific variables (such as the length of time over which performance is shown and the exclusion of certain charges or expenses) and methods used to value portfolio securities, compute expenses and calculate performance. Non-standardized performance may include, but is not limited to, performance for non-standardized periods, including year-to-date and other periods less than a year, performance not reflecting the deduction of certain charges, fees and/or expenses, and performance reflecting the deduction of applicable state or federal taxes, or so-called "after-tax performance" After-tax returns are generally calculated using the same methodology as that used in calculating total return, except that such after-tax returns reflect the deduction of taxes according to applicable federal income and capital gain tax rates attributable to dividends, distributions and an investor's redemptions. Of course, after-tax returns for individual investors will vary as the tax rates applicable to such investors vary. In addition, the Funds may also advertise their tax efficiency ratios and compare those ratios with other mutual funds. A tax efficiency ratio is intended to let an investor know how tax efficient a Fund has been over a period of time, and is typically related to its portfolio turnover rate. That is, an investor could expect that the higher a Fund's portfolio turnover rate, the greater the percentage of its gains that would have been realized and consequently, the less tax efficient it was over a given period of time. In general, comparisons to other mutual funds or investment alternatives may be useful to investors who wish to compare past performance of the Funds or a class with that of competitors. Of course, past performance is not a guarantee of future results. Each Fund may quote information obtained from the Investment Company Institute, national financial publications, trade journals, industry sources and other periodicals in its advertising and sales literature. In addition, the Funds also may compare the performance and yield of a class or series of shares to those of other mutual funds with similar investment objectives and to other relevant indices or to rankings prepared by independent services or other financial or industry publications that monitor the performance of mutual funds. For example, the performance and yield of a class of shares in a Fund may be compared to data prepared by Lipper Analytical Services, Inc. Performance and yield data as reported in national financial publications such as Money Magazine, Forbes, Barron's, The Wall Street Journal, and The New York Times, or in publications of a local or regional nature, also may be used in comparing the performance of a class of shares in a Fund. The "yield" and "effective yield" of each class of shares of a Money Market Fund may be compared to the respective averages compiled by Donoghue's 147 Money Fund Report, a widely recognized independent publication that monitors the performance of money market funds, or to the average yields reported by the Bank Rate Monitor for money market deposit accounts offered by leading banks and thrift institutions in the top five metropolitan statistical areas. The Funds also may use the following information in advertisements and other types of literature: (i) the Consumer Price Index may be used, for example, to assess the real rate of return from an investment in a Fund; (ii) other government statistics, including, but not limited to, The Survey of Current Business, may be used, among other things, to illustrate investment attributes of a Fund or the general economic, business, investment, or financial environment in which a Fund operates; (iii) the effect of tax-deferred compounding on the investment returns of a Fund, or on returns in general, may be illustrated by graphs, charts, etc., where such graphs or charts would compare, at various points in time, the return from an investment in a Fund (or returns in general) on a tax-deferred basis (assuming reinvestment of capital gains and dividends and assuming one or more tax rates) with the return, among other things, on a taxable basis; and (iv) the sectors or industries in which a Fund invests may be compared to relevant indices of stocks or surveys (e.g., S&P Industry Surveys) to evaluate a Fund's historical performance or current or potential value with respect to the particular industry or sector. In addition, the performance of a Fund's class of shares may be compared to the S&P 500, the Dow Jones Industrial Average, a recognized unmanaged index of common stocks of 30 industrial companies listed on the NYSE, the Europe, Far East and Australia Index, a recognized unmanaged index of international stocks, or any similar recognized index. The performance of a Fund's class of shares also may be compared to a customized composite index. In addition, the Funds also may use, in advertisements and other types of literature, information and statements: (1) showing that although bank savings accounts may offer a guaranteed return of principal and a fixed rate of interest, they offer no opportunity for capital growth; and (2) describing Bank of America, and its affiliates and predecessors, as one of the first investment managers to use asset allocation and index strategies in managing and advising accounts. The Funds also may include in advertising and other types of literature information and other data from reports and studies prepared by the Tax Foundation, including information regarding federal and state tax levels and the related "Tax Freedom Day." The Funds also may discuss in advertising and other types of literature that a Fund has been assigned a rating by an NRSRO, such as S&P. Such rating would assess the creditworthiness of the investments held by the Fund. The assigned rating would not be a recommendation to buy, sell or hold the Fund's shares since the rating would not comment on the market price of the Fund's shares or the suitability of the Fund for a particular investor. In addition, the assigned rating would be subject to change, suspension or withdrawal as a result of changes in, or unavailability of, information relating to the Fund or its investments. The Funds may compare a Fund's performance with other investments which are assigned ratings by NRSROs. Any such comparisons may be useful to investors who wish to compare the Fund's past performance with other rated investments. The Funds also may disclose in sales literature the distribution rate on the shares of a Fund. Distribution rate, which may be annualized, is the amount determined by dividing the dollar amount per share of the most recent dividend by the most recent NAV or maximum offering price per share as of a date specified in the sales literature. Distribution rate will be accompanied by the standard 30-day yield as required by the SEC. In addition, certain potential benefits of investing in global securities markets may be discussed in promotional materials. Such benefits include, but are not limited to: a) the expanded opportunities for investment in securities markets outside the U.S.; b) the growth of securities markets outside the U.S. vis-a-vis U.S. markets; c) the relative return associated with foreign securities markets vis-a-vis U.S. markets; and d) a reduced risk of portfolio volatility resulting from a diversified securities portfolio consisting of both U.S. and foreign securities. Ibbotson Associates of Chicago, Illinois, ("Ibbotson") and other companies provide historical returns of the capital markets in the United States. The Funds may compare the performance of their share classes or series to the long-term performance of the U.S. capital markets in order to demonstrate general long-term risk versus reward investment scenarios. Performance comparisons could also include the value of a hypothetical investment in common stocks, long-term bonds or treasuries. 148 Yield Calculations Money Market Funds The "yield" and "effective yield" of shares of the Money Market Funds are computed separately as described below according to formulas prescribed by the SEC. The standardized seven-day yield is computed by determining the net change, exclusive of capital changes, in the value of a hypothetical pre-existing account in the particular Fund involved having a balance of one share of the class or series involved at the beginning of the period, dividing the net change in account value by the value of the account at the beginning of the base period to obtain the base period return, and multiplying the base period return by (365/7). The net change in the value of an account in each Fund includes the value of additional shares purchased with dividends from the original share, and dividends declared on both the original share and any such additional shares; and all fees, other than nonrecurring account or sales charges, that are charged to shareholder accounts in proportion to the length of the base period and the Fund's average account size. The capital changes to be excluded from the calculation of the net change in account value are realized gains and losses from the sale of securities and unrealized appreciation and depreciation. The effective annualized yield for a class or series of shares in a Fund is computed by compounding the unannualized base period return (calculated as above) by adding 1 to the base period return, raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the result. In addition, the "tax-equivalent yield" of the shares of the Money Market Funds is computed by: (a) dividing the portion of the yield that is exempt from federal income tax by one minus a stated federal income tax rate; and (b) adding the figure resulting from (a) above to that portion, if any, of the yield that is not exempt from federal income tax. Based on the seven-day period ended March 31, 2001, (the "base period"), the current, effective, tax equivalent current and tax equivalent effective yields of the various shares of the Money Market Funds are as follows:
Current Effective Tax Equivalent Tax Equivalent Yield Yield Current Yield Effective Yield ------- --------- -------------- --------------- Prime Fund Primary A 5.14% 5.27% n/a n/a Primary B 4.89% 5.00% n/a n/a Investor A 4.79% 4.90% n/a n/a Investor B 4.89% 5.00% n/a n/a Investor C 4.89% 5.00% n/a n/a Daily 4.64% 4.74% n/a n/a Marsico 4.89% 5.00% n/a n/a Treasury Fund Primary A 4.99% 5.12% n/a n/a Primary B 4.74% 4.85% n/a n/a Investor A 4.64% 4.75% n/a n/a Investor B 4.74% 4.86% n/a n/a Investor C 4.74% 4.85% n/a n/a Daily 4.49% 4.59% n/a n/a Gov't Money Market Fund Primary A 5.19% 5.33% n/a n/a Primary B 4.94% 5.06% n/a n/a Investor A 4.84% 4.96% n/a n/a Investor B 4.94% 5.06% n/a n/a Investor C 4.94% 5.06% n/a n/a Daily 4.69% 4.80% n/a n/a Tax Exempt Fund Primary A 3.37% 3.43% 5.58% n/a Primary B 3.12% 3.17% 5.17% n/a Investor A 3.02% 3.07% 5.00% n/a Investor B 3.12% 3.17% 5.17% n/a Investor C 3.12% 3.17% 5.17% n/a Daily 2.87% 2.91% 4.75% n/a Cash Reserves Capital 5.22% 5.35% n/a n/a
149
Current Effective Tax Equivalent Tax Equivalent Yield Yield Current Yield Effective Yield ------- --------- -------------- --------------- Liquidity 5.07% 5.19% n/a n/a Adviser 4.97% 5.09% n/a n/a Market 4.77% 4.88% n/a n/a Investor 4.87% 4.98% n/a n/a Service 4.22% 4.30% n/a n/a Daily 4.62% 4.72% n/a n/a Trust 5.12% 5.25% n/a n/a Investor B 4.12% 4.20% n/a n/a Investor C 4.12% 4.20% n/a n/a Institutional Class 5.18% 5.31% n/a n/a Money Market Reserves Capital 5.17% 5.30% n/a n/a Liquidity 5.02% 5.14% n/a n/a Adviser 4.92% 5.04% n/a n/a Market 4.72% 4.83% n/a n/a Investor 4.82% 4.93% n/a n/a Service 4.17% 4.25% n/a n/a Daily 4.57% 4.67% n/a n/a Trust 5.07% 5.20% n/a n/a Investor B 4.07% 4.15% n/a n/a Investor C 4.07% 4.15% n/a n/a Institutional Class 5.13% 5.26% n/a n/a Treasury Reserves Capital 5.10% 5.23% n/a n/a Liquidity 4.95% 5.07% n/a n/a Adviser 4.85% 4.97% n/a n/a Market 4.65% 4.76% n/a n/a Investor 4.75% 4.86% n/a n/a Service 4.10% 4.18% n/a n/a Daily 4.50% 4.60% n/a n/a Trust 5.00% 5.13% n/a n/a Investor B 4.00% 4.08% n/a n/a Investor C n/a n/a n/a n/a Institutional Class 5.06% 5.19% n/a n/a Government Reserves Capital 5.11% 5.24% n/a n/a Liquidity 4.96% 5.08% n/a n/a Adviser 4.86% 4.98% n/a n/a Market 4.66% 4.77% n/a n/a Investor 4.76% 4.88% n/a n/a Service 4.11% 4.20% n/a n/a Daily 4.51% 4.61% n/a n/a Trust 5.01% 5.14% n/a n/a Investor B 4.01% 4.09% n/a n/a Investor C 4.01% 4.09% n/a n/a Institutional Class 5.07% 5.20% n/a n/a Municipal Reserves Capital 3.48% 3.54% 5.76% 5.86% Liquidity 3.33% 3.39% 5.51% 5.61% Adviser 3.23% 3.28% 5.35% 5.43% Market 3.03% 3.08% 5.02% 5.10% Investor 3.13% 3.18% 5.18% 5.26% Service 2.48% 2.51% 4.11% 4.16% Daily 2.88% 2.92% 4.77% 4.83% Trust 3.38% 3.44% 5.60% 5.70% Investor B 2.38% 2.41% 3.94% 3.99% Investor C n/a n/a n/a n/a Institutional Class 3.44% 3.50% 5.70% 5.79% California Tax-Exempt Reserves Capital 3.01% 3.05% n/a n/a Liquidity n/a n/a n/a n/a Adviser 2.76% 2.80% n/a n/a Market n/a n/a n/a n/a Investor 2.66% 2.70% n/a n/a Service n/a n/a n/a n/a
150
Current Effective Tax Equivalent Tax Equivalent Yield Yield Current Yield Effective Yield ------- --------- -------------- --------------- Daily 2.41% 2.44% n/a n/a Trust 2.91% 2.96% n/a n/a Investor B 1.92% 1.93% n/a n/a
Tax Equivalent Yields @ 39.1% Non-Money Market Funds Yield is calculated separately for the Primary A, Primary B, Investor A, Investor B and Investor C shares of a Non-Money Market Fund by dividing the net investment income per share for a particular class or series of shares (as described below) earned during a 30-day period by the maximum offering price per share on the last day of the period (for Primary A and Primary B Shares, maximum offering price per share is the same as the net asset value per share) and annualizing the result on a semi-annual basis by adding one to the quotient, raising the sum to the power of six, subtracting one from the result and then doubling the difference. For a class or series of shares in a Fund, net investment income per share earned during the period is based on the average daily number of shares outstanding during the period entitled to receive dividends and includes dividends and interest earned during the period minus expenses accrued for the period, net of reimbursements. This calculation can be expressed as follows: Yield = 2 [(a-b+ 1)(6) - 1] --- cd Where: a = dividends and interest earned during the period. b = expenses accrued for the period (net of reimbursements). c = the average daily number of shares outstanding during the period that were entitled to receive dividends. d = maximum offering price per share on the last day of the period (for Primary A and Primary B Shares, this is equivalent to net asset value per share). For the purpose of determining net investment income earned during the period (variable- "a" in the formula), dividend income on equity securities held by a Fund is recognized by accruing 1/360 of the stated dividend rate of the security each day that the security is in the portfolio. Each Fund calculates interest earned on any debt obligations held in its portfolio by computing the yield to maturity of each obligation held by it based on the market value of the obligation (including actual accrued interest) at the close of business on the last business day of each month, or, with respect to obligations purchased during the month, the purchase price (plus actual accrued interest) and dividing the result by 360 and multiplying the quotient by the market value of the obligation (including actual accrued interest) in order to determine the interest income on the obligation for each day of the subsequent month that the obligation is in the portfolio. For purposes of this calculation, it is assumed that each month contains 30 days. The maturity of an obligation with a call provision is the next call date on which the obligation reasonably may be expected to be called or, if none, the maturity date. With respect to debt obligations purchased at a discount or premium, the formula generally calls for amortization of the discount or premium. The amortization schedule will be adjusted monthly to reflect changes in the market values of such debt obligations. The Municipal Bond Funds calculate interest gained on tax-exempt obligations issued without original issue discount and having a current market discount by using the coupon rate of interest instead of the yield to maturity. In the case of tax-exempt obligations that are issued with original issue discount, where the discount based on the current market value exceeds the then-remaining portion of original issue discount, the yield to maturity is the imputed rate based on the original issue discount calculation. Conversely, where the discount based on the current market value is less than the remaining portion of the original issue discount, the yield to maturity is based on the market value. Expenses accrued for the period (variable "b" in the formula) include recurring fees charged by Nations Funds to shareholder accounts in proportion to the length of the base period. Undeclared earned income will be subtracted from the maximum offering price per share (which for Primary A and Primary B Shares is net asset value per share) (variable "d" in the formula). Undeclared earned income is the net investment income which, at the end of the base period, has not been declared as a dividend, but is reasonably expected to be and is declared as a dividend 151 shortly thereafter. A Fund's maximum offering price per share for purposes of the formula includes the maximum sales charge, if any, imposed by the Fund, as reflected in the Fund's prospectus. The Funds may provide additional yield calculations in communications (other than advertisements) to the holders of Investor A, Investor C or Investor B Shares. These may be calculated based on the Investor A, Investor C or Investor B Shares' net asset values per share (rather than their maximum offering prices) on the last day of the period covered by the yield computations. That is, some communications provided to the holders of Investor A, Investor C or Investor B Shares may also include additional yield calculations prepared for the holders of Primary A or Primary B Shares. Such additional quotations, therefore, will not reflect the effect of the sales charges mentioned above. "Tax-equivalent" yield is computed by: (a) dividing the portion of the yield (calculated as above) that is exempt from federal income tax by (b) one, minus (i) a stated federal income tax rate and, (ii) a state income tax rate (if applicable) multiplied by one minus the Stated Federal income tax rate. The federal income tax rate used in calculating the "tax-equivalent" yield 39.1%. The following state income tax rates are used in calculating the "tax-equivalent" yields: California--9.3%; Florida--0%; Georgia--6%; Maryland--4.875%; North Carolina--7.75%; South Carolina--7%; Tennessee--6%; Texas--0%; and Virginia--5.75%. The tax brackets and the related yield calculations are based on the 2000 Federal and applicable state tax rates and assume a Federal tax benefit for the state and local taxes. Note the highest 2000 marginal Federal tax rate may be higher than 36% due to the phase-out of allowable itemized deductions and personal exemptions for certain taxpayers. This schedule does not take into account the 39.1% Federal tax rate applied to taxable income in excess of $283,150. Based on the fiscal year ended March 31, 2001, the 30-day yield and tax-equivalent yield of the various shares of the Funds were as follows:
Short-Term Income Fund Primary A 5.84% n/a Primary B n/a n/a Investor A 5.59% n/a Investor B 4.85% n/a Investor C 4.86% n/a Short-Intermediate Government Fund Primary A 5.44% n/a Primary B 4.94% n/a Investor A 5.19% n/a Investor B 4.45% n/a Investor C 4.42% n/a Government Securities Fund Primary A 5.57% n/a Primary B n/a n/a Investor A 5.32% n/a Investor B 4.56% n/a Investor C 4.59% n/a Intermediate Bond Fund Primary A 6.13% n/a Investor A 5.86% n/a Investor B 5.37% n/a Investor C 4.65% n/a Bond Fund Primary A 6.23% n/a Primary B n/a n/a Investor A 5.98% n/a Investor B 5.22% n/a Investor C 5.23% n/a Strategic Income Fund Primary A 6.09% n/a Primary B n/a n/a Investor A 5.84% n/a Investor B 5.08% n/a Investor C 5.09% n/a High Yield Bond Fund
152
Primary A 12.86% n/a Investor A 12.80% n/a Investor B 12.02% n/a Investor C 12.05% n/a Short-Term Municipal Income Fund Primary A 4.39% 7.27% Investor A 4.14% 6.85% Investor B 3.40% 5.63% Investor C 3.38% 5.60% Intermediate Municipal Bond Fund Primary A 4.60% 7.62% Investor A 4.35% 7.20% Investor B 3.60% 5.96% Investor C 3.61% 5.98% Municipal Income Fund Primary A 5.01% 8.29% Investor A 4.76% 7.88% Investor B 4.01% 6.64% Investor C 4.01% 6.64% California Municipal Bond Fund Primary A Investor A Investor B Investor C Florida Intermediate Municipal Bond Fund Primary A 4.66% 7.72% Investor A 4.42% 7.32% Investor B 3.66% 6.06% Investor C 3.65% 6.04% Florida Municipal Bond Fund Primary A 4.71% 7.80% Investor A 4.46% 7.38% Investor B 3.72% 6.16% Investor C 3.72% 6.16% Georgia Intermediate Municipal Bond Fund Primary A 4.68% 8.24% Investor A 4.43% 7.80% Investor B 3.68% 6.48% Investor C 3.68% 6.48% Georgia Municipal Bond Fund Primary A 4.69% 8.26% Investor A 4.44% 7.82% Investor B 3.69% 6.50% Investor C 3.69% 6.50% Kansas Municipal Income Fund Primary A 4.42% 7.82% Investor A 4.17% 7.38% Investor B 3.42% 6.05% Investor C n/a n/a Maryland Intermediate Municipal Bond Fund Primary A 4.62% 8.04% Investor A 4.37% 7.61% Investor B 3.62% 6.29% Investor C 3.62% 6.29% Maryland Municipal Bond Fund Primary A 4.60% 8.00% Investor A 4.35% 7.56% Investor B 3.60% 6.26% Investor C 3.60% 6.26% North Carolina Intermediate Municipal Bond Fund Primary A 4.58% 8.22% Investor A 4.33% 7.77% Investor B 3.58% 6.43% Investor C 3.60% 6.46% North Carolina Municipal Bond Fund Primary A 4.66% 8.37% Investor A 4.42% 7.93%
153
Investor B 3.67% 6.59% Investor C 3.61% 6.48% South Carolina Intermediate Municipal Bond Fund Primary A 4.86% 8.66% Investor A 4.61% 8.20% Investor B 3.86% 6.87% Investor C 3.85% 6.85% South Carolina Municipal Bond Fund Primary A 4.74% 8.44% Investor A 4.49% 7.99% Investor B 3.74% 6.66% Investor C 3.74% 6.66% Tennessee Intermediate Municipal Bond Fund Primary A 4.62% 8.14% Investor A 4.37% 7.70% Investor B 3.62% 6.37% Investor C 3.63% 6.39% Tennessee Municipal Bond Fund Primary A 4.73% 8.33% Investor A 4.48% 7.89% Investor B 3.74% 6.59% Investor C 3.73% 6.57% Texas Intermediate Municipal Bond Fund Primary A 4.87% 8.06% Investor A 4.62% 7.65% Investor B 3.87% 6.41% Investor C 3.81% 6.31% Texas Municipal Bond Fund Primary A 4.76% 7.88% Investor A 4.51% 7.47% Investor B 3.76% 6.23% Investor C 3.76% 6.23% Virginia Intermediate Municipal Bond Fund++ Primary A 4.63% 8.14% Investor A 4.38% 7.69% Investor B 3.63% 6.38% Investor C 3.63% 6.38% Virginia Municipal Bond Fund Primary A 4.95% 8.70% Investor A 4.71% 8.28% Investor B 3.95% 6.94% Investor C 3.90% 6.85%
Total Return Calculations Total return measures both the net investment income generated by, and the effect of any realized or unrealized appreciation or depreciation of the underlying investments in a Non-Money Market Fund. The Non-Money Market Funds' average annual and cumulative total return figures are computed in accordance with the standardized methods prescribed by the SEC. Average annual total return figures are computed by determining the average annual compounded rates of return over the periods indicated in the advertisement, sales literature or shareholders' report that would equate the initial amount invested to the ending redeemable value, according to the following formula: P(1 + T)(n) = ERV Where: P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = ending redeemable value at the end of the period of a hypothetical $1,000 payment made at the beginning of such period. 154 This calculation (i) assumes all dividends and distributions are reinvested at net asset value on the appropriate reinvestment dates, and (ii) deducts (a) the maximum sales charge from the hypothetical initial $1,000 investment, and (b) all recurring fees, such as advisory and administrative fees, charged as expenses to all shareholder accounts. All performance calculations for the period ended March 31, 1999, reflect the deduction of sales charges, if any, that would have been deducted from a sale of shares. Cumulative total return is based on the overall percentage change in value of a hypothetical investment in the Fund, assuming all Fund dividends and capital gain distributions are reinvested, without reflecting the effect of any sales charge that would be paid by an investor, and is not annualized. Cumulative total return is computed by finding the cumulative compounded rate of return over the period indicated in the advertisement that would equate the initial amount invested to the ending redeemable value, according to the following formula: CTR = (ERV-P) 100 ----- P Where: CTR = Cumulative total return ERV = ending redeemable value at the end of the period of a hypothetical $1,000 payment made at the beginning of such period P = initial payment of $1,000. This calculation (i) assumes all dividends and distributions are reinvested at net asset value on the appropriate reinvestment dates, and (ii) deducts (a) the maximum sales charge from the hypothetical initial $1,000 investment, and (b) all recurring fees, such as advisory and administrative fees, charged as expenses to all shareholder accounts. Average annual return for the Funds has been incorporated by reference from the Funds' Annual Reports, and may be advertised by the Funds. 155 APPENDIX A DESCRIPTION OF RATINGS The following summarizes the highest six ratings used by S&P for corporate and municipal bonds. The first four ratings denote investment-grade securities. AAA - This is the highest rating assigned by S&P to a debt obligation and indicates an extremely strong capacity to pay interest and repay principal. AA - Debt rated AA is considered to have a very strong capacity to pay interest and repay principal and differs from AAA issues only in a small degree. A - Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories. BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than for those in higher-rated categories. BB, B - Bonds rated BB and B are regarded, on balance as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. Debt rated B has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. To provide more detailed indications of credit quality, the AA, A and BBB, BB and B ratings may be modified by the addition of a plus or minus sign to show relative standing within these major rating categories. The following summarizes the highest six ratings used by Moody's for corporate and municipal bonds. The first four denote investment-grade securities. Aaa - Bonds that are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa - Bonds that are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A - Bonds that are rated A possess many favorable investment attributes and are to be considered upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa - Bonds that are rated Baa are considered medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba - Bonds that are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not as well safeguarded during both good times and bad times over the future. Uncertainty of position characterizes bonds in this class. A-1 B - Bond that are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds rated Aa through B. The modifier 1 indicates that the bond being rated ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower end of its generic rating category. With regard to municipal bonds, those bonds in the Aa, A and Baa groups which Moody's believes possess the strongest investment attributes are designated by the symbols Aal, A1 or Baal, respectively. The following summarizes the highest four ratings used by Duff & Phelps Credit Rating Co. ("D&P") for bonds, each of which denotes that the securities are investment-grade. AAA - Bonds that are rated AAA are of the highest credit quality. The risk factors are considered to be negligible, being only slightly more than for risk-free U.S. Treasury debt. AA - Bonds that are rated AA are of high credit quality. Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. A - Bonds that are rated A have protection factors which are average but adequate. However risk factors are more variable and greater in periods of economic stress. BBB - Bonds that are rated BBB have below average protection factors but still are considered sufficient for prudent investment. Considerable variability in risk exists during economic cycles. To provide more detailed indications of credit quality, the AA, A and BBB ratings may modified by the addition of a plus or minus sign to show relative standing within these major categories. The following summarizes the highest four ratings used by Fitch Investors Service, Inc. ("Fitch") for bonds, each of which denotes that the securities are investment-grade: AAA - Bonds considered to be investment-grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA - Bonds considered to be investment-grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated F-1+. A - Bonds considered to be investment-grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB - Bonds considered to be investment-grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment-grade is higher than for bonds with higher ratings. To provide more detailed indications of credit quality, the AA, A and BBB ratings may be modified by the addition of a plus or minus sign to show relative standing within these major rating categories. The following summarizes the two highest ratings used by Moody's for short-term municipal notes and variable-rate demand obligations: MIG-1/VMIG-1 -- Obligations bearing these designations are of the best quality, enjoying strong protection from established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality, with ample margins of protection although not so large as in the preceding group. A-2 The following summarizes the two highest ratings used by S&P for short-term municipal notes: SP-1 - Indicates very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are given a "plus" (+) designation. SP-2 - Indicates satisfactory capacity to pay principal and interest. The three highest rating categories of D&P for short-term debt, each of which denotes that the securities are investment-grade, are D-1, D-2, and D-3. D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating category. D-1+ indicates highest certainty of timely payment. Short-term liquidity, including internal operating factors and/or access to alternative sources of funds, is judged to be "outstanding, and safety is just below risk-free U.S. Treasury short-term obligations." D-1 indicates very high certainty of timely payment. Liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are considered to be minor. D-1 indicates high certainty of timely payment. Liquidity factors are strong and supported by good fundamental protection factors. Risk factors are very small. D-2 indicates good certainty of timely payment. Liquidity factors and company fundamentals are sound. Although ongoing funding needs may enlarge total financing requirements, access to capital markets is good. Risk factors are small. D-3 indicates satisfactory liquidity and other protection factors which qualify the issue as investment-grade. Risk factors are larger and subject to more variation. Nevertheless, timely payment is expected. The following summarizes the two highest rating categories used by Fitch for short-term obligations each of which denotes that the securities are investment-grade: F-1+ securities possess exceptionally strong credit quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment. F-1 securities possess very strong credit quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated F-1+. F-2 securities possess good credit quality. Issues carrying this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as for issues assigned the F-1+ and F-1 ratings. Commercial paper rated A-1 by S&P indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted A-1+. Capacity for timely payment on commercial paper rated A-2 is satisfactory, but the relative degree of safety is not as high as for issues designated A-1. The rating Prime-1 is the highest commercial paper rating assigned by Moody's. Issuers rated Prime-1 (or related supporting institutions) are considered to have a superior capacity for repayment of senior short-term promissory obligations. Issuers rated Prime-2 (or related supporting institutions) are considered to have a strong capacity for repayment of senior short-term promissory obligations. This will normally be evidenced by many of the characteristics of issuers rated Prime-1, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. For commercial paper, D&P uses the short-term debt ratings described above. For commercial paper, Fitch uses the short-term debt ratings described above. Thomson BankWatch, Inc. ("BankWatch") ratings are based upon a qualitative and quantitative analysis of all segments of the organization including, where applicable, holding company and operating subsidiaries. BankWatch ratings do not constitute a recommendation to buy or sell securities of any of these companies. Further, BankWatch does not suggest specific investment criteria for individual clients. BankWatch long-term ratings apply to specific issues of long-term debt and preferred stock. The long-term ratings specifically assess the likelihood of untimely payment of principal or interest over the term to maturity of the rated instrument. The following are the four investment-grade ratings used by BankWatch for long-term debt: AAA - The highest category; indicates ability to repay principal and interest on a timely basis is extremely high. A-3 AA - The second highest category; indicates a very strong ability to repay principal and interest on a timely basis with limited incremental risk versus issues rated in the highest category. A - The third highest category; indicates the ability to repay principal and interest is strong. Issues rated "A" could be more vulnerable to adverse developments (both internal and external) than obligations with higher ratings. BBB - The lowest investment-grade category; indicates an acceptable capacity to repay principal and interest. Issues rated "BBB" are, however, more vulnerable to adverse developments (both internal and external) than obligations with higher ratings. Long-term debt ratings may include a plus (+) or minus (-) sign to indicate where within a category the issue is placed. The BankWatch short-term ratings apply to commercial paper, other senior short-term obligations and deposit obligations of the entities to which the rating has been assigned. The BankWatch short-term ratings specifically assess the likelihood of an untimely payment of principal or interest. TBW-1 The highest category; indicates a very high likelihood that principal and interest will be paid on a timely basis. TBW-2 The second highest category; while the degree of safety regarding timely repayment of principal and interest is strong, the relative degree of safety is not as high as for issues rated "TBW-1". TBW-3 The lowest investment-grade category; indicates that while more susceptible to adverse developments (both internal and external) than obligations with higher ratings, capacity to service principal and interest in a timely fashion is considered adequate. TBW-4 The lowest rating category; this rating is regarded as non-investment-grade and therefore speculative. The following summarizes the four highest long-term debt ratings used by IBCA Limited and its affiliate, IBCA Inc. (collectively "IBCA"): AAA - Obligations for which there is the lowest expectation of investment risk. Capacity for timely repayment of principal and interest is substantial such that adverse changes in business, economic or financial conditions are unlikely to increase investment risk significantly. AA - Obligations for which there is a very low expectation of investment risk. Capacity for timely repayment of principal and interest is substantial. Adverse changes in business, economic or financial conditions may increase investment risk albeit not very significantly. A - Obligations for which there is a low expectation of investment risk. Capacity for timely repayment of principal and interest is strong, although adverse changes in business, economic or financial conditions may lead to increased investment risk. BBB - Obligations for which there is currently a low expectation of investment risk. Capacity for timely repayment of principal and interest is adequate, although adverse changes in business, economic or financial conditions are more likely to lead to increased investment risk than for obligations in other categories. A plus or minus sign may be appended to a rating below AAA to denote relative status within major rating categories. The following summarizes the two highest short-term debt ratings used by IBCA: A1+ When issues possess a particularly strong credit feature, a rating of A1+ is assigned. A1 - Obligations supported by the highest capacity for timely repayment. A2 - Obligations supported by a good capacity for timely repayment. A-4 APPENDIX B GLOSSARY
Term Used in SAI Definition - ---------------- ---------- 1933 Act......................................... Securities Act of 1933, as amended 1934 Act......................................... Securities Exchange Act of 1934, as amended 1940 Act......................................... Investment Company Act of 1940, as amended Adviser.......................................... BA Advisors, BACAP, Brandes, Gartmore, Invesco, Marsico Capital, McKay Shields and/or Putnam, as the context may require Advisory Agreements The respective Investment Advisory Agreements and Investment Sub-Advisory Agreements for the Funds Aggressive Growth Fund........................... Nations Aggressive Growth Fund AMEX............................................. American Stock Exchange Asset Allocation Fund............................ Nations Asset Allocation Fund BA Advisors...................................... Banc of America Advisors, LLC BACAP............................................ Banc of America Capital Management, LLC Bank of America.................................. Bank of America, N.A. Blue Chip Fund................................... Nations Blue Chip Fund BNY.............................................. The Bank of New York Board............................................ Any one Board of Directors/Trustees of a Company Board Member..................................... A Director or Trustee of a Company Board Members.................................... Two or more of the Directors/Trustees of a Company Boards........................................... Two or more Boards of Directors/Trustees of the Companies Bond Fund........................................ Nations Bond Fund California Bond Fund............................. Nations California Municipal Bond Fund California Reserves.............................. Nations California Tax-Exempt Reserves California Fund(s)............................... One or more of California Bond Fund and California Reserves Capital Growth Fund.............................. Nations Capital Growth Fund Cash Reserves.................................... Nations Cash Reserves CFTC............................................. Commodities Futures Trading Commission Chicago Equity................................... Chicago Equity Partners, LLC Co-Administrator(s).............................. BA Advisors and Stephens Code............................................. Internal Revenue Code of 1986, as amended Code(s) of Ethics................................ The code(s) of ethics adopted by the Boards pursuant to Rule 17j-1 under the 1940 Act CMOs............................................. Collateralized mortgage obligations Companies........................................ Two or more of the registered investment companies to which this SAI applies (i.e., NFT, NFI, NR or NFST) Company.......................................... Any one of the registered investment companies to which this SAI applies (i.e., NFT, NFI, NR or NFST) Convertible Securities Fund...................... Nations Convertible Securities Fund Custodian........................................ The Bank of New York Distributor...................................... Stephens Inc. Distribution Plan(s)............................. One or more of the plans adopted by a Board under Rule 12b-1 under the 1940 Act for the distribution of the Funds' shares Emerging Markets Fund............................ Nations Emerging Markets Fund Equity Income Fund............................... Nations Equity Income Fund FHLMC............................................ [insert] Florida Intermediate Bond Fund................... Nations Florida Intermediate Municipal Bond Fund Florida Bond Fund................................ Nations Florida Municipal Bond Fund Florida Fund(s).................................. One or more of Florida Intermediate Bond Fund and Florida
B-1
Bond Fund FNMA............................................. [insert] Fund............................................. One of the open-end management investment companies (listed on the front cover of this SAI) that is a series of NFT, NFI, NR or NFST Funds............................................ Two or more of the open-end management investment companies (listed on the front cover of this SAI) that is a series of NFT, NFI, NR or NFST Gartmore......................................... Gartmore Global Partners Georgia Intermediate Bond Fund................... Nations Georgia Intermediate Municipal Bond Fund Georgia Bond Fund................................ Nations Georgia Municipal Bond Fund Georgia Fund(s).................................. One or more of Georgia Intermediate Bond Fund and Georgia Bond Fund GNMA............................................. [insert] Government Money Market Fund..................... Nations Government Money Market Fund Government Reserves.............................. Nations Government Reserves Government Securities Fund....................... Nations Government Securities Fund High Yield Bond Fund............................. Nations High Yield Bond Fund Index Funds...................................... Those Funds shown under the heading "Index Funds" on the front cover of the SAI Intermediate Bond Fund........................... Nations Intermediate Bond Fund Intermediate Municipal Bond Fund................. Nations Intermediate Municipal Bond Fund International Equity Fund........................ Nations International Equity Fund International/Global Stock Funds................. One or more of those Funds shown under the heading "International/Global Stock Funds" on the front cover of the SAI International Value Fund......................... Nations International Value Fund INVESCO.......................................... INVESCO Global Asset Management (N.A.), Inc. Investment Advisory Agreements................... The investment advisory agreements with between NFI, NFT, NR and NFST, on behalf of each of their respective Funds, and BA Advisors Investment Sub-Advisory Agreements............... The investment sub-advisory agreements with between NFI, NFT, NR and NFST, on behalf of each of their respective Funds, and BACAP, Brandes, Chicago Equity, Gartmore, INVESCO, MacKay Shields, Marsico Capital or Putnam, as the case may be IRS.............................................. United States Internal Revenue Service Kansas Bond Fund................................. Nations Kansas Municipal Income Fund LargeCap Growth Fund............................. Nations LargeCap Growth Fund LifeGoal Portfolio(s)............................ One or more of those Funds shown under the heading "LifeGoal Portfolios" on the front cover of the SAI MacKay Shields................................... MacKay Shields LLC Managed Index Fund............................... Nations Managed Index Fund Marsico 21st Century Fund........................ Nations Marsico 21st Century Fund Marsico Capital.................................. Marsico Capital Management, LLC Marsico Focused Equities Fund.................... Nations Marsico Focused Equities Fund Marsico Growth & Income Fund..................... Nations Marsico Growth & Income Fund Marsico International Opportunities Fund......... Nations Marsico International Opportunities Fund Maryland Intermediate Bond Fund.................. Nations Maryland Intermediate Municipal Bond Fund Maryland Bond Fund............................... Nations Maryland Municipal Bond Fund Maryland Fund(s)................................. One or more of Maryland Intermediate Bond Fund and Maryland Bond Fund MidCap Growth Fund............................... Nations MidCap Growth Fund MidCap Index Fund................................ Nations MidCap Index Fund Money Market Fund(s)............................. One or more of those Funds shown under the heading "Money Market Funds" on the front cover of the SAI Money Market Reserves............................ Nations Money Market Reserves
B-2
Moody's.......................................... Moody's Investors Service, Inc. Municipal Bond Fund(s)........................... One or more of those Funds shown under the heading "Municipal Bond Funds" on the front cover of the SAI Municipal Income Fund............................ Nations Municipal Income Fund Municipal Reserves............................... Nations Municipal Reserves NSAT............................................. Nations Separate Account Trust Nations Funds or Nations Funds Family............ The fund complex that is comprised of the Companies, along with NSAT and NMIT. NFI.............................................. Nations Fund, Inc. NFST............................................. Nations Funds Trust NFT.............................................. Nations Fund Trust NLG.............................................. Nations LifeGoal Funds, Inc. NMIT............................................. Nations Master Investment Trust Non-Money Market Fund(s)......................... One or more of the mutual funds of the Companies, other than the Money Market Funds North Carolina Intermediate Bond Fund............ Nations North Carolina Intermediate Municipal Bond Fund North Carolina Bond Fund......................... Nations North Carolina Municipal Bond Fund North Carolina Fund(s)........................... One or more of North Carolina Intermediate Bond Fund and North Carolina Bond Fund NR............................................... Nations Reserves (formerly known as The Capitol Mutual Funds) NYSE............................................. New York Stock Exchange NRSRO............................................ Nationally recognized statistical ratings organization (such as Moody's or S&P) PFPC............................................. PFPC Inc. Prime Fund....................................... Nations Prime Fund Putnam........................................... Putnam Investment Management LLC PwC.............................................. Pricewaterhouse Coopers LLP REIT............................................. Real estate investment trust S&P.............................................. Standard & Poor's Corporation S&P100........................................... [insert] S&P500........................................... [insert] S&P MidCap 400................................... [insert] S&P SmallCap 600................................. [insert] SAI.............................................. This Statement of Additional Information SEC.............................................. United States Securities and Exchange Commission. Selling Agent.................................... Banks, broker/dealers or other financial institutions that have entered into a sales support agreement with the Distributor Servicing Agent.................................. Banks, broker/dealers or other financial institutions that have entered into a shareholder servicing agreement with the Distributor Short-Term Municipal Income Fund................. Nations Short-Term Municipal Income Fund Small Company Fund............................... Nations Small Company Fund SmallCap Index Fund.............................. Nations SmallCap Index Fund SMBS............................................. Stripped mortgage-backed securities South Carolina Intermediate Bond Fund............ Nations South Carolina Intermediate Municipal Bond Fund South Carolina Bond Fund......................... Nations South Carolina Intermediate Municipal Bond Fund South Carolina Fund(s)........................... One or more of South Carolina Intermediate Bond Fund and South Carolina Bond Fund State Bond Fund(s)............................... One or more of Florida Bond Fund, Georgia Bond Fund, Kansas Bond Fund, Maryland Bond Fund, North Carolina Bond Fund, South Carolina Bond Fund, Tennessee Bond Fund, Texas Bond Fund, Virginia Bond Fund, Florida Intermediate Bond Fund, Georgia Intermediate Bond Fund, Maryland Intermediate Bond Fund, North Carolina Intermediate Bond Fund, South Carolina Intermediate Bond Fund, Tennessee Intermediate Bond Fund, Texas Intermediate Bond Fund and Virginia Intermediate Bond Fund
B-3
Stephens......................................... Stephens Inc. Stock Funds...................................... One or more of those Funds shown under the heading "Stock Funds" on the front cover of the SAI Strategic Growth Fund............................ Nations Strategic Growth Fund Sub-Administrator................................ BNY Sub-Transfer Agent............................... Bank of America (for the Funds Primary Shares) Tax Exempt Fund.................................. Nations Tax Exempt Fund Tax-Exempt Fund(s)............................... One or more of Municipal Reserves, California Reserves, Tax Exempt Fund and the Municipal Bond Funds Tennessee Intermediate Bond Fund................. Nations Tennessee Intermediate Municipal Bond Fund Tennessee Bond Fund.............................. Nations Tennessee Municipal Bond Fund Tennessee Fund(s)................................ One or more of Tennessee Intermediate Bond Fund and Tennessee Bond Fund Texas Intermediate Bond Fund..................... Nations Texas Intermediate Municipal Bond Fund Texas Bond Fund.................................. Nations Texas Municipal Bond Fund Texas Fund(s).................................... One or more of Texas Intermediate Bond Fund and Texas Bond Fund Transfer Agent................................... PFPC Transfer Agency Agreements....................... The transfer agency agreements between NFI, NFT, NR and NFST, on behalf of their respective Funds, and PFPC Treasury Fund.................................... Nations Treasury Fund Treasury Reserves................................ Nations Treasury Reserves U.S. Government Bond Fund........................ Nations U.S. Government Bond Fund Value Fund....................................... Nations Value Fund Virginia Intermediate Bond Fund.................. Nations Virginia Intermediate Municipal Bond Fund Virginia Bond Fund............................... Nations Virginia Municipal Bond Fund Virginia Fund(s)................................. One or more of Virginia Intermediate Bond Fund and Virginia Bond Fund
B-4 APPENDIX C California. The following information relates specifically to California Reserves and the California Municipal Bond Fund. This summary does not purport to be a comprehensive description of all relevant facts. Although we have no reason to believe that the information summarized herein is not correct in all material respects, this information has not been independently verified for accuracy or thoroughness by us. Rather, this information has been culled from official statements and prospectuses issued in connection with various securities offerings of the state of California and local agencies in California, available as of the date of this Statement of Additional Information. Further, these estimates and projections should not be construed as statements of fact. They are based upon assumptions which may be affected by numerous factors and there can be no assurance that target levels will be achieved. General Economic Factors The economy of the state of California is the largest among the 50 states and is one of the largest in the world, having components in high technology, trade, entertainment, agriculture, manufacturing, tourism, construction and services. In fact, the size of the California economy recently surpassed that of France and is the fifth largest economy in the world. Only the United States, Japan, Germany, and the United Kingdom have larger economies. Since 1995, California's economy has been performing strongly after suffering a deep recession between 1990-1994. Fuel and other energy prices, however, have risen sharply in recent months affecting state and local government economies. (See "Recent Developments Regarding Energy" below.) California's July 1, 1999 population of over 34 million represented over 12 percent of the total United States population. California's population is concentrated in metropolitan areas. As of the April 1, 1990 census 96 percent of the state's population resided in the 23 Metropolitan Statistical Areas in the state. As of July 1, 1998, the five-county Los Angeles area accounted for 49 percent of the state's population with over 16.0 million residents and the 10 county San Francisco Bay Area represented 21 percent of the state's population with a population of over 7.0 million. Following a severe recession beginning in 1990, the state's financial condition improved markedly during the fiscal years starting in 1995-96, due to a combination of better than expected revenues, slowdown in growth of social welfare programs, and continued spending restraint based on actions taken in earlier years. The state's cash position also improved, and no external deficit borrowing occurred over the end of the last five fiscal years. The economy grew strongly during the fiscal years beginning in 1995-96, and as a result, the general fund took in substantially greater tax revenues (around $2.2 billion in 1995-96, $1.6 billion in 1996-97, $2.4 billion in 1997-98, $1.7 billion in 1998-99, and $8.2 billion in 1999-2000) than were initially planned when the budgets were enacted. These additional funds were largely directed to school spending as mandated by Proposition 98, to make up shortfalls from reduced federal health and welfare aid in 1995-96 and 1996-97 and to fund new program initiatives, including education spending above Proposition 98 minimum's, tax reductions, aid to local governments and infrastructure expenditures. The combination of resurging exports, a strong stock market, and a rapidly-growing economy in 1999 and early 2000 resulted in unprecedented growth in general fund revenues during fiscal year 1999-2000. The latest estimates from the Department of Finance indicate revenues of about $71.9 billion, an increase of over 20 percent over final 1998-99 revenues and $8.9 billion higher than projected for the 1999 Budget Act. The latest estimates indicate expenditures of $66.5 billion in 1999-2000, a $2.8 billion increase over the 1999 Budget Act, but the result still left a record balance in the Special Fund for Economic Uncertainties ("SFEU") at June 30, 2000 of over $8.7 billion. Fiscal Year 2000-01 Budget 2000 Budget Act. The Governor signed the 2000 Budget Act on June 30, 2000. The spending plan assumed general fund (which is the primary revenue account of the state, holding all revenues received by the state treasury that are not required to be credited to a special fund and earnings from investments not C-1 required to be allocated to another fund) revenues and transfers of $73.9 billion, a 3.8 percent increase over 1999-2000 estimates. The 2000 Budget Act appropriated $78.8 billion from the general fund, a 17.3 percent increase over 1999-2000 and reflected the use of $5.5 billion from the SFEU available from surpluses in the prior year. In order not to place undue pressure on future budget years, about $7.0 billion of the increased spending in 2000-01 was for one-time expenditures and investments. At the time the 2000 Budget Act was signed, the Department of Finance estimated the June 30, 2001 SFEU balance to be $1.8 billion. In addition, the Governor held back $500 million as a set-aside for litigation costs. If this amount is not fully expended during fiscal year 2000-01, the balance will increase the SFEU. The Governor vetoed just over $1 billion in general fund and special fund appropriations from the budget approved by the Legislature, in order to achieve the budget reserve. Because of the state's strong cash position, the Administration announced that it would not undertake a revenue anticipation note borrowing in 2000-01. The 2000 Budget Act also included special fund expenditures of $15.6 billion and bond fund expenditures of $5.0 billion. Special fund revenues are estimated at $16.5 billion. Some of the major features of the 2000 Budget Act were the following: 1. Proposition 98 funding for K-12 schools was increased by $3.0 billion in general fund moneys over revised 1999-2000 levels, $1.4 billion higher than the minimum Proposition 98 guarantee. The 2000 Budget Act also includes an income tax credit to compensate credentialed teachers for the purchase of classroom supplies and a $350 million repayment of prior years' loans to schools. 2. Funding for higher education increased substantially above the revised 1999-2000 level. General fund support was increased by $486 million (17.9 percent) for the University of California and $279 million (12.7 percent) for the California State University system. In addition, funding for community colleges increased by $497 million (9.0 percent). 3. Increased funding of $2.7 billion general fund for health and human services. 4. Significant amounts were devoted to capital outlays. A total of $2.0 billion of general fund money was appropriated for transportation improvements, supplementing gasoline tax revenues normally used for that purpose. This was part of a $6.9 billion Transportation Congestion Relief Program to be implemented over six years. In addition, the Budget Act included $570 million from the general fund in new funding for housing programs. 5. A total of about $1.5 billion of tax relief was enacted as part of the budget process. 6. A one-time appropriation of $200 million, to be split between cities and counties, was made to offset property tax shifts during the early 1990s. Additionally, $121 million was appropriated for support of local law enforcement, and $75 million in one-time funding was provided for local law enforcement agencies to purchase high technology equipment. Subsequent Developments. The Governor announced on October 25, 2000 that, pursuant to provisions in the law enacted in 1991 when the state sales tax rate was last raised, the state sales tax rate would be reduced by 0.25 percent for a period of at least one calendar year, effective January 1, 2001. This reduction will result in approximately $553 million less general fund revenue in the last half of fiscal year 2000-01 and approximately $600 million less in the first half of fiscal year 2001-02. If the general fund reserve falls below 4 percent of general fund revenue in the future, the sales tax rate could be raised by 0.25%. Proposed Fiscal Year 2001-02 Budget The 2001-02 Governor's Budget estimates 2001-02 general fund revenues and transfers to be about $79.4 billion, or 3.3 percent higher than the revised 2000-01 estimate. This estimate assumes a slowing economy, still showing moderate growth short of a recession. The estimate also accounts for a $553 million drop in sales tax revenues as a result of the 0.25 percent sales tax reduction which took effect on January 1, 2001, and will remain in effect at least until December 31, 2001. The Governor proposes $82.9 billion in expenditures, a 3.9 percent increase over the revised 2000-01 estimate. The Governor C-2 proposes budget reserves in 2001-02 of $2.4 billion. Of this amount, $500 million is intended for unplanned litigation costs. The 2001-02 Governor's Budget proposes to use $3.7 billion of the new resources since the 2000 Budget Act for one-time expenditures, including $1 billion for energy initiatives, $772 million for capital outlay projects, $250 million in fiscal relief to local government, $200 million for new housing initiatives, and a variety of other proposals. With regard to ongoing programs, the 2001-02 Governor's Budget proposes substantial additions in Proposition 98 funding for K-12 education (an 8.1% increase over the revised 2000-01 spending level) and funding for all units of higher education, funding for health and welfare programs to cover anticipated caseloads, and a modest increase in youth and adult corrections funding. The final expenditure program for 2001-02 will be determined by June 2001 by the legislature and Governor. The Department of Finance will publish an update of revenues and expenditures for the current year and of revenues for the upcoming fiscal year in May, 2001. On February 21, 2001, the Legislative Analyst's Office ("LAO") released its analysis of the 2001-02 Governor's Budget. The LAO Analysis generally agreed with the Governor's Budget projections of revenues, but warned that the economic picture (and hence revenues and expenditures in 2001-02) was unsettled, given several potentially negative factors, including the ongoing energy difficulties in the state, a cyclical slowdown in the high technology sector, the overall national economic slowdown, and the sharp decline in the stock market since mid-2000. The LAO Analysis recommended that the Legislature defer major new spending decisions until after the updated fiscal report due in May 2001. Future Budgets We cannot predict what actions will be taken in the future by the state legislature and the Governor to deal with changing state revenues and expenditures. The state budget will be affected by national and state economic conditions and other factors. Constitutional Legislative and Other Factors Certain California constitutional amendments, legislative measures, executive orders, administrative regulations and voter initiatives could produce the adverse effects described below, among others. Revenue Distribution. Some of the debt obligations in the California Municipal Bond Fund may be obligations of issuers which rely in whole or in part on California state revenues for payment of these obligations. Property tax revenues and a portion of the state's general fund surplus are distributed to counties, cities and their various taxing entities and the state assumes some obligations paid, prior to that point, out of local funds. Whether and to what extent a portion of the state's general fund will be distributed in the future to counties, cities and their various entities is unclear. State Appropriations Limit. The state is subject to an annual appropriations limit imposed by Article XIII B of the State Constitution. The appropriations limit does not restrict appropriations to pay debt service on voter-authorized bonds. Article XIII B prohibits the state from spending "appropriations subject to limitation" in excess of the appropriations limit. "Appropriations subject to limitation," with respect to the state, are authorizations to spend "proceeds of taxes," which consist of tax revenues, and some other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proceeds exceed "the cost reasonably borne by that entity in providing the regulation, product or service," but "proceeds of taxes" exclude most state subventions to local governments, tax refunds and some benefit payments such as unemployment insurance. No limit is imposed on appropriations of funds which are not "proceeds of taxes," such as reasonable user charges or fees and some other non-tax funds. There are various types of appropriations excluded from the appropriations limit. For example, most state subventions to local governments and appropriations for tax refunds are excluded. The appropriations limit may also be exceeded in cases of emergency. The state's appropriations limit in each year is based on the limit for the prior year, adjusted annually for changes in state per capita personal income and changes in population, and adjusted, when C-3 applicable, for any transfer of financial responsibility of providing services to or from another unit of government or any transfer of the financial source for the provisions of services from tax proceeds to non-tax proceeds. The measurement of change in population is a blended average of statewide overall population growth and change in attendance at local school and community college ("K-14") districts. The appropriations limit is tested over consecutive two-year periods. Any excess of the aggregate "proceeds of taxes" received over such two-year period above the combined appropriations limits for those two years, is divided equally between transfers to K-14 districts and refunds to taxpayers. Because of the complexities of Article XIII B, the ambiguities and possible inconsistencies in its terms, the applicability of its exceptions and exemptions and the impossibility of predicting future appropriations, we cannot predict the impact of this or related legislation on the bonds in the California Reserves and the California Municipal Bond Fund. Proposition 13. Article XIII A of the California Constitution (which resulted from the voter-approved Proposition 13 in 1978) limits the taxing powers of California public agencies. Article XIII A provides that the maximum ad valorem tax on real property cannot exceed one percent of the "full cash value" of the property and effectively prohibits the levying of any other ad valorem tax on real property for general purposes. However, on May 3, 1986, California voters approved Proposition 46, an amendment to Article XIII A, which created a new exemption under Article XIII A permitting an increase in ad valorem taxes on real property in excess of one percent for bonded indebtedness approved by two-thirds of the voters voting on the proposed indebtedness. "Full cash value" is defined as "the county assessor's valuation of real property as shown on the 1975-76 tax bill under `full cash value' or, thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment." The "full cash value" is subject to annual adjustment to reflect increases (not to exceed two percent) or decreases in the consumer price index or comparable local data, or to reflect reductions in property value caused by damage, destruction or other factors. Proposition 62. On November 4, 1986, California voters approved an initiative statute known as Proposition 62. This initiative: 1. Requires that any tax for general governmental purposes imposed by local governments be approved by resolution or ordinance adopted by a two-thirds vote of the governmental entity's legislative body and by a majority vote of the electorate of the governmental entity; 2. Requires that any special tax (defined as taxes levied for other than general governmental purposes) imposed by a local governmental entity be approved by a two-thirds vote of the voters within that jurisdiction; 3. Restricts the use of revenues from a special tax to the purposes or for the service for which the special tax was imposed; 4. Prohibits the imposition of ad valorem taxes on real property by local governmental entities except as permitted by Article XIII A; 5. Prohibits the imposition of transaction taxes and sales taxes on the sale of real property by local governments; 6. Requires that any tax imposed by a local government on or after August 1, 1985 be ratified by a majority vote of the electorate within two years of the adoption of the initiative; 7. Requires that, in the event a local government fails to comply with the provisions of this measure, a reduction in the amount of property tax revenue allocated to that local government occurs in an amount equal to the revenues received by that entity attributable to the tax levied in violation of the initiative; and 8. Permits these provisions to be amended exclusively by the voters of the state of California. In September 1988, the California Court of Appeal in City of Westminster v. County of Orange, 204 Cal. App. 3d 623, 215 Cal. Rptr. 511 (Cal. Ct. App. 1988), held that Proposition 62 is unconstitutional to the extent that it requires a general tax by a general law, enacted on or after August 1, 1985 and prior to C-4 the effective date of Proposition 62, to be subject to approval by a majority of voters. The court held that the California Constitution prohibits the imposition of a requirement that local tax measures be submitted to the electorate by either referendum or initiative. We cannot predict the impact of this decision on charter cities, on special taxes or on new taxes imposed after the effective date of Proposition 62. The California Court of Appeal in City of Woodlake v. Logan, 230 Cal. App.3d 1058, 282 Cal. Rptr. 27 (1991), subsequently held that Proposition 62's popular vote requirements for future local taxes also provided for an unconstitutional referenda. The California Supreme Court declined to review both the City of Westminster and the City of Woodlake decisions. In Santa Clara Local Transportation Authority v. Guardino, 11 Cal. 4th 220 (1995), reh'g denied, modified [45 Cal. Rptr. 2d 204] (1995), the California Supreme Court upheld the constitutionality of Proposition 62's popular vote requirements for future taxes, and specifically disapproved of the City of Woodlake decision as erroneous. The Court did not determine the correctness of the City of Westminster decision. Because that case appeared distinguishable, the parties in Guardino did not rely upon it. We cannot predict the impact of the Supreme Court's decision on charter cities or on taxes imposed in reliance on the City of Woodlake case. California Senate Bill 1590, introduced February 16, 1996, would make the Guardino decision inapplicable to any tax first imposed or increased by an ordinance or resolution adopted before December 14, 1995. The California State Senate passed the Bill on May 16, 1996 and would be constitutional as a non-voted amendment to Proposition 62 or as a non-voted change to Proposition 62's operative date. Proposition 218. On November 5, 1996, the voters of the state of California approved Proposition 218, a constitutional initiative, entitled the "Right to Vote on Taxes Act." Proposition 218 adds Articles XIII C and XIII D to the California Constitution and contains a number of interrelated provisions affecting the ability of local governments to levy and collect both existing and future taxes, assessments, fees and charges. Proposition 218 became effective on November 6, 1996. The sponsors of the proposition are unable to predict whether and to what extent Proposition 218 may be held to be constitutional or how its terms will be interpreted and applied by the courts. However, if upheld, Proposition 218 could substantially restrict certain local governments' ability to raise future revenues and could subject some existing sources of revenue to reduction or repeal, and increase local government costs to hold elections, calculate fees and assessments, notify the public and defend local government fees and assessments in court. Article XIII C of Proposition 218 requires majority voter approval for the imposition, extension or increase of general taxes and two-thirds voter approval for the imposition, extension or increase of special taxes, including special taxes deposited into a local government's general fund. Proposition 218 also provides that any general tax imposed, extended or increased without voter approval by any local government on or after January 1, 1995 and prior to November 6, 1996 shall continue to be imposed only if approved by a majority vote in an election held within two years of November 6, 1996. The initiative power granted under Article XIII C of Proposition 218, by its terms, applies to all local taxes, assessments, fees and charges and is not limited to local taxes, assessments, fees and charges that are property related. Article XIII D of Proposition 218 adds several new requirements making it generally more difficult for local agencies to levy and maintain "assessments" for municipal services and programs. "Assessment" is defined as any levy or charge upon real property for a special benefit conferred upon the real property. Article XIII D of Proposition 218 also adds several provisions affecting "fees" and "charges" which are defined as "any levy other than an ad valorem tax, a special tax, or an assessment, imposed by a local government upon a parcel or upon a person as an incident of property ownership, including a user fee or charge for a property related service." All new and, after June 30, 1997, existing property-related fees and charges must conform to requirements prohibiting, among other things, fees and charges which (i) generate revenues exceeding the funds required to provide the property related service, (ii) are used for any purpose other than those for which the fees and charges are imposed, (iii) are for a service not actually used by, or immediately available to, the owner of the property in question, or (iv) are used for general governmental services, including police, fire or library services, where the service is available to the public at large in substantially the same manner as it is to property owners. Further, before any property related C-5 fee or charge may be imposed or increased, written notice must be given to the record owner of each parcel of land affected by such fee or charges. The local government must then hold a hearing upon the proposed imposition or increase of such property based fee, and if written protests against the proposal are presented by a majority of the owners of the identified parcels, the local government may not impose or increase the fee or charge. Moreover, except for fees or charges for sewer, water and refuse collection services, no property related fee or charge may be imposed or increased without majority approval by the property owners subject to the fee or charge or, at the option of the local agency, two-thirds voter approval by the electorate residing in the affected area. Future Initiatives. Articles XIII A, XIII B, XIII C and XIII D were each adopted as measures that qualified for the ballot pursuant to the state's initiative process. From time to time, other initiative measures could be adopted that could affect revenues of the state or public agencies within the state. Other Considerations Recent Development Regarding Energy. California has experienced difficulties with the supply and price of electricity and natural gas in much of the state since mid-2000, which are likely to continue for several years. In 1996 California deregulated the state's power markets. While the transmission and distribution of electricity remained regulated, the generation of electricity was opened up to competition. Under the deregulation scheme, utilities were prohibited from passing all wholesale power costs to consumers until 2002. Energy usage in the state has been rising sharply, but no new power generating plants have been built since the 1980's. The three major investor-owned utilities in the state ("IOUs"), Pacific Gas & Electric ("PG&E"), Edison, and San Diego Gas & Electric, have been purchasing electricity to meet their needs above their own generating capacity and contracted supplies at fluctuating short-term and spot market rates, while the retail prices they can charge their residential and small business customers have been capped at specified levels. Starting in mid-2000, power purchase costs exceeded retail charges, and the IOUs incurred substantial losses and accumulated large debts to continue to purchase power for their customers. As a result, the credit ratings of the IOUs have deteriorated, making it difficult for them to continue to purchase power. The two largest IOUs have reported they are in default in paying some of their obligations. On April 6, 2001, one of the IOUs, PG&E, filed for voluntary protection under Chapter 11 of the federal Bankruptcy Code. The bankruptcy proceedings are pending. While the bankruptcy court decides the allocation of the IOU's available cash flow and assets among its creditors, the IOU will continue operations under current management. According to news sources, on April 10, 2001, PG&E paid approximately half of the property it taxes owed to 49 California counties. PG&E reportedly has told counties it will pay the remainder of the taxes owed before June 30, 2001. There can be no assurance that such payments will be made and it is not possible to predict whether or to what extent the tax payment shortfall will result in serious financial disruptions to any of the affected counties. In 2001, there have been rolling electricity blackouts throughout California affecting millions of customers. The Governor declared a state of emergency under state law on January 17, 2001, and ordered the state's Department of Water Resources ("DWR") to begin purchasing electricity for resale to retail end-use customers, to fill the gap in supplies resulting from the inability of the IOUs to continue to purchase power. DWR also started to enter into long-term power supply contracts to reduce reliance on short-term and spot markets. DWR's purchases are initially being funded by advances from the state's general fund; about $1.8 billion was expended in the first six weeks and as of May 2001 a total of $6.7 billion in general fund advances have been authorized. DWR is entitled to repayment from a portion of retail end-use customer's payments, remitted through the IOUs, but these amounts will not equal the power purchase costs. In May 2001, state officials announced that the state is authorized to sell up to $13.4 billion of bonds in mid-August to help finance the state's plan to overcome the current energy shortages. Proceeds from the offering would be used to buy more electricity and to pay back the general fund for purchases already made. State officials announced that the state expected to sell about $12.5 billion of bonds, with approximately $8 billion of the bonds sold as tax-exempt securities. The state is intensifying programs for energy conservation, load management and improved energy efficiency in government, businesses and homes. Approval for construction of new power generating facilities, especially smaller and "peaking" power facilities, has been accelerated. A number of new larger power plants are under construction and in permitting phase, and will come on line in 2001-03. In addition, C-6 the state is seeking longer term power supply contracts at lower costs. The combination of these elements is expected to lower wholesale electricity costs in the future and promote the financial recovery of the IOUs. Natural gas prices in California have been increasing significantly as a result of nationwide price increases and limited pipeline capacity into the state. The prices nationally may remain high for some time until additional supplies are produced, as natural gas prices are not regulated. One of the state's IOUs also supplies natural gas, and its credit difficulties and bankruptcy filing have impaired its ability to obtain supplies. Significant interruption in natural gas supplies could adversely affect the economy, including generation of electricity, much of which is fueled by natural gas. A number of additional plans are under consideration by the state legislature, including the authorization of state agencies to own, build or purchase power generation or transmission facilities and assist energy conservation efforts. The Governor is currently trying to negotiate state legislative approval for a proposal for the state to purchase transmission lines from the private energy providers. Plans are also being considered to assist the IOUs repay their debts incurred in purchasing power; these may include a state purchase of their transmission facilities, potentially funded with revenue bonds. A number of lawsuits are pending dealing with many aspects of the energy situation in California, including disputes over the rates which the California Public Utilities Commission ("PUC") may charge retail customers, financial responsibility for purchases of power by the IOUs, and various antitrust and fraud claims against energy suppliers. In May 2001 PUC approved a $5.7 billion energy rate increase that will impact approximately nine million residential, industrial and agricultural customers. PUC further acknowledged that more rate increases may be necessary unless federal regulators find a way to control the wholesale electricity market. Then, on June 18, 2001 the Federal Energy Regulatory Commission announced that it was imposing round-the-clock price limits on electricity in eleven western states, including California, effective immediately and September 30, 2002. The energy situation continues to be fluid and subject to many uncertainties. Further, the PG&E Bankruptcy interjects a new party, the federal Bankruptcy Court, into the making of decisions regarding future electricity costs and the role of PG&E. There can be no assurance that there will not be future disruptions in energy supplies or related developments that could adversely affect the state's and local governments' economies, and that could in turn affect state and local revenues. Seismic Activity. Substantially all of California is within an active geologic region subject to major seismic activity. Northern California in 1989 and Southern California in 1994 experienced major earthquakes causing billions of dollars in damages. The federal government provided more than $13 billion in aid for both earthquakes, and neither event has had any long-term negative economic impact. Any California municipal obligation in the fund could be affected by an interruption of revenues because of damaged facilities, or, consequently, income tax deductions for casualty losses or property tax assessment reductions. Compensatory financial assistance could be constrained by the inability of (i) an issuer to have obtained earthquake insurance coverage rates; (ii) an insurer to perform on its contracts of insurance in the event of widespread losses; or (iii) the federal or state government to appropriate sufficient funds within their respective budget limitations. Water Supply and Flooding. Due to aspects of its geography, climate and continually growing population, California is subject to certain risks with regard to its water resources. Throughout the late 1980's and early 1990's California experienced a prolonged drought that strained the state's water supply system. Some urban areas resorted to mandatory rationing, farmers in several agricultural areas chose to leave part of their acreage fallow, and ecosystems in some regions endured harsh impacts. On the opposite end of the spectrum, during the winter season of 1997-1998 California endured double its normal amount of rainfall and about $550 million in flood and storm damage statewide. As with the potential risks associated with seismic activity, any California municipal obligation in the fund could be affected by an interruption of revenues because of damaged facilities or income tax deductions for casualty losses or property tax assessment reductions. Bond Rating. Three major credit rating agencies, Moody's Investors Service, Inc., S&P and Fitch IBCA, Inc., assign ratings to California long-term general obligation bonds. A general description of Moody's, S&P's and Fitch's ratings of municipal bonds is set forth in Appendix A to this Statement of Additional Information. The ratings of Moody's, S&P and Fitch represent their opinions as to the quality of C-7 the municipal bonds they rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, municipal bonds with the same maturity, coupon and rating may have different yields while obligations with the same maturity and coupon with different ratings may have the same yield. As of May 14, 2001, California general obligation bonds were assigned ratings of "A+" from Standard & Poor's, "Aa2" from Moody's and "AA" from Fitch. These ratings reflect a downgrade by Standard & Poor's in April 2001 and a downgrade by Moody's in May 2001. Both downgrades stem largely from each ratings agency's concerns regarding the state's energy situation and its impact on the state's finances. These recent reductions on the state's credit rating, and any potential future reduction, could adversely affect the market value and marketability of all outstanding notes and bonds issued by the state, its agencies or its local governments and there can be no assurance that current ratings will be maintained in the future. Because the state historically budgets only a small year-end unreserved fund balance, a small change in economic conditions can leave the state with a negative fund balance. Other Investment Information. The investment adviser believes that it is likely that sufficient California municipal securities will be available to satisfy the investment objective, policies and limitations of the California Municipal Bond Fund, and to enable the fund to invest at least 50% of its total assets in California municipal securities at the close of each of its fiscal quarters. In meeting this investment policy the fund may invest in municipal securities which are private activity bonds (including industrial development bonds under prior law) the interest on which is subject to the 26% to 28% federal alternative minimum tax applicable to individuals and the 20% federal alternative minimum tax and the environmental tax applicable to corporations. The environmental tax applicable to corporations is imposed at the rate of 12% on the excess of the corporations modified federal alternative minimum taxable income over $2,000,000. Investments in such securities, however, will not exceed under normal market conditions 35% of the fund's total assets when added together with any taxable investments held by the fund. Moreover, although the fund does not presently intend to do so on a regular basis, it may invest more than 25% of its assets in municipal securities the interest on which is paid solely from revenues of similar projects if such investment is deemed necessary or appropriate by the fund's investment adviser in light of the fund's investment objective and policies. To the extent that the fund's assets are concentrated in municipal securities payable from revenues on similar projects, the fund will be subject to the peculiar risks presented by such projects to a greater extent than it would be if the fund's assets were not so concentrated. If the Trust's Board of Trustees, after consultation with the investment adviser, should for any reason determine that it is impracticable to invest at least 50% of the fund's total assets in California Reserves and the California Municipal Bond Fund at the close of each quarter of the fund's taxable year, the Board would re-evaluate each fund's investment objective and policies and consider changes in its structure and name or possible dissolution. Florida. Florida is the fourth most populous state with an estimated 2000 population of 15,982,378. By the year 2005, population will likely exceed 16.8 million. Population growth has historically been driven by retirement migration with local economies weighted heavily in tourism and agriculture. Over the past twenty years, retirement, agriculture and tourism have been complemented by high technology jobs, service sector jobs and international trade. In the meantime, the three traditional industries have taken on global character. Trade and tourism, for example, have become international and this has fueled foreign retirement migration. The health of the national economy plays an important role in Florida's fiscal soundness and economic development. Today, as this country enters its ninth year of economic expansion, population growth in Florida, since 1990, has averaged 83% per year. Local growth is supported by strength in other regions of the county which become source feeder markets for population growth in Florida. The emergence of Florida as the fourth most populous state in the United States has placed significant pressure on state and local government to provide infrastructure and municipal and urban services. During the 1980's, growth was so rapid that a significant backlog of need emerged which today, is still being filled. Across the state, construction of new highway systems, airport expansions, local school C-8 and university systems, hospitals and jails are being put in place. Much of this growth is being funded by bonded revenues secured by the expanding real property tax base. As of 2000, real property values exceeded $889 billion, a 7.91% increase over 1999. Residential property values accounted for over $544 billion in value. In addition to the rapid population growth and resulting increases in improved residential properties, commercial and industrial valuations have also grown consistently. There is now over $150 billion in improved real property value in commercial and industrial properties in Florida. One reason commercial and industrial values have increased is the strategic nature of the industries that have located and grown in the State. The Florida industrial base is concentrated in high technology industries such as electronics, medical equipment, laser optics, computer simulation and space travel. As a result, while defense contract spending has declined nationally by over 25 percent, in real terms, from 1985 to 2000, Florida's value of defense contracts remains strong at $6.4 billion in 2000. With increasing demands for services and comparatively low taxes, Florida has experienced a rapid growth in the volume of bond debt. However, because of rapid population growth however, per capita state debt remains well below the national average. The Growth Management Act of 1985 and the concurrency rules promulgated has affected Florida's economic growth and development in some regions of the State and could continue to impact the economy in the future. Concurrency means that the services and infrastructure caused by new development must be in place on or before such new development is operational. In addition, the location of new development will be more carefully scrutinized with the respect to environmental sensitivity and natural resource limitations. Growth management legislation affects all areas of the State with varying degrees of impact depending on the specific local conditions such as, existing infrastructure capacity, local environmental constraints, and limitations on natural resources such as potable water and habitat preservation. Having now experienced more than sixteen years subject to growth management rules, it appears that the Growth Management Act of 1985 has, on balance, been beneficial. Growth management has helped improve quality of life, ease infrastructure shortfalls and focused the State agenda on preserving quality of life through growth management regulation and other funded environmental land preservation programs. Under the current state administration, a trend is developing where local development and growth management issues are being turned back to the county level. This may increase partnership at the local level as well as an increase in the number of special interest groups at the county level. Within Florida, regional economies perform differently according to their urban or rural qualities and level of economic diversification. The spectrum of regional economies spans dense urban centers such as Miami and Tampa to rural agricultural regions of citrus, cattle ranching and sugar cane production. Southeast Florida includes Miami, Fort Lauderdale, West Palm Beach, and the Florida Keys. This area is highly urban and economically diverse. Tourism, retirement, high technology computer manufacturing, medical industries, international trade, winter vegetable crops and sugar cane production are the prominent features of this area. Hurricane Andrew struck South Dade County in Fall, 1992. Some 80,000 homes were destroyed along with local businesses and Homestead Air Force Base. Since the hurricane, approximately 80 to 90 percent of the homes have been restored. The restoration and rebuilding process is now essentially complete. Over the long term, the effects of the hurricane may speed the suburbanization of South Florida. However, in the interim, extensive reinvestment and redevelopment is still needed. Other factors helping to diminish agriculture locally include environmental preservations in sugarcane lands, the effect of foreign competition due to NAFTA on sugar prices, local winter fruit and vegetable prices and citrus canker which has destroyed most of the lime groves in the region. Federal government price support programs for sugar cane growers can be expected to continue. In 1998, Florida led the nation in housing starts. The demand for new single and multifamily homes should remain robust. Across the State, new construction and renovations to existing structures is fueling the construction industry. Redevelopment of the Orlando Naval Training Center and the construction of Florida Gulf Coast University in Ft. Myers are worthy examples of new infrastructure meeting the demands of increasing population. In Broward and Palm Beach Counties, in particular, growth management's concurrency requirements have played a significant role in limiting economic expansion as compared with other regions of the State because of the lack of infrastructure capacity. Community consensus based long range planning C-9 efforts recently have been undertaken in northern Palm Beach County. These efforts are a recognition of the pause in growth that has occurred and over time will help the area accommodate new development. Recent property sales from the MacArthur Foundation land holdings in northern Palm Beach County will also prompt new development there. Southwest Florida has emerged as a strong growth market. Traditionally, very retirement oriented, the region's economy has begun to diversify through increased employment opportunities and migration southward of citrus production. Increased employment opportunity has occurred due to the overall size of the market and improvements in infrastructure capacity. The improvement in transportation access also has helped tourism and as a result indirectly buoyed population growth rates by providing exposure and increased awareness of the region as a retirement destination among visitors. The State of Florida has opened Florida Gulf Coast University in Lee County, near the Fort Myers airport. This is the State's 10th university in the public university higher education system. Florida Gulf Coast University will accommodate 10,000 students within a decade and provide opportunities for synergy between industry and education. Central Florida is a premier world class resort/vacation destination. The presence of Disney World, Universal Studios and other tourist oriented recreational parks drives the central Florida economy. While the total size of the market has grown rapidly, the economy is dependent on tourism and population growth. Locally, the tourism industry has been more stable and seen better growth over the past three decades than either the manufacturing or services sectors. Two additional local industry concentrations, the laser/optical research node and motion picture industries are helping to diversify the local economy. Universal Studios has begun to expand its motion picture and theme park facilities. Disney World has opened its fourth theme park, "Animal Kingdom," covering 500 acres. Disney's Celebration community of residential and commercial activity is the fastest absorbing residential community in Central Florida. Strong growth in tourism and large land areas available for expansion suggests this region will lead the state in population growth in the near term. International tourism has fueled the growth of an international retirement and second home market throughout Florida. Today, in the tourist areas of the market, one fifth of new homes built are sold to foreign retirees or vacation homeowners. Places of origin include England, Germany, South America, and Puerto Rico. International retirement markets are also growing in southwest and Southeast Florida. There were 45 million visitors to the Orlando market in 2000. The hotel market has been strong with 5,085 new hotel rooms added in 2000. North Florida is rural in many areas. Jacksonville is the major city in North Florida. The logging and paper industries, defense and retirement dominate the local economy. The insurance industry also has a strong presence in Jacksonville. Growth in North Florida peaked in the mid 1980's, coinciding with the military defense buildup, prior to the full implementation of growth management legislation. As urbanization and living costs increase in the south and central parts of the State, population growth from national retirement migration sources are increasing locally. Some large local land holders are shifting focus away from forestry and agriculture to residential development of land resources. This shift may be due in part to anticipated long term climate change. The Florida panhandle is quite rural with reliance on tourism, defense and state government for employment opportunities. This area of the State has the lowest per capita incomes and the smallest volume of population growth. With the uncertainty of state budget funding in recent years and continuing defense cutbacks, strong growth in this region of the State is not expected. Coastal counties, however, remain attractive to continued economic development and retirement migration because of the pristine beaches along the Gulf of Mexico. In general, pursuant to the Florida Constitution and certain statutory provisions, there are two basic types of obligations that may be issued in the State of Florida: general obligation bonds and revenue bonds. General obligation bonds are also known as full faith and credit bonds because their repayment is based on the general credit and taxing power of the borrowing government. The ad valorem tax is the most common source of revenue pledged for the repayment of general obligation bonds. Being tax-supported, general obligation bonds are typically used to finance the capital portion of tax supported general purpose governmental projects, with public buildings, roads, criminal justice facilities, and schools being the most common. Only units of local government with taxing power can levy and collect ad valorem taxes. The C-10 State of Florida has no ad valorem taxing power. Generally, general obligation bonds payable from ad valorem taxes may be issued to finance capital projects authorized by law only if the issuance of such bonds is approved by the qualified electors. Revenue bonds are obligations of a unit of government payable solely from the revenues of a particular enterprise, such as a water and sewer system, or from the revenues derived from a particular facility or user, or from non-ad valorem revenues, such as the sales tax, or from other special funds authorized to be pledged as additional security. Revenue bonds may also be payable from non-specific revenues budgeted each year by the issuer. Unlike general obligation bonds, revenue bonds do not constitute a debt of the issuing unit or a pledge of its faith and credit, and they are not backed by the issuer's taxing power. The Florida courts have validated debt obligations commonly referred to as certificates of participation or "COPS." In a typical COPS transaction, the issuer leases either real or personal property from a special purpose corporation. The special purpose corporation assigns its rights to the lease payments to a corporate trustee who in turn issues certificates evidencing an undivided proportionate interest of the owners of such certificates to receive the lease payments. Although ad valorem taxes can be used to make the lease payments, the Florida Supreme Court has held that a referendum is not required because the obligation to make lease payments is an annual obligation subject to renewal each year. If the issuing body elects not to renew its lease for the next succeeding year and therefore fails to appropriate the necessary moneys to make lease payments, the holders of the COPS would be limited to the remedies available under the lease. At least one Florida court has upheld the right of a governmental unit to not exercise the annual renewal option of its lease. In Florida, the Division of Bond Finance has authority over the issuance of State bonds pledging the full faith and credit of the State and the issuance of revenue bonds payable solely from funds derived from sources other than State tax revenues or rents or fees paid from State tax revenues. Pursuant to the Florida Constitution, moneys sufficient to pay debt service on State bonds must be appropriated as the same become due. Furthermore, to the extent necessary, all State tax revenues, other than trust funds, must be available for such appropriation purposes. At the November 1994 general election, voters in the State approved an amendment to the Florida Constitution limiting the amount of taxes, fees, licenses and charges imposed by the State and collected during any fiscal year to the amount of revenues allowed for the prior fiscal year, plus an adjustment for growth. Growth is defined as the amount equal to the average annual rate of growth in Florida personal income over the most recent twenty quarters times the State revenues allowed for the prior fiscal year. The revenues allowed for any fiscal year can be increased by a two-thirds vote of the State Legislature. The total outstanding principal of State bonds pledging the full faith and credit of the State may not exceed fifty percent of the total tax revenues of the State for the two preceding fiscal years, excluding any tax revenues held in trust. Generally, state bonds pledging the full faith and credit of the State, except certain refunding bonds, generally may be issued only to finance or refinance the cost of State fixed capital outlay projects subject to approval by a vote of the electors. Revenue bonds may be issued by the State of Florida or its agencies without voter approval only to finance or refinance the cost of state capital projects payable solely from funds derived from sources other than state tax revenues or rents or fees paid from state tax revenues. Generally, the Florida Constitution and Florida Statutes require that the budget of the State and that of the units of local government in the State be kept in balance from currently available revenues during each fiscal year. If revenues collected during a fiscal year are less than anticipated, expenditures must be reduced in order to comply with the balanced budget requirement. Florida Statutes provide for a statewide maximum bond interest rate which is flexible with the bond market and from which are exempted bonds rated in one of the three highest ratings by nationally recognized rating services. Nevertheless, upon request of a governmental unit, the State Board of C-11 Administration may authorize a rate of interest in excess of the maximum rate, provided relevant financial data and information relating to the sale of the bonds is submitted to the State Board. The Florida Sunshine Law, among other things, precludes public officials from meeting with respect to the issuance of bonds other than at duly noticed public meetings of the governmental entity. These provisions apply to all meetings of any board or commission of any State agency or authority, or of any county, municipal corporation, or political subdivision. No resolution, rule, or formal action is considered binding except as taken at such duly noticed public meetings. Georgia. Ideally located in the southeastern section of the United States, the State of Georgia ("Georgia") has experienced solid and sustained growth over the last several decades. This growth was reflected in the latest population census, which identified Georgia as the country's tenth largest state (and the fourth fastest growing), with a total population of approximately 7.5 million people. Georgia's economy is well-diversified, with private sector employment almost equally spread between manufacturing, services, and wholesale and retail sales. This diversity has allowed Georgia to experience almost continuous economic growth over the last several decades. During the last decade alone, Georgia added almost 2000 jobs per week. This diversity has also allowed Georgia to experience unemployment rates significantly below the national average. In spite of the recent slowing of the economy in Georgia (and throughout the country), unemployment has only risen from a low of 3.0% in December 2000 to 3.5% as of May 2001. Another contributing factor to Georgia's economic success is its location, which affords its residents and businesses easy access to commercial centers throughout the world. For ground transportation, the capital city of Atlanta is one of the few major US cities with 3 major interstate highways, placing Georgia manufacturers and distributors within 2 truckload days of 82% of the US industrial market. With respect to air travel, Atlanta's Hartsfield Airport is the world's busiest, with 80% of the nation's population within a 2 hour flight. Finally, with respect to water travel, Georgia has three significant ocean ports (Savannah, Brunswick and Bainbridge) which handled 12.1 million tons of cargo in 2000. These factors have all contributed to allow Georgia to have a significant impact on the international economy. This impact has been recognized by the 13 international banks with offices in the state as well as the 44 countries which have consular, trade, or chamber of commerce offices in Atlanta. The state government of Georgia and its elected officials have historically adopted a very conservative fiscal approach. This approach has resulted in the state having one of the lowest debt levels, per capita, in the United States. General obligation bonds are typically issued by the state pursuant to Article VII, Section IV of the Constitution of the State of Georgia (the "Georgia Constitution"), which provides that such bonds are the direct and general obligations of the state. The operative language is set forth in Article VII, Section IV, Paragraph VI of the Georgia Constitution which provides: "The full faith, credit and taxing power of the state are hereby pledged to the payment of all public debt incurred under this article and all such debt and the interest on the debt shall be exempt from taxation (emphasis added). . ." The Georgia Constitution further obligates the Georgia General Assembly to "raise by taxation and appropriate each fiscal year ... such amounts as are necessary to pay debt service requirements in such fiscal year on all general obligation debt." The Georgia Constitution also establishes a special trust fund (the "State of Georgia General Obligation Debt Sinking Fund") which is used for the payment of debt service requirements on all general obligation debt. The Georgia Constitution also establishes certain limitations upon the quantity of debt which the state can incur. In particular, Article VII, Section IV, Paragraph II(b) of the Georgia Constitution provides that, except in certain emergency situations (i.e., in times of war or to cover a temporary budget shortfall) the state may not incur additional debt if, in that fiscal year or any subsequent year, the cumulative annual debt service for both general obligation debt and guaranteed revenue debt (including the proposed debt) will exceed 10% of the total revenue receipts, less refunds, for the prior fiscal year. The Georgia C-12 Constitution prevents state departments and agencies from circumventing these debt limitation provisions by prohibiting them from executing contracts which may be deemed to constitute a security for bonds or other public obligations. (See Article VII, Section IV, Paragraph IV of the Georgia Constitution.) As mentioned above, the state may incur "public debt to supply a temporary deficit in the state treasury in any fiscal year created by a delay in collecting the taxes of that year. Such debt shall not exceed, in the aggregate, 5% of the total revenue receipts, less refunds, of the state treasury in the fiscal year immediately preceding the year in which such debt is incurred." (See Georgia Constitution, Article VII, Section IV, Paragraph I(b).) However, since this provision was enacted, the state has never had to exercise this power. Virtually all debt obligations represented by bonds issued by the State of Georgia, counties or municipalities or other public subdivisions, and public authorities require validation by a judicial proceeding prior to the issuance of such obligation. The judicial validation makes these obligations incontestable and conclusive, as provided under the Georgia Constitution. (See Article VII, Section VI, Paragraph VI of the Georgia Constitution). The State of Georgia operates on a fiscal year beginning on July 1 and ending on June 30. Each year the State Economist, the Governor and the State Revenue Commissioner jointly prepare a revenue forecast upon which is based the state budget which is considered, amended, and approved by the Georgia General Assembly. To protect the state in the event of an unexpected or uncontrolled decline in state revenues, and reflective of its conservative fiscal approach, in 1976 the Georgia General Assembly established the Revenue Shortfall Reserve. This reserve is funded by surplus revenue collections. As of June 30, 2000 the reserve had a balance of $551,277,500, which represented a 45% increase over the prior year balance. Net tax revenue collections for the fiscal year ending on June 30, 2000 were $13,041,656,956, which represented a 8.1% increase over fiscal year 1999 collections. Primary sources of these funds included: Source Amount Personal Income Tax $ 6,364,427,844 Sales and Use Tax $ 4,806,931,893 Corporate Income Tax $ 667,320,938 Motor Vehicle Fees and Fuel Taxes $ 674,192,603 Liquor and Tobacco Taxes $ 227,726,645 Estate Taxes $ 148,254,987 Miscellaneous $ 88,124,378
In addition , Georgia received $683,827,000 in revenue from the Georgia Lottery Corporation in fiscal year 2000; all lottery revenues are earmarked for educational expenditures. As reported by the Attorney General's Office (in a April 24, 2001 letter to the State Auditor) in accordance with and limited by the ABA Statement of Policy Regarding Lawyers' Responses to Auditors' Request for Information (December 1975), certain claims have been asserted against the State or its departments or agencies: Age International, Inc. v. State of Georgia, Fulton Superior Court Civil Action Nos. E-3793 & E-25073. These two cases were suits for refund seeking approximately $153,000,000, plus additional interest, for liquor taxes allegedly paid by out-of-state distillers. Plaintiffs challenged the constitutionality of Georgia's import tax on liquor, see Ga L. 1985, p. 665 (O.C.G.A.ss.3-4-60), on Commerce Clause and related grounds. In 1998, the trial court granted the State's motions for summary judgement. On June 30, 2000, the subsequent appeal was dismissed by the Georgia Supreme Court, and Plaintiff's petition for certiorari was denied by the U.S. Supreme Court on December 4, 2000. On January 30, 2001, the Superior Court issued an Order of Remittitur rendering final judgment in favor of the State, concluding the cases in their entirety. C-13 Atlanta Coast Mechanical v. R.W. Allen-Beers, J.V. v. Board of Regents and Bovis Constr. Corp., Fulton Superior Court Civil Action No. 1999CV05670; Metro Waterproofing, Inc. v. R.W. Allen-Beers, J.V. v. Board of Regents and Bovis Construction Corp., Fulton Superior Court Civil Action No.99CV09227; DACA, Inc. v. R.W. Allen-Beers v. Board of Regents and Bovis Corp., Fulton State Court Civil Action No. 99VS0155601-J; Cleveland Construction, Inc. v. R.W. Allen Beers, J.V. v. Board of Regents and Bovis Constr. Corp., Fulton Superior Court Civil Action No. 1999CV15357. The Children's Medical Center project in Augusta has generated approximately $15 million in delay, equitable adjustment, and design claims from 30 subcontractors and the construction manager, R.W. Allen-Beers J.V. The total project costs are $55 million, with construction management services on the project being provided by Bovis Construction as the program manager. Several subcontractors have filed lawsuits against Beers and the surety. Beers has filed corresponding third-party complaints against the Board of Regents and Bovis. Bovis, as the program manager, has been working through the contract dispute resolution process with all parties to resolve the claims. The first lawsuit is by Atlanta Coast Mechanical (HVAC) for $7 million, with a Beers claim of $5 million. The second lawsuit is by Metro Waterproofing (roofing) for $114,000. In the third lawsuit, DACA has claimed $1.1 million in damages. The fourth lawsuit by Cleveland Construction involves drywall and wall coverings. As of April 1, 2001, the State has reached settlement on the Metro Waterproofing and DACA claims, in the approximate respective settlement amounts of $22,000 and $625,000, and has successfully negotiated a settlement with two other subcontractors before suit was filed, paying approximately $1,000,000 in settlement of their claims. Settlement discussions are underway with Cleveland Construction. The State expects to reach a favorable settlement with all subcontractors. For the disputes with R.W. Allen-Beers, the State has filed fourth party complaints against the architect, Stanley Berman & Sears. DeKalb County et al. v. State, et al., Fulton Superior Court Civil Action No. E-67520 (filed March 13, 1998). This suit, against the State of Georgia, the Department of Revenue, the Governor (in his official capacity), and the Commissioner of the Department of Revenue (in his personal and official capacities), alleges improper collection and distribution by the State and its agencies of the Homestead Option Sales and Use Tax, a local option sales tax in effect in DeKalb County since July, 1997. DeKalb's complaint, as amended, sought an accounting, mandamus, injunctive relief, declaratory judgment, unjust enrichment, bailment, inverse condemnation, and a determination that O.C.G.A. ss.48-8-67 ( a law enacted during the pendency of the lawsuit) was unconstitutional and sought damages of approximately $30 million. DeKalb's action was dismissed by the trial court, and this dismissal was affirmed in part and reversed in part by the Supreme Court of Georgia in an order dated February 22, 1999. The Supreme Court's decision remands to the trial court the question of whether the Department of Revenue made reasonable efforts to identify county tax proceeds that have been determined by the Department as unidentifiable to any county, and, if so, to account to DeKalb County. The resolution of this case is anticipated by the beginning of April, 2001. DeKalb Medical Center, et al. v. Russell Toal, et al., Fulton Superior Court Civil Action No. E67324 (filed February 26, 1998). A number of Georgia Medicaid provider hospitals filed suit on grounds of breach of contract and unconstitutional takings for additional Medicaid reimbursement for state fiscal year 1997. The complaint seeks over $7 million dollars from the State of Georgia and the Department Community Health. The trial court ruled in favor of the State with respect to the unconstitutional takings claim but ruled against the State on the breach of contract claim, holding that the Department of Community Health had violated the federal statute commonly known as the "Boren Amendment." The Georgia Court of Appeals affirmed the trial court's decision. A petition for certiorari filed by the State is now pending before the Georgia Supreme Court. A decision of the Georgia Supreme Court adverse to the State could result in a loss as large as $13 million. Ellis-Don Construction, Inc. v. GSFIC, Fulton Superior Court Civil Action No. 2000CV18524. The UGA Biocontainment Research Center in Athens (now called the Animal Health Research Center) has generated a $8.2 million delay, equitable adjustment, and design claim from the contractor, Ellis-Don. The State has negotiated a withdrawal by Ellis-Don as the general contractor, with all parties reserving their respective rights. The Georgia State Financing and Investment Commission ("GSFIC") will obtain replacement contractors to complete the building and correct the deficiencies and is hiring a building commissioning agent and a litigation resident engineer inspector to monitor the compliance work. GSFIC and the Board of Regents of the University System of Georgia have significant counterclaims against Ellis- C-14 Don. The parties are now completing the discovery phase and are looking toward a court-approved mediation. The State has filed a third party complaint against the architect, Rosser International, who has filed a fourth party complaint against the engineer, Newcomb and Boyd. General Motors Acceptance Corp. v. Jackson, Fulton Superior Court Civil Action No. 1999CV06252 ("GMAC") (complaint filed March 16, 1999); Bank of America, N.A., as successor by merger to NationsBank, N.A. v. Jackson, Fulton Superior Court Civil Action No. 1999CV10366 (complaint filed on June 21, 1999); Chrysler Financial Co. LLC v. Jackson, Fulton Superior Court Civil Action No. 1999CV10369 (complaint filed on June 21, 1999); SunTrust Bank, Atlanta, et al. v. Jackson, Fulton Superior Court Civil Action No. 1999CV10385 (complaint filed on June 22, 1999); First Union Nat'l Bank v. Jackson, Fulton Superior Court Civil Action No. 1999CV12508 (complaint filed on August 12, 1999). These suits by financial institutions seek refunds of sales taxes, based upon alleged bad debts on installment sales contracts purchased from Georgia motor vehicle dealers, in the approximate respective amounts of $300,000; $2,500,000; $2,000,000; $1,400,000; and $459,000. The total amount of these and all similar, pending administrative claims for refund (for the years 1991-2000) is approximately $46,000,000. The four cases filed after GMAC have been temporarily stayed pending the outcome of GMAC. On cross-motions for summary judgment in GMAC, the Superior Court ruled in favor of the Defendant State Revenue Commissioner. On appeal, the Georgia Court of Appeals affirmed. GMAC's petition for certiorari is pending in the Georgia Supreme Court. The State has defended against the asserted claims and liability at each stage of the litigation, on both a factual and a legal basis, and will continue to do so. If the trial court's decision were to be reversed and judgment ultimately to be entered against the State, the estimated maximum potential loss to the State with regards to all of the pending claims for refund presently appears to be the principal amount of those claims, i.e. approximately $46,000,000, less possible deletions after audit or based upon secondary defenses, plus claimed interest (potentially at the rate of 1% per month). James Andrew Coleman v. United States of America, et al., Federal District Court for the District of Columbia Case No. 1:98cv02559. This Civil Action was filed against the United States, the "Executive Branch federal defendant," William Jefferson Clinton, the State of Georgia, the State of Mississippi, and the State of South Carolina. As of October 14, 1999, the State of Georgia has not been legally served. The suit alleges that the United States government's failure to enforce the purported terms of surrender ending the Civil War have resulted in the inclusion in the Georgia state flag of a Confederate battle flag, allegedly in violation of those terms of surrender. The suit claims that said failure of enforcement violates various federal constitutional and statutory provisions. The suit prays for relief in the form of $40 billion in compensatory damages and 40 billion in punitive damages against each named defendant. If the State of Georgia ever becomes a proper party to the suit through legal service of process, the State intends to defend vigorously. The State believes it has good and valid defenses, including but not limited to Eleventh Amendment immunity. The above-referenced information is based on available public documents and oral representations made by and information received from officials at the state Attorney General's Office, Georgia Department of Revenue, and participants in the pending cases. Kansas. Kansas is a large but sparsely populated state in the central plains region of the United States. Kansas' approximately 2.6 million people are increasingly concentrated in several urban centers that are located in the northeast and south central regions of the state. Kansas' economy is primarily based on manufacturing, wholesale and retail trade, finance, construction and agriculture. Kansas is a major producer of livestock and grain. Stability in durable goods manufacturing, and in the service, construction and trade industries, has sustained steady economic growth in Kansas for the past several years. Slower growth in nonfarm jobs and personal income is forecast for Kansas through the year 2001. The University of Kansas, Policy Research Institute summarized its forecast for the Kansas economy through the year 2001 in "The Kansas Economy" in the Kansas Economic Outlook, Vol. 5, No. 1 (www.ku.edu/pri/ksdata/keo/keo.htm) as follows (references to tables of data have been deleted): C-15 The Kansas Economy(1) The Kansas economy began showing signs of slower growth in 1999, following a strong performance during the 1996 through 1998 period. Although job growth fell significantly in 1999, growth in the number of Kansans employed continued to be strong, suggesting that fewer Kansans were resorting to multiple part-time jobs than in earlier years. Some highlights of the 2001 forecast . . . are: o The unemployment rate will increase from 3.4 percent in 2000 to 3.7 percent in 2001, as employment growth fails to match the growth of the labor force for the second straight year. o Job growth (nonfarm wage and salary employment) will continue to be less than 2 percent in 2001, exceeding 1999's anomalous 1.1 percent increase, but failing to return to the greater than 3 percent rates of 1997 and 1998. o Personal income will grow 4.8 percent in 2001 compared to 5.4 percent in 2000, partly driven by slower wage and salary growth. Some prominent features of the quarterly sectoral job forecasts that . .. . are: o There were modest job increases in the mining sector in 2000, induced by higher world energy prices. Similar modest job increases are expected for 2001. The strong job growth in the construction industry during 2000 will soften somewhat; in spite of lower interest rates, slower economic growth will reduce demand for new construction. o Jobs in durable goods manufacturing have leveled off since the beginning of 1999, and even showed moderate declines during the last quarter of 1999 and the first quarter of 2000. The level of jobs in durable goods manufacturing is expected to remain nearly steady throughout 2001. The number of jobs in nondurable goods manufacturing has also leveled out, with only small increases expected during 2001. o The strong job growth in the transportation and utilities sector during 1999 moderated during 2000 and is expected to be even more modest in 2001, although still slightly above the state's overall rate of job growth for the year. o The retail trade sector, which added jobs at a faster rate in 2000 than in 1999, will continue to grow at a moderate rate in 2001, exhibiting its strongest performance during the last half of the year. The wholesale trade sector will experience nearly flat job performance, following modest job additions in 2000. o The finance, insurance, and real estate sector will continue to grow at the moderate pace that it has displayed during the last two years. o Job growth in the services sector should pick up slightly in 2001, following two years of below average growth. Employment growth in the sector will still be below the rates experienced during the first two thirds of the 1990s. o State and local government job growth will continue in the 1 1/2 to 2 percent range in 2001; federal government employment will decline due to the lost of Census employees. . . . [J]obs in durable goods manufacturing declined about one percent a year in 1999 and 2000, following robust average growth of 6 percent a year in 1997 and 1998. . . . [T]he C-16 main reason for both the earlier robust growth and the more recent malaise is the 1997-1998 buildup in employment in the transportation equipment sector, and then its subsequent leveling off. The performance of the machinery, including electrical machinery, sector also contributed to the overall behavior of the durable goods manufacturing sector during the period. Jobs in non-durable goods manufacturing grew modestly in 1998 and 1999, but leveled off in 2000 and are expected to remain essentially flat in 2001. Continued weakness in the printing and publishing sector, along with modest growth in food and kindred products, are the main explanations. The transportation and utilities sector, which includes communications . . ., added jobs at a somewhat faster rate than the state as a whole during 1999 and 2000, and is expected to slightly outperform the state again in 2001. Both trucking and warehousing, and communications (which is included in the "other" category), are expected to be leading forces in the sector in 2001. . . . [J]ob growth in the retail trade sector will continue near the moderate pace that it set in 2000. Stores selling general merchandise will add jobs faster than other areas of retail trade, as they have done for the last 4 years. Jobs in finance, insurance and real estate . . . will grow 1.0 percent in 2001, following 1.3 percent growth in 2000. Banking should see small employment increases in 2001, while insurance employment should decline slightly, as it did in 1999 and 2000. In 1999 and 2000, the average rate of job growth in the services sector was only about half of what it was in 1997 and 1998 . . .. Although the forecast shows a modest increase in the growth rate for 2001, it will still be well below the increases seen during 1997-1998. . . . Although nominal personal income is expected to grow more slowly in 2001 than in 2000, it will still increase nearly 5 percent. Adjusted for inflation, real personal income will also grow more slowly in 2001 that in 2000, averaging 2.0 percent compared to 2.9 percent in the earlier year. Maryland. The Adviser believes that the information summarized below describes some of the more significant matters relating to the Nations Maryland Intermediate Municipal Bond Fund and Nations Maryland Municipal Bond Fund. The sources of the information are the official statements of issuers located in Maryland, other publicly available documents, and oral statements from various state agencies. The Adviser has not independently verified any of the information contained in the official statements, other publicly available documents, or oral statements from state agencies. Estimates and projections presented herein are based upon assumptions which could be affected by many factors and there can be no assurance that such estimates and projections will prove to be accurate. Overview Services, wholesale and retail trade, government, and manufacturing (primarily printing and publishing, food and related products, instruments and similar products, industrial machinery, electronic equipment and chemical and allied products) are the primary fields of employment in Maryland. Total employment in Maryland increased by 9.5% between 1991 and 2000. The State's unemployment rate was 3.9% in 2000, compared to a national rate of 4% for the same period. Personal income in Maryland has grown at an average annual rate of 5% since 1990, slightly slower than the nationwide 5.5% over the same period. Per capita income in 2000 was $33,872 in Maryland, compared to the national average of $29,676. For each of the past 10 years, per capita personal income in Maryland has ranked as the fifth highest in the United States. In 2000 the State posted taxable retail sales of $62 billion, which was an increase of over $24 billion, or 63.5%, from 1990. Sales accelerated strongly in 1999 and 2000, apparently as a result of high C-17 levels of consumer confidence generated by the lengthy success of the U.S. stock markets. It is impossible to predict the levels of taxable retail sales going forward. Budget The Maryland Constitution requires the State to enact a balanced budget for each of its fiscal years, which run from July 1 to June 30. Maryland ended fiscal year 2000 with a $936.2 million general fund balance on a budgetary basis, of which $784.5 million was designated to fund fiscal-year 2001 operations. The State estimates that the general fund balance on a budgetary basis will be approximately $385 million at June 30, 2001 and approximately $37.7 million at June 30, 2002. On April 4, 2000 the General Assembly, which is the legislative branch of the State government, approved the budget for fiscal year 2001. The budget includes, among other things: (i) sufficient funds to meet all specific statutory funding requirements; (ii) sufficient funds to meet the actuarially recommended contributions for the State's seven retirement systems; (iii) funds dedicated to the debt service on the State's general obligation bonds in an amount sufficient to avoid an increase in the State's property tax; (iv) $596.3 million for capital projects (other than transportation projects), including $172 million for public school construction; (v) $3.1 billion in aid to local governments from general funds; and (vi) net general fund deficiency appropriations of $73.3 million for fiscal 2000, including $25.3 million to the State Reserve Fund. On April 3, 2001, the General Assembly approved the budget for fiscal year 2002. The 2002 budget includes, among other things: (i) sufficient funds to meet all specific statutory funding requirements; (ii) sufficient funds to meet the actuarially recommended contributions for the State's seven retirement systems; (iii) funds dedicated to the debt service on the State's general obligation bonds in an amount sufficient to avoid an increase in the State's property tax; (iv) $643.9 million for capital projects (other than transportation projections) including $134 million for public school construction; (v) $3.3 billion in aid to local governments from general funds; and (vi) net general fund deficiency appropriations of $124.9 million for fiscal 2001, including $57.2 million for medical and foster care programs, $30.2 million to the State Reserve Fund and $10.3 million in aid to local governments. In 1999 the General Assembly created the Cigarette Restitution Fund, which will administer all funds received by the State in connection with the tobacco settlement. At least 50% of such appropriations must be used for various public health and planning initiatives related to tobacco. The remaining 50% can be appropriated for any public purpose. The fiscal year 2001 budget provides special fund appropriations authorized from the Cigarette Restitution Fund, including $52.9 million for education and $124.6 million for Medicaid managed care. Authorization of Indebtedness Neither the Constitution nor general laws of Maryland impose any general limit on the amount of debt the State can incur. However, Maryland's Constitution prohibits the creation of State debt unless it is authorized by a law that provides for the collection of an annual tax or taxes sufficient to pay the interest when due and to discharge the principal within 15 years of the date of issuance. Taxes levied for this purpose may not be repealed or applied to any other purpose until the debt is fully discharged. The General Assembly authorizes a particular loan for a particular project or purpose. Beginning with its 1990 session, the General Assembly has annually enacted a Maryland Consolidated Capital Bond Loan, or "capital bond bill," that within a single enabling act authorizes various capital programs administered by State agencies and other projects for local governments or private institutions. Maryland had $4.6 billion of State tax-supported debt outstanding, and $961.1 million of authorized but unissued debt, at March 31, 2001. The public indebtedness of the State of Maryland and its agencies can be generally divided into the following categories: o The State issues general obligation bonds for capital improvements and for various projects including local-government initiatives and grants to private, nonprofit, cultural or educational institutions. The State's real property tax is pledged exclusively to the repayment of these bonds. C-18 At least since the end of the Civil War, Maryland has paid the principal of and interest on its general obligation bonds when due. o The Maryland Department of Transportation issues limited special-obligation bonds for transportation purposes, payable primarily from specific, fixed-rate excise taxes and other revenues related mainly to highway use. Holders of these bonds are not entitled to look to any other sources of payment. o The Maryland Stadium Authority issues limited special-obligation bonds and notes to finance stadiums and conference centers payable primarily from lease rentals, and sports lottery and other revenues. o Certain other State units, such as Maryland's university systems, are authorized to borrow funds pursuant to legislation that expressly provides that the State will not be deemed to have given any pledge or assurance of repayment, and for which the state will have no liability for repayment. These obligations are payable solely from specific non-tax revenues of such borrowers. o The State and certain of its agencies also enter into a variety of conditional purchase, sale-leaseback and similar transactions to finance the acquisition of facilities and equipment. These lease agreements specify that payments are subject to annual appropriation by the General Assembly. In the event that appropriations are not made, the State can not be held contractually liable for the payments. These transactions are subject to approval by the Board of Public Works, which is responsible for supervising most expenditures of State funds and is made up of the Governor, Comptroller and Treasurer of Maryland. Although the State has the authority to make short-term borrowings in anticipation of taxes and other receipts up to a maximum of $100 million, the State in the past 20 years has not issued short-term tax anticipation notes or made any other similar short-term borrowings for cash flow purposes. The State has not issued bond anticipation notes except in connection with a State program to ameliorate the impact of the failure of certain State-chartered savings and loan associations in 1985; all such notes were redeemed without the issuance of debt. The State can also look to its Reserve Fund to provide financial support in periods of economic downturn or for other contingencies. The State Reserve Fund held $697.8 million at June 30, 2000; however, there can be no assurance that this amount will be sufficient to maintain current spending levels during periods of economic difficulty. For tax purposes, real property in Maryland is valued at market value but the assessment is made only as to a percentage of that value. This had been set at 40%, but revenue-neutral legislation enacted in 2000 requires that from 2002 real property must be taxed on its full cash value, with tax rates reduced by 60%. In addition, the General Assembly has restructured the taxation of the electric and natural-gas industries in Maryland in connection with the deregulation of these industries. Although these measures were designed to prevent broad changes in the effective tax yield, there can be no assurance that such matters will not adversely affect Maryland's financial planning. Local Governments Maryland can be divided into 24 subdivisions, comprised of its 23 counties plus the independent City of Baltimore. Some of the counties and the City of Baltimore operate pursuant to the provisions of charters or codes of their own adoption, while others operate pursuant to State statutes. As a result, not all localities in Maryland follow the debt-authorization procedures outlined above. Maryland counties and the City of Baltimore typically receive most of their revenues from taxes on real and personal property, individual income taxes, transfer taxes, miscellaneous taxes, and aid from the State. Their expenditures include public education, public safety, public works, health, public welfare, court and correctional services, and general governmental costs. Although Baltimore City and each the counties rated by Standard & Poor's has been rated "A" or above, some of the counties had to obtain additional insurance to achieve this rating on their debt. C-19 Many of Maryland's counties have established subsidiary agencies with bond issuing powers, such as sanitary districts, housing authorities, parking revenue authorities and industrial development authorities. For example, the Washington Suburban Sanitary Commission, which provides water and sewerage services, and the Maryland-National Capital Park and Planning Commission, which administers a park system for these counties, both issue general obligation bonds. Many of the municipal corporations in Maryland have issued general obligation bonds. In addition, all Maryland municipalities have the authority under State law to issue bonds payable from payments from private borrowers. All of these entities are subject to various economic risks and uncertainties, and the credit quality of the securities issued by them varies with the financial strengths of the respective borrowers. Generally, the primary default risk associated with government obligations is the nonpayment of taxes supporting such indebtedness. In addition, certain debt obligations in the Nations Maryland Intermediate Municipal Bond Fund or Nations Maryland Municipal Bond Fund may be obligations of issuers other than the State of Maryland, such as those listed above. Although the State of Maryland regularly receives the highest ratings from ratings agencies, local governments and other issuers may have higher debt-to-assessment ratios, and/or greater credit risk, than the State itself, and as a result may be unable to repay the State on the underlying indebtedness. Other obligations are issued by industrial development authorities, housing authorities, and other issuers who lack a taxing power to repay these obligations. Certain debt may be obligations which are payable solely from the revenues of private institutions within one industry, such as health care. The default risk may be higher for such obligations, since the decline in one industry could substantially impede repayment. In addition, these funds may include obligations issued by the government of Puerto Rico, the U.S. Virgin Islands or Guam or their authorities; any such obligations will bear their own particular risks in addition to any general risks described herein. A slowdown in the service sector could have an adverse effect on the Maryland economy because such a large proportion of employment within the State is attributable to that sector. Another primary source of employment in Maryland is the government; the percentage of Maryland residents employed by the federal government is more than twice the national average. Economic factors affecting the State will also affect the counties and the City of Baltimore, as well as agencies and other private borrowers. North Carolina. The North Carolina Constitution requires that the total expenditures of the State for the fiscal period covered by the budget not exceed the total receipts during the period plus any surplus remaining in the State Treasury at the beginning of the period. The State operates on a fiscal year ending June 30th. The North Carolina General Assembly attempts to adopt a budget for the following fiscal year by the end of the previous one and has successfully done so in 1999 and 2000. The State of North Carolina is the eleventh most populous state according to the 2000 Census. Its economy is a combination of manufacturing, agriculture, services and tourism. The State's seasonally adjusted unemployment rate in May 2001 was 5.2%. In recent years, the State has moved from an agricultural economy to a service and goods producing economy. The State leads the nation in the production of textiles, tobacco products and furniture. It is among the largest producers of pharmaceuticals, electronic and telecommunications equipment. The principal agricultural products are poultry, pork and tobacco. Charlotte is now the second largest financial center in the nation, based on the assets of banks headquartered there. The Research Triangle (Raleigh/Durham/Chapel Hill) boasts three major universities and is known internationally for its technology and pharmaceutical industries. The total General Fund appropriations for the 2000-2001 fiscal year is $14.050 billion. The ending fund balance for the State's General Fund at June 30, 1999 was $1.430 billion. The budget adopted by the North Carolina General Assembly for the fiscal year ending June 30, 2001 projects an ending General Fund balance of approximately $200.5 million. In November 2000, the State's voters approved the issuance of $3.1 billion in bonds to finance identified repairs and renovations to facilities at the University of North Carolina's sixteen campuses and the State's community colleges ($2.5 billion for the universities and $600 million for the community colleges). If approved and issued, these bonds would more than double the amount of the State's bonds outstanding. C-20 The State anticipates an overall budget shortfall approaching $853 million from the authorized 2000-2001 fiscal year budget. The State attributes this shortfall to four major factors. First, the State was required to refund approximately $123 million of income tax refunds in the 2000-01 budget year that should have been refunded in the prior year. The payment of these refunds ($21.8 million corporate and $101.0 million individual) creates a corresponding decrease in revenues in the 2000-2001 budget year. Second, the State has been required to refund approximately $63.3 million in taxes and fees arising from lawsuits involving privilege fees charged to major automobile finance companies and involving the intangibles tax previously levied by the State. The payment of these refunds created a $18.3 million reduction in individual income taxes and a $45 million reduction in privilege taxes. Third, the State's share of the federal Medicaid program has generated expenses approximately $108 million greater than the budgeted appropriation for this purpose. Finally, decreased revenues attributable to a general slowdown of the national economy have resulted in a forecasted general revenue shortfall of approximately $697 million. The economic slowdown has particularly affected revenues from taxes associated with the State's manufacturing sector. Also, the general economic slowdown and its effects on the capital markets are expected to lead to decreases in taxes attributable to capital gains income. The slowdown has resulted in decreased forecasted revenues in several categories, including individual income taxes, corporate income taxes and sales taxes. In response to the budget shortfall, the Governor, as Director of the Budget, has taken a number of actions to assure the State will meet its constitutional requirement of a balanced budget. Particularly, the Governor has identified budgetary resources that would cover a budget shortfall of up to approximately $1 billion. These resources are comprised of a combination of reversions of unexpended appropriations, the diversion of other resources from their otherwise appropriated use and the identification and use of available reserves. The General Assembly in its consideration and adoption of the 2001-02 budget during the 2001 Regular Session has attempted to address this same shortfall by making a number of reductions in various agencies, changing the manner and frequency with which taxes are paid and considering a number of tax increases and the repeal of various tax credits. At the date hereof, the budget for 2001-02 had not been adopted by the General Assembly so the impact on taxes and spending were not known. On November 23, 1998, 46 states' Attorneys General and the major tobacco companies signed a proposed settlement ("Phase I") that reimburses states for smoking-related medical expenses paid through Medicaid and other health care programs. North Carolina could receive approximately $4.6 billion over the next 25 years. The settlement was approved in North Carolina by a Consent Decree in December 1998. On March 16, 1999, the General Assembly enacted a law, pursuant to the Consent Decree, approving the establishment of a foundation to help communities in North Carolina hurt by the decline of tobacco. The foundation receives 50 percent of the settlement. A trust fund for tobacco farmers and quota holders and a second trust fund for health programs, both to be created by the General Assembly, each gets a quarter of the settlement. Phase I payments are made to the State and then allocated to the foundation and trusts, subject to legislative oversight. North Carolina is also one of 14 states that has entered into a major settlement agreement ("Phase II") with several cigarette manufacturers. Approximately $1.9 billion of settlement payments (under the National Tobacco Growers Settlement Trust phase of the settlement agreement) will be paid to North Carolina tobacco growers and allotment holders. Payments of this amount began in December 1999 and are expected to average $155 million per year over a 12-year period. These payments are made directly to a trust for distribution to growers and allotment holders and are not paid to the State or subject to direct legislative oversight. The following are cases pending or threatened in which the State faces the risk of either a loss of revenue or an unanticipated expenditure. It is the opinion of the State's Treasurer that any such loss of revenue or expenditure would not materially adversely affect the State's ability to meet its financial obligations. Hoke County, et al. v. State of North Carolina and State Board of Education. On May 25, 1994, students and boards of education for five school districts filed suit requesting a declaration that the public education system of North Carolina violates the State constitution by failing to provide adequate or substantially equal education opportunities, and by denying due process of law. The defendants' motion to dismiss was denied. However, the North Carolina Supreme Court upheld the present funding system and C-21 remanded the case for trial on the claim for relief based on the conclusion that the constitution guarantees every child the opportunity to obtain a sound basic education. Five other systems intervened and now allege claims for relief on behalf of their students' right to a sound basic education on the basis of the high proportion of at risk students in their counties' systems. In the spring of 2000, a trial was held in Hoke County on the issues as they affect "low wealth" counties. On October 26, 2000, the trial court, as part of a three part ruling, concluded that at risk children in the State are constitutionally entitled to such pre-kindergarten educational programs as may be necessary to prepare them for higher levels of education. The ruling requires legislative action necessary to implement and fund pre-kindergarten programs. If not appealed, the ruling will require legislative action necessary to implement and fund pre-kindergarten programs. The cost of such programs is undetermined at this time but may exceed $100 million. The third part of the ruling was released by the trial court in 2001 and the judgment was appealed by the State. Subsequently, the trial judge vacated the third part of the ruling, bringing that part of the case back before him. The State then withdrew its appeal and will begin to prepare to comply with the first two parts of the ruling. A trial on the claim of a second plaintiff is expected to begin in mid-2001. N.C. School Boards Association, et. al. v. Harlan E. Boyles, State Treasurer, et. al. - Use of Administration Payments. On December 14, 1998, plaintiffs, including county school boards of Wake, Durham, Johnston, Buncombe, Edgecombe and Lenoir Counties, filed suit in Superior Court requesting a declaration that certain payments to State administrative agencies must be distributed to the public schools on the theory that such amounts are fines which under the North Carolina constitution must be paid to the schools. For the last fiscal year for which information was available to them, plaintiffs allege liability of approximately $84 million. Until this matter is resolved, any refunds and interest will continue to accrue. The North Carolina Attorney General's Office believes that sound legal arguments support the State's position on the outstanding claims. Faulkenbury v. Teachers' and State Employees' Retirement System, Peele v. Teachers' and State Employees' Retirement System, and Woodard v. Local Governmental Employees' Retirement System Disability Retirement Benefits. Plaintiffs are disability retirees who brought class actions in state court challenging changes in the formula for payment of disability retirement benefits and claiming impairment of contract rights, breach of fiduciary duty, violation of other federal constitutional rights and violation of state constitutional and statutory rights. The Superior Court ruled in favor of plaintiffs. The Order was affirmed by the North Carolina Supreme Court in 1997. The case went back to the Superior Court for calculations of benefits and payment of retroactive benefits, along with determination of various remedial issues. As a result of the remedial proceedings, there have been two appeals to the appellate courts concerning calculation of the retroactive benefits, one of which has not been finally resolved. The plaintiffs previously submitted documentation to the court asserting that the cost in damages and higher prospective benefit payments to the plaintiffs and class members would amount to $407 million. Calculations and payments so far indicate that retroactive benefits will be significantly less than estimated, depending in part on the pending appeal. Payments have been made by the State of approximately $84 million. The remaining liability for retroactive benefits is estimated by the State not to exceed $30 million. All retroactive payments and future benefit payments are payable from the funds of the State's retirement systems. Southeast Compact Commission - Disposal of Low-level Radioactive Waste. North Carolina and seven other southeastern states created the Southeast Interstate Low-level Radioactive Waste Management Compact to plan and develop a site for the disposal of low-level radioactive waste generated in the member states. North Carolina was assigned responsibility for development of the first disposal site, with costs to be distributed equitably among the Compact members. In 1997 the Compact Commission discontinued funding of the development of the North Carolina site, alleging that the State was not actively pursuing the permitting and development of the proposed site. North Carolina withdrew from the Compact in 1999. On July 10, 2000, the Compact filed a Motion For Leave to File Bill of Complaint and Bill of Complaint in the United States Supreme Court. The Motion seeks the Court's original jurisdiction to enforce sanctions imposed against North Carolina for the recovery of $89.9 million plus interest and attorneys fees. The State has opposed the motion. The Adviser believes that the information summarized above described some of the more significant matters relating to the North Carolina Intermediate Municipal Bond Fund and North Carolina Municipal Bond Fund. The sources of the information are the official statements of the Department of State C-22 Treasurer of North Carolina, other publicly available documents and oral statements from various State agencies and individuals. The Adviser has not independently verified any of the information contained in the official statements, other publicly available documents, or oral statements from various State agencies. South Carolina. The South Carolina Constitution mandates a balanced budget. If a deficit appears likely, the State Budget and Control Board may reduce appropriations during the current fiscal year as necessary to prevent the deficit. If it is determined that a fiscal year has ended with an operating deficit, the State Constitution requires that monies appropriated from the Capital Reserve Fund must be reduced to the extent necessary and applied to the year end operating deficit before withdrawing monies from the General Reserve Fund for such purpose. The State Constitution limits annual increases in State appropriations to the average growth rate of the economy of the State and annual increases in the number of State employees to the average growth of the population of the State; provided, however, that these two limitations are subject to suspension for any one fiscal year by a special vote in each House of the General Assembly. The State Constitution requires a General Reserve Fund that equals three percent of General Fund Revenue for the latest completed fiscal year. Funds may be withdrawn from the General Reserve Fund only for the purpose of covering operating deficits. The State Constitution also requires a Capital Reserve Fund equal to two percent of General Fund Revenue for the latest completed fiscal year. The State Constitution requires that the General Assembly provide that, if revenue forecasts before March 1 project that revenues for the current fiscal year will be less than expenditures authorized by appropriation for the current fiscal year, the current fiscal year's appropriation to the Capital Reserve Fund shall first be reduced to the extent necessary before any reduction is made in operating appropriation. After March 1, monies from the Capital Reserve Fund may be appropriated by a special vote of the General Assembly to finance previously authorized capital improvement bond projects, to retire principal or interest on bonds previously issued, and to pay for capital improvements or other nonrecurring purposes. Monies in the Capital Reserve Fund not appropriated or any appropriation for a particular project or item that has been reduced due to application of the monies to a year-end deficit must go back to the General Fund. The State operates on a fiscal year beginning July 1 and ending June 30. For the fiscal year ended June 30, 2000, the State had a budgetary surplus of $213 million and the Capital Reserve Fund and General Reserve Fund were fully funded at the combined 5% level. The South Carolina General Assembly passed the Fiscal Year 2000-2001 Appropriations Act that enacted a balanced budget where most of the new revenue was allocated to education. Positive economic growth in South Carolina has been driven, in part, by gains in tourism, business services and international trade. In 2000, the State announced $6.134 billion in new and expanded economic development projects which added approximately 35,100 new jobs. In 2000, employment increased one and eighty-six hundredths percent (1.86%) while the rate of employment growth in the United States was two and two-tenths percent (2.2%). The unemployment rate for South Carolina in 2000 was three and nine-tenths percent (3.9%), while the unemployment rate in the United States was four percent (4.0%). A lawsuit, Glen E. Kennedy, et al vs. the South Carolina Retirement System and South Carolina Budget and Control Board, was filed against the South Carolina Retirement Systems (Systems) by a group of retired participants in the Systems which challenges the Systems' treatment of annual leave calculation of participants' retirement payments. The Circuit Court determined that the State has been providing retirement benefits to its members in accordance with the law. The Circuit Court decision was appealed to the State Supreme Court and, in May 2000, the Supreme Court reversed the Circuit Court and ruled in favor of the plaintiffs. The State has filed a Petition for Rehearing with the Supreme Court which was granted. On Rehearing, the State Supreme Court reversed its prior decision and ruled in favor of the State. The plaintiffs have asked for an extension of time which to file a Petition for Rehearing. The State cannot predict whether the plaintiffs will file a Petition for Rehearing and, if filed, whether the State Supreme C-23 Court will grant such Petition. If such Petition is granted, and a Rehearing held, the State cannot predict the ultimate decision of the State Supreme Court. Should the plaintiffs ultimately prevail, the current actuarial liability of the Systems for this new benefit is estimated to be in excess of one billion dollars. In addition, the funding for this increase will have to be provided. Two class action lawsuits brought in the State Court relating to the taxation of retirement benefits are pending against the State. One challenges the taxation of federal retirees' income (Federal Retirees Case), and the other challenges a State statute imposing income taxes upon benefits paid to retired state employees (State Retirees Case) by the South Carolina Retirement Systems. In the Federal Retirees Case, the State filed a motion to dismiss, which was granted by the Circuit Court. The plaintiffs appealed the Circuit Court's decision to the State Supreme Court, which reversed the Circuit Court's decision and remanded the case to the Circuit Court to determine the constitutionality of a State statute. The Federal Retirees Case is presently pending in the State Circuit Court. In the State Retirees Case, the State filed a motion to dismiss, which was granted in part and denied in part by the Circuit Court. The Circuit Court's decision was appealed to the State Supreme Court which reversed and vacated the Circuit Court's decision, stating that the State Retirees should have first filed their claim with the State Department of Revenue as an administrative matter. The State Retirees Case is presently pending before the State Department of Revenue. While the State is uncertain as to the ultimate outcome of any of the above-described lawsuits, it is vigorously defending its position in each case. In the event of unfavorable outcomes in the Federal Retirees Case and the State Retirees Case, the State's liability is not expected to exceed $475 million for retroactive relief with an estimated unfavorable impact on future year's revenues of an additional $47.5 million per year. The Adviser believes that the information summarized above describes some of the more significant matters relating to the South Carolina Intermediate Municipal Bond Fund and South Carolina Municipal Bond Fund. The sources of the information are the official statements of issuers located in South Carolina, other publicly available documents, or oral statements from various State agencies. The Adviser has not independently verified any of the information contained in the official statements, other publicly available documents, or oral statements from various state agencies. Tennessee. The Constitution of the State of Tennessee forbids the expenditure of the proceeds of any debt obligation for a purpose other than the purpose for which it was authorized by statute. The Constitution also forbids the authorization of any debt obligation, except as shall be repaid within the fiscal year of issuance, for current operation of any state service or program. Under Tennessee law, the term of the State's bonds cannot exceed the life of the projects being financed. Furthermore, the amount of debt obligations of the State of Tennessee cannot exceed the amount authorized by the Tennessee General Assembly. The procedure for funding State of Tennessee debt is provided by Chapter 9 of Title 9, Tennessee Code Annotated. The Funding Board of the State of Tennessee is the entity authorized to issue general obligation indebtedness of the State of Tennessee. Pursuant to Section 9-9-106, Tennessee Code Annotated, the Funding Board of the State of Tennessee has a lien on the taxes, fees and revenues from certain designated revenue sources for the full amount required to service the State's general obligation indebtedness. Certain other agencies and authorities in Tennessee issue obligations, payable solely from specific non-tax enterprise fund revenues and which are not debts or liabilities of the State of Tennessee nor is the full faith and credit pledged to the payment thereof. Under current state statutes, the State of Tennessee's general obligation bonded debt issuance's are subject to an annual legal debt service limitation based on a pledged portion of certain current year revenues. As of June 30, 2000, the State of Tennessee's annual legal debt service limit of $580.2 million was well above the debt service required of $138.5 million, with a legal debt service margin of $441.7 million. Debt per capita equaled $190.0, and the ratio of net general long-term bonded debt to assessed property valuation was 1.3 percent. The Constitution of the State of Tennessee requires a balanced budget. As required by law, the legislature enacted a balanced budget for fiscal year 2000-01. During the fiscal year 2000, Tennessee C-24 continued several programs that were designed to create a more effective, efficient and focused state government. The Administration initiated a program to monitor grant subrecipients to protect against fraud, made improvements to the State's internal accounting processing systems and continued other initiatives designed to improve the State's operation through technology advancements. The State worked to improve services provided to children including improving the availability of early testing to screen for diseases and to detect and provide counseling for behavioral abnormalities. The State worked to improve the accessibility of quality day care and generally focused on excellence in education by providing workshops for teachers and revising upward expectations for student performance. Finally, the State continued to maintain a climate for good high-paying jobs including beginning a new program called "Manufacturing for the New Millennium" that promotes high tech manufacturing jobs in Tennessee. The economic outlook for Tennessee remains generally favorable. The State's economic diversity has improved substantially over the last several years. Investments announced in new and expanding business exceeded one billion dollars in every year since 1983 and exceeded three billion in the last two years. This growth created 26,666 new jobs in Tennessee for the year ended June 2000. As of June 2000, the State's unemployment rate was 3.7% under the national average of 4.0%. Based on current projections, the State's overall growth is expected to exceed the national average into the next century according to the Comprehensive Annual Financial Report for the State of Tennessee for the year ended June 2000. Despite the economic growth, the State initially predicted an $800 million budget shortfall for the fiscal year 2002. The Administration considered a number of tax proposals, including a State income tax, that would have raised revenues for the State. Ultimately, for the fiscal year 2001, the Tennessee Legislature passed a balanced budget that did not make significant cuts in expenditures but forecast increased revenues based on one-time sources and has consecutive revenue projections. As a result, Standard & Poor's lowered the State of Tennessee's debt rating to AA-plus, and Moody's lowered it to Aa1. Fitch continues to rate the State AAA. Texas. The Texas Constitution generally prohibits the creation of debt by or on behalf of the State, with only limited exceptions or except as specifically authorized. In addition, the Constitution prohibits the Legislature from lending the credit of the State to any person, including municipalities, or pledging the credit of the State in any manner for the payment of the liabilities of any individual, association of individuals, corporation or municipality. The limitations of the Constitution do not prohibit the issuance of revenue bonds, since the Texas courts (like the courts of most states) have held that certain obligations do not create a "debt" within the meaning of the Constitution. The State and various State agencies have issued revenue bonds payable from the revenues produced by various facilities or from lease payments appropriated by the Legislature. Furthermore, obligations which are payable from funds expected to be available during the current budget period do not constitute "debt" within the meaning of the constitutional prohibition. Article III, Section 49-j of the Texas Constitution prohibits the Legislature from authorizing additional state debt payable from general revenues, including authorized but unissued bonds and lease purchase contracts in excess of $250,000 or for a term of greater than five years, if the resulting annual debt service exceeds five percent of an amount equal to the average amount of general revenue for the three immediately preceding years, excluding revenues constitutionally dedicated for purposes other than payment of debt service. Self-supporting general obligation bonds, although backed by the full faith and credit of the State, are reasonably expected to be paid from other revenue sources and are not expected to create a general revenue draw. At the end of the State's fiscal year 2000, the State's debt service ratio was 2.03 percent compared to 2.2 percent the previous year. In June 1999, Moody's Investors Service raised the rating on the State of Texas general obligations to Aa1 from Aa2. This upgrade affects self-supporting and non-self-supporting general obligation debt issued by various state agencies. Additionally, the rating on lease revenue debt was upgraded to Aa2 from A1, affecting approximately $808 million in lease revenue obligations. In August 1999, Standard and Poor's Rating Services revised its outlook on Texas to stable from positive and affirmed its AA rating on the State's outstanding general obligation debt. Their rating on Texas' general obligation debt reflects, "a steadily growing and diversifying economy, solid long-term C-25 economic prospects, good trends of revenue growth supporting a balanced budget and a low tax-supported debt burden. The rating outlook is returned to stable from positive due to the expectation that, while revenues will continue to grow with the economy, financial reserves will be kept at modest levels." The State has long been identified with the oil and gas industry, but the Texas economy has diversified in recent years, particularly with the growth of the computer and electronics industries. Oil and gas related industries currently account for only 8.5 percent of the State's economy. Today high technology industries, which account for 8.9 percent of the Texas gross state product, comprise a larger segment of the Texas economy than oil and gas-related mining and manufacturing. Service-producing sectors (which include transportation and public utilities; finance, insurance and real estate; trade; services; and government) are the major sources of job growth in Texas. Service producing jobs now account for 81 percent of total nonfarm employment and 87 percent of employment growth over the past five years. Texas' location and transportation and accessibility have made it a distribution center for the southwestern United States as well as a growing international market for export trade. Texas exports in 2000 exceeded $112 billion, which has more than doubled in real terms since 1990, and ranks the State a close second to California in foreign export trade. With leadership provided by a strong high-technology sector and the growth of exports, manufacturing job growth is expected to remain a significant part of Texas' economic future. The State Comptroller of Public Accounts has predicted that the overall Texas economy will slightly outpace national economic growth in the long term. The vast size of the State, together with cultural, climatic and geological differences within its borders, has produced great variations in the economics of the various parts of the State. The State generally can be divided into six geo-economic regions. The east region is a largely non-metropolitan region, in which the economy is dependent on agricultural activities and the production and processing of coal, petroleum and wood. The Dallas-Ft. Worth metroplex region is mostly metropolitan, with diversified manufacturing, financial and commercial sectors. The panhandle, Permian basin and Concho Valley regions are relatively sparsely populated areas of the State, with an economy drawing heavily from petroleum production and agriculture. The border region stretching from El Paso to Brownsville is characterized by its economic ties to Mexico, tourism and agriculture. The Gulf Coast region is the most populous region in the State and has an economy centered on energy services, petro-chemical industries and commercial activities resulting from agriculture and seaport trade. The economy of the central corridor is grounded in the public and private service sector, recreation/tourism and high-technology manufacturing and communications. Because the economic base is different from region to region, economic developments, such as the strength of the U.S. economy, international politics and export markets or changes in oil prices or defense spending, can be expected to affect the economy of each region differently. Over the past ten years, Texas added more jobs than any other state (2.46 million), accounting for more than one-ninth of the nation's total job growth. During the 1990s, the State ranked sixth in the rate of job growth, exceeded only by five western mountain states with comparatively small populations. Over the twelve months ending in February 2001, Texas gained over 275,000 jobs, ranking second among the states in the number of new jobs and fifth among the states in the rate of job growth. The State's unemployment rate has fallen every year since 1992. In 2001, the moving average unemployment rate has fallen below 4% percent for the first time since 1974. After averaging over 7.5% in 1992, the unemployment rate successively fell to about 3.7% percent in April, 2001, although the State expects that the unemployment rate will rise during the remainder of this year. Most new jobs created in the past year have been in the service sector with most of the growth in the health, business and miscellaneous services sectors. Much of this growth relates to "information technology" jobs, although companies in some segments of the business experienced layoffs in early 2001. The mix of job growth in Texas provides a strong base for sustainable growth because the new jobs are largely in industries with better-than-average prospects for continued growth, such as knowledge-based manufacturing and services. Per capita personal income has since increased to approximately 94.1% of U.S. per capita income as of 1999. The State's general revenue fund provides an indication of the State's financial condition. In the fiscal year 1999, the general revenue fund accounted for most of the State's net revenue. Driven by Medicaid spending and other Health and Human Services programs requiring federal matching revenues, federal receipts were the State's number one source of income in fiscal year 2000. Sales tax, accounting for C-26 over 55% of total tax revenue, was second. Licenses, fees, fines and penalties are now the third largest source of revenue to the State, with motor fuels taxes and motor vehicle sales/rental taxes following as fourth largest and fifth largest, respectively. The remainder of the State's revenues are derived primarily from interest and investment income, lottery proceeds, cigarette and tobacco, franchise, oil and gas severance and other taxes. State revenue also benefited from $1.1 billion in tobacco litigation settlement proceeds received from major U.S. tobacco companies. The State estimates that an additional $0.6 billion in proceeds is anticipated during the 2000-01 fiscal year. The State has no personal or corporate income tax, although the State does impose a corporate franchise tax based on the amount of a corporation's capital and "earned surplus," which includes corporate net income and officers' and directors' compensation. For each of the fiscal years ended August 31, 1996, 1997, 1998, 1999, and 2000, the general revenue fund contained a cash surplus of approximately $2.271 billion, $2.685 billion, $3.330 billion, $4.337 billion and $3.843 billion, respectively. Virginia. Debt may be issued by or on behalf of the Commonwealth of Virginia in accordance with the provisions of Article X, Section 9 of the Virginia Constitution. Virginia counties, cities and towns may issue debt pursuant to the provisions of Article VII, Section 10 of the Virginia Constitution and the Public Finance Act of 1991 (Virginia Code Sections 15.2-2600 through 15.2-2663). In addition, certain types of debt, including private activity bonds may be issued by various special purpose authorities, including industrial development authorities created pursuant to the Industrial Development and Revenue Bond Act (Virginia Code Sections 15.2-4900 through 15.2-4920). Sections 9(a), (b) and (c) of Article X of the Virginia Constitution provide for the issuance of debt to which the Commonwealth's full faith and credit is pledged. Section 9(d) provides for the issuance of debt not secured by the full faith and credit of the Commonwealth, but which may be supported by and paid from Commonwealth tax collections. The Commonwealth and its localities may also enter into leases and contracts that are not "debt" for constitutional purposes, but are classified as long-term indebtedness on the issuer's financial statements. General obligation debt of the Commonwealth is authorized for various purposes, including to meet emergencies, to redeem previous debt obligations, and to pay the costs of certain capital projects. The Virginia Constitution imposes certain restrictions on the amount of general obligation debt that may be issued by the Commonwealth and, in some cases, such debt is subject to approval in a state-wide election. The restrictions applicable to general obligation debt of the Commonwealth, including limitations on the outstanding amount that may be issued by the Commonwealth do not apply to obligations issued by the Commonwealth or any of its institutions, agencies or authorities if the full faith and credit of the Commonwealth is not pledged to the payment of such obligations. Various types of revenue bonds have been issued under Section 9(d) of Article X for which the Commonwealth's full faith and credit is not pledged. These bonds may be paid in whole or in part from revenues received as appropriations by the General Assembly from general tax revenues or solely from revenues derived from revenue-producing undertakings. The Commonwealth has also incurred numerous obligations with respect to the leasing or installment purchase of buildings, equipment and personal property. These agreements are for various terms and typically contain a nonappropriation clause so that the continuation of any such lease or installment purchase agreement is subject to funding by the General Assembly. The Virginia Intermediate Municipal Bond Fund and Virginia Municipal Bond Fund also invest in debt obligations issued by local governments. Local government in the Commonwealth is comprised of approximately 95 counties, 40 incorporated cities, and 168 incorporated towns. The Commonwealth is unique in that cities and counties are independent and their land areas do not overlap. Cities and counties each levy and collect their own taxes and provide their own services. Towns, which are units of local government and which continue to be part of the counties in which they are located, levy and collect taxes for town purposes but their residents are also subject to county taxes. Generally, the largest expenditure by local governments in the Commonwealth is for public education. Each county and city in the Commonwealth, with few exceptions, constitutes a separate school district. Counties, cities and towns typically also provide such services such as water and sewer services, police and fire protection, and recreational facilities. C-27 Local governments are authorized to issue general obligation debt and debt secured by revenues of a revenue-producing undertaking under Article VII, Section 10 of the Virginia Constitution. Generally, debt issued by a county pledging the full faith and credit of the county is subject to voter approval but is not limited as to outstanding amount. Debt pledging the full faith and credit of a town or city is generally subject to a limit on the outstanding amount of such debt equal to 10% of the assessed valuation of the real estate subject to taxation in the city or town. Revenue bonds payable from revenues derived from a revenue-producing undertaking and certain lease or installment sale obligations that are subject to appropriation each year by the governing body of the locality are not subject to such limit and are not subject to voter approval in counties. The primary sources of money available to localities to pay debt service on general obligation bonds are real and personal property taxes, sales tax and business license taxes. Virginia Code Section 15.2-2659, known as the "state aid intercept provision" provides a mechanism for applying appropriations to be made from the Commonwealth to any locality to any overdue debt service on general obligation bonds issued by such locality. Numerous obligations are also issued by industrial development authorities, redevelopment and housing authorities, water and sewer authorities and other issuers created and empowered to issue bonds by Virginia statute. These issuers typically issue bonds payable from the revenues derived from a particular undertaking and not secured by a pledge of the faith and credit of the Commonwealth or any county, city or town. Typically these issuers do not have taxing power. The General Fund of the Commonwealth derives its revenues primarily from five major taxes imposed by the Commonwealth: individual and fiduciary income, corporation income, state sales and use, public service corporations and premiums of insurance companies. In fiscal year 2000, the General Fund balance grew by $255.7 million, an increase of 16.0% over fiscal year 1999, as a result of greater than expected revenues. Tax revenues grew at a rate of 10.8%. Certain tax revenues experienced growth while others declined. Individual income tax revenue grew by 12.2% in fiscal year 2000. Growth also occurred in the form of a 34.6% increase in corporation income tax, a 6.6% increase in sales and use tax, and a 2.5% increase in premiums of insurance companies' tax. Public service corporations taxes declined by 6.9% in fiscal year 2000. Overall revenue grew by 11.2%, mainly in individual income tax revenues, and non-tax revenues grew by 23.7%. Overall expenditures grew at a rate of 9.8% compared to 14.3% in fiscal year 1999. Education expenditures grew by $207.8 million, or 5.6%, while individual and family service expenditures grew by $252,106, or 12.0%. In addition, general government expenditures increased by $218.0 million, or 36.8%. The resulting General Fund balance as of June 30, 2000 was $1,855.3 million. Of the June 30, 2000 balance, $678.0 million was reserved for the Revenue Stabilization Fund. This fund is segregated from the General Fund and can only be used for constitutionally authorized purposes. Virginia law directs that the fund be included as a component of the General Fund only for financial reporting purposes. In addition, $1,109.8 million was designated for appropriation or reappropriation in fiscal year 2001. This designated amount includes the fiscal year 2002 contribution of $171.0 million to the Revenue Stabilization Fund. Thus, in total, $849.0 million was reserved or designated within the June 30, 2000 General Fund balance for the Revenue Stabilization Fund. Historically, balances in the General Fund have decreased in some years, for example in 1995, as a result of an increase in transfers from the General Fund, and have increased at varying rates in other years, such as fiscal years 1997, 1998 and 1999. In 2000, the Commonwealth ranked 12th in population among the 50 states. The Commonwealth's 2000 population was approximately 7,078,515. According to the U.S. Department of Commerce, Bureau of Economic Analysis, the 1999 per capita income for the Commonwealth was $29,789. According to the U.S. Department of Labor, Bureau of Labor Statistics, the unemployment rate of 2.8% in 1999 compared to 4.2% nationally. Assessed value of locally taxed property exceeded $450 billion in 1999 according to the Virginia Department of Taxation. Effective November 23, 1998, the Commonwealth joined leading United States tobacco product manufacturers, 46 other states, the District of Columbia and five territories in the National Tobacco Settlement. C-28 On February 23, 1999, the Richmond Circuit Court entered the Consent Decree and Final Judgment allowing the Commonwealth to join in the Settlement. The Settlement became final in November 1999 when 80% of the settling states (in number and allocable share of the Settlement) approved the Settlement. The Settlement provides, among other things, that tobacco companies pay a total of $206 billion to the participating states by the year 2025. The Commonwealth's share of the total amount paid to states through 2025 would be approximately $4.1 billion. The exact dollar amount is contingent upon certain adjustments as set forth in the Settlement. Under the Settlement, the tobacco companies will make three types of payments. Tobacco companies will make five "initial payments" totaling approximately $13 billion over the six year period ending in January 2003. In addition, the tobacco companies will make "annual payments" beginning on April 15, 2000. The Commonwealth received its share of the first two initial payments in December 1999, and its share of the first annual payment in April 2000. During the 1999 General Assembly Session, legislation was adopted to create the Tobacco Indemnification and Community Revitalization Commission and Fund. Under the legislation, fifty percent of the annual amount received by the Commonwealth from the Settlement will be deposited into the Tobacco Indemnification and Community Revitalization Fund (the "TICR Fund"). The Commission is to determine the appropriate recipients of moneys in the TICR Fund and distribute moneys in the TICR Fund to (i) provide payments to tobacco farmers as compensation for the elimination or decline in tobacco quota and (ii) promote economic growth and development in tobacco dependent communities. The legislation also created the Virginia Tobacco Settlement Foundation and the Virginia Tobacco Settlement Fund (the "VTS Fund"). Ten percent of the annual amount received by the Commonwealth from the Settlement will be deposited into the VTS Fund. The Foundation is to determine the appropriate recipients of moneys in the VTS Fund and distribute moneys in the VTS Fund to assist in financing efforts to restrict the use of tobacco products by minors. The 40% remaining unallocated Settlement payments were deposited to the General Fund in fiscal year 2000. The allocation and expenditures of the annual amounts received by the Commonwealth from the Settlement are subject to appropriation and disposition by the General Assembly. The General Assembly approves a biannual budget for the Commonwealth. The 2000-2002 Budget Bill presented about 3,642.1 million in operating increases from the general fund above fiscal year 2000 appropriation levels. Of this amount, $200.1 million was for deposit to the Revenue Stabilization Fund. The remainder provided for increases in K-12 education ($615.9 million), higher education ($185.3 million), transportation ($409.8) and public safety, economic development, health and human resources, natural resources, new Office of Technology and nonstate and cultural attractions. The 2000-2002 Budget Bill also included continuation of the four year phase out of the sales tax on foods for home consumption and $878.2 million for the next phase of the plan to eliminate the personal property tax on personal use vehicles valued up to $20,000. In addition to increases to operating funds, the 2000-2002 Budget Bill provided $199.8 million in pay-as-you-go funding for capital projects. The 2000 General Assembly Session ended March 10, 2000. The 2000-2002 Budget Bill, as amended by the General Assembly, was submitted to the Governor for approval. The Governor returned it to the General Assembly with four item vetoes and eleven recommended amendments for action at its one-day reconvened session held on April 19, 2000. The General Assembly upheld all of the Governor's item vetoes and ten of the eleven recommended amendments were adopted. The Governor signed the 2000-2002 Budget Bill into law on May 19, 2000, and it went into effect on July 1, 2000 as Chapter 1073, 2000 Virginia Acts of Assembly ("2000 Appropriation Act"). On December 20, 2000, the Governor presented to the General Assembly amendments to the 2000 Appropriation Act affecting the remainder of the 2000-2002 biennium (House Bill 1600/Senate Bill 800). The amendments reflect a downward revision in official revenue estimates. The Governor's proposed amendments to the 2000 Appropriation Act were considered by the 2001 Session of the General Assembly, which convened on January 10, 2001. However, the 2001 General Assembly adjourned on February 24, 2001 without adopting amendments to the 2000 Appropriation Act. On the evening of February 24, 2001, the Governor issued Executive Order 74 (2001) to allow him to fulfill his constitutional requirement to balance the budget. On March 12, 2001, the Governor announced administrative actions that balanced the budget. The Governor's plan identified a total of $506.0 million: $274.5 million from delaying some capital projects, $146.2 million in operating spending reductions by C-29 state agencies, and $85.3 million in other resources. The 2001 General Assembly reconvened on April 4, 2001 to consider bills vetoed or returned by the Governor with recommendations for their amendment but took no action to amend the 2000 Appropriation Act. On April 26, 2001, the General Assembly adopted a resolution (Senate Joint Resolution No. 1, amending House Joint Resolution No. 1) authorizing the General Assembly to consider legislation relating to the 2000 Appropriation Act during the 2001 Reapportionment Special Session summoned by the Governor on February 24, 2001. The resolution contained a sunset provision requiring that all action on any such legislation be completed by both houses no later than May 11, 2001. The 2000 Appropriation Act was not amended prior to that deadline. The sources of the information described above include the statutes and constitutional provisions referenced, to which reference is made for more detailed information, and official statements of the Commonwealth and other publicly available documents. Nations Funds have not independently verified any of the information contained in these official statements or documents. - -------- (1) The Kansas Economic Outlook is published quarterly by the Policy Research Institute. The Outlook presents historical data and a forecast for the state of Kansas generated by the Kansas Econometric Model (KEM). The Kansas Econometric Model is an ongoing project of the Policy Research Institute at The University of Kansas. For reference to the tables of data that have been deleted from the discussion set forth above, please see the full text of The "Kansas Economic Outlook" at www.ku.edu/pri/ksdata/keo/keo.htm. NATIONS FUNDS TRUST ONE BANK OF AMERICA PLAZA 33rd Floor Charlotte, NC 28255 1-800-626-2275 FORM N-1A PART C OTHER INFORMATION ITEM 23. Exhibits All references to the "Registration Statement" in the following list of Exhibits refer to the Registrant's Registration Statement on Form N-1A (File Nos. 333-89661; 811-09645)
Exhibit Letter Description - -------------- ----------------------------------------------------------- (a) Articles of Incorporation: (a)(1) Certificate of Trust dated October 22, 1999, incorporated by reference to Post-Effective Amendment No. 1, filed February 10, 2000. (a)(2) Amended and Restated Declaration of Trust last amended February 22, 2001, incorporated by reference to Post-Effective Amendment No. 9 filed April 9, 2001. - -------------- ----------------------------------------------------------- (b) Bylaws: Not Applicable - -------------- ----------------------------------------------------------- (c) Instruments Defining Rights of Securities Holders: Not Applicable - -------------- ----------------------------------------------------------- (d) Investment Advisory Contracts: (d)(1) Investment Advisory Agreement between Banc of America Advisors, LLC (formerly Banc of America Advisors, Inc.) ("BA Advisors") and Nations Funds Trust ("Registrant") dated March 30, 2000, Schedule I dated June 8, 2001, filed herewith.
C-1
Exhibit Letter Description - -------------- ----------------------------------------------------------- (d)(2) Investment Sub-Advisory Agreement among BA Advisors, Banc of America Capital Management, LLC (formerly Banc of America Capital Management, Inc.) ("BACAP") and the Registrant dated March 30, 2000, Schedule I dated June 8, 2001, filed herewith. (d)(3) Investment Sub-Advisory Agreement among BA Advisors, Brandes Investment Partners, L.P. ("Brandes") and the Registrant dated April 9, 2001, incorporated by reference to Post-Effective Amendment No. 9 filed April 9, 2001. (d)(4) Investment Sub-Advisory Agreement among BA Advisors, Chicago Equity Partners, LLC ("Chicago Equity") and the Registrant dated June 8, 2001, filed herewith. - -------------- ----------------------------------------------------------- (e) Underwriting Contract: (e)(1) Distribution Agreement between the Registrant and Stephens Inc. ("Stephens") dated February 14, 2000, Schedule I dated June 8, 2001, filed herewith. - -------------- ----------------------------------------------------------- (f) Bonus or Profit Sharing Contracts: (f)(1) Deferred Compensation Plan, incorporated by reference to Post-Effective Amendment No. 1, filed February 10, 2000. - -------------- ----------------------------------------------------------- (g) Custodian Agreement: (g)(1) Amended and Restated Custody Agreement between the Registrant and The Bank of New York ("BNY") dated July 2, 2001, filed herewith. (g)(2) Custody Agreement between the Registrant and Bank of America, N.A. dated June 8, 2001, filed herewith. - -------------- ----------------------------------------------------------- (h) Other Material Contracts: (h)(1) Co-Administration Agreement among the Registrant, Stephens and BA Advisors dated February 14, 2000, Schedule I dated June 8, 2001, filed herewith. (h)(2) Sub-Administration Agreement among the Registrant, BNY and BA Advisors dated February 14, 2000, Schedule I dated June 8, 2001, filed herewith.
C-2
Exhibit Letter Description - -------------- ----------------------------------------------------------- (h)(3) Shareholder Servicing Plan relating to Investor B Shares, Exhibit I amended June 8, 2001, filed herewith. (h)(4) Shareholder Servicing Plan relating to Investor C Shares, Exhibit I amended June 8, 2001, filed herewith. (h)(5) Transfer Agency and Services Agreement between PFPC Inc. (formerly First Data Investor Services Group, Inc.) ("PFPC") and the Nations Funds family dated June 1, 1995, Schedule G dated June 8, 2001, filed herewith. (h)(6) Adoption Agreement and Amendment to Transfer Agency and Services Agreement dated February 14, 2000, incorporated by reference to Post-Effective Amendment No. 1, filed February 10, 2000. (h)(7) Amendment to Transfer Agency and Services Agreement dated January 1, 1999, incorporated by reference to Post-Effective Amendment No. 1, filed February 10, 2000. (h)(8) Sub-Transfer Agency Agreement between PFPC and Bank of America, N.A. ("Bank of America") dated September 11, 1995, Schedule A dated June 8, 2001, filed herewith. (h)(9) Amendment No. 1 to the Sub-Transfer Agency and Services Agreement dated January 3, 2000, incorporated by reference to Post-Effective Amendment No. 6, filed December 27, 2000. (h)(10) Amendment No. 2 to the Sub-Transfer Agency and Services Agreement dated December 1, 2000, incorporated by reference to Post-Effective Amendment No. 6, filed December 27, 2000. (h)(11) Amended and Restated Foreign Custody Manager Agreement between BNY and the Nations Funds family dated July 2, 2001, filed herewith. (h)(12) Cross Indemnification Agreement among Nations Fund Trust, Nations Fund, Inc., Nations Reserves, Nations Master Investment Trust and the Registrant dated February 14, 2000, incorporated by reference to Post-Effective Amendment No. 1, filed February 10, 2000. - -------------- ----------------------------------------------------------- (i) Legal Opinion (i)(1) Opinion and Consent of Counsel, filed herewith.
C-3
Exhibit Letter Description - -------------- ----------------------------------------------------------- (j) Other Opinions (j)(1) Consent of Independent Accountants--PricewaterhouseCoopers LLP, filed herewith. - -------------- ----------------------------------------------------------- (k) Omitted Financial Statements Not Applicable - -------------- ----------------------------------------------------------- (l) Initial Capital Agreements: (l)(1) Investment Letter, incorporated by reference to Post-Effective Amendment No. 1, filed February 10, 2000. - -------------- ----------------------------------------------------------- (m) Rule 12b-1 Plans: (m)(1) Shareholder Administration Plan relating to Primary B Shares, filed herewith (m)(2) Shareholder Servicing and Distribution Plan relating to Investor A Shares, Exhibit A amended June 8, 2001, filed herewith. (m)(3) Distribution Plan relating to Investor B Shares, Exhibit A amended June 8, 2001, filed herewith. (m)(4) Distribution Plan relating to Investor C Shares, Exhibit A amended June 8, 2001, filed herewith. - -------------- ----------------------------------------------------------- (n) Financial Data Schedule: Not Applicable - -------------- ----------------------------------------------------------- (o) Rule 18f-3 Plan: (o)(1) Rule 18f-3 Multi-Class Plan, amended June 8, 2001, filed herewith. - -------------- ----------------------------------------------------------- (p) Codes of Ethics: (p)(1) Nations Funds Family Code of Ethics, incorporated by reference to Post-Effective Amendment No. 5, filed October 13, 2000. (p)(2) BA Advisors Code of Ethics, incorporated by reference to Post-Effective Amendment No. 5, filed October 13, 2000.
C-4
Exhibit Letter Description - -------------- ----------------------------------------------------------- (p)(3) BACAP Code of Ethics, incorporated by reference to Post-Effective Amendment No. 5, filed October 13, 2000. (p)(4) Brandes Code of Ethics, incorporated by reference to Post-Effective Amendment No. 9, filed April 9, 2001. (p)(5) Chicago Equity Code of Ethics, filed herewith. (p)(6) Stephens Code of Ethics, incorporated by reference to Post-Effective Amendment No. 5, filed October 13, 2000. - -------------- ----------------------------------------------------------- (q) Powers of Attorney for Edmund L. Benson, Charles B. Walker, A. Max Walker, Thomas S. Word, Jr., William H. Grigg, James Ermer, Thomas F. Keller, Carl E. Mundy, Jr., James B. Sommers, Cornelius J. Pings and William P. Carmichael, incorporated by reference to Post-Effective Amendment No. 2, filed May 5, 2000.
ITEM 24. Persons Controlled by of Under Common Control with the Fund No person is controlled by or under common control with the Registrant. ITEM 25. Indemnification Article VII of the Declaration of Trust provides for the indemnification of the Registrant's trustees, officers, employees and other agents. Indemnification of the Registrant's administrators, distributor, custodian and transfer agents is provided for, respectively, in the Registrant's: 1. Co-Administration Agreement with Stephens and BA Advisors; 2. Sub-Administration Agreement with BNY and BA Advisors; 3. Distribution Agreement with Stephens; 4. Custody Agreement with BNY; 5. Custody Agreement with Bank of America, N.A.; 6. Transfer Agency and Services Agreement with PFPC; and 7. Sub-Transfer Agency and Services Agreement with PFPC and Bank of America. The Registrant has entered into a Cross Indemnification Agreement with Nations Fund Trust (the "Trust") Nations Fund, Inc. (the "Company"), Nations Reserves C-5 ("Reserves") and Nations Master Investment Trust ("Master Trust") dated February 14, 2000. The Trust, the Company, Reserves and/or Master Trust will indemnify and hold harmless the Registrant against any losses, claims, damages or liabilities, to which the Registrant may become subject, under the Securities Act of 1933, as amended (the "1933 Act") and the Investment Company Act of 1940, as amended (the "1940 Act") or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any prospectuses, any preliminary prospectuses, the registration statements, any other prospectuses relating to the securities, or any amendments or supplements to the foregoing (hereinafter referred to collectively as the "Offering Documents"), or arise out of or are based upon the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in the Offering Documents in reliance upon and in conformity with written information furnished to the Registrant by the Trust, the Company, Reserves and/or Master Trust expressly for use therein; and will reimburse the Registrant for any legal or other expenses reasonably incurred by the Registrant in connection with investigating or defending any such action or claim; provided, however, that the Trust, the Company, Reserves and/or Master Trust shall not be liable in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Offering Documents in reliance upon and in conformity with written information furnished to the Trust, the Company, Reserves and/or Master Trust by the Registrant expressly for use in the Offering Documents. Promptly after receipt by an indemnified party above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission to so notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, to assume the defense thereof, with counsel satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. The Registrant has obtained from a major insurance carrier a trustees' and officers' liability policy covering certain types of errors and omissions. In no event will the Registrant indemnify any of its trustees, officers, employees, or agents against any liability to which such person would otherwise be subject by reason of his/her willful misfeasance, bad faith, gross negligence in the performance of his/her duties, or by reason of his/her reckless disregard of the duties involved in the conduct of his/her office C-6 or arising under his agreement with the Registrant. The Registrant will comply with Rule 484 under the 1933 Act and Release No. 11330 under the 1940 Act, in connection with any indemnification. Insofar as indemnification for liabilities arising under the 1933 Act may be permitted to trustees, officers and controlling persons of the Registrant by the Registrant pursuant to the Declaration of Trust or otherwise, the Registrant is aware that in the opinion of the Securities and Exchange Commission ("SEC") such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Registrant in the successful defense of any act, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issues. ITEM 26. Business and Other Connections of the Investment Adviser To the knowledge of the Registrant, none of the directors or officers of BA Advisors, the adviser to the Registrant's portfolios, or BACAP, Brandes or Chicago Equity, the investment sub-advisers, except those set forth below, are or have been, at any time during the past two calendar years, engaged in any other business, profession, vocation or employment of a substantial nature, except that certain directors and officers also hold various positions with, and engage in business for, the company that owns all the outstanding stock (other than directors' qualifying shares) of BA Advisors, BACAP, Brandes or Chicago Equity, respectively, or other subsidiaries of Bank of America Corporation. (a) BA Advisors performs investment advisory services for the Registrant and certain other customers. BA Advisors is a wholly-owned subsidiary of Bank of America, which in turn is a wholly-owned banking subsidiary of Bank of America Corporation. Information with respect to each director and officer of the investment adviser is incorporated by reference to Form ADV filed by BA Advisors with the SEC pursuant to the Investment Advisers Act of 1940, as amended (the "Advisers Act") (file no. 801-49874). (b) BACAP performs investment sub-advisory services for the Registrant and certain other customers. BACAP is a wholly-owned subsidiary of Bank of America Corporation. Information with respect to each director and officer of the investment sub-adviser is incorporated by reference to Form ADV filed by BACAP (formerly TradeStreet Investment Associates, Inc.) with the SEC pursuant to the Advisers Act (file no. 801-50372). (c) Brandes performs investment sub-advisory services for the Registrant and certain other customers. Information with respect to each director and officer of the C-7 investment sub-adviser is incorporated by reference to Form ADV filed by Brandes with the SEC pursuant to the Advisers Act (file no. 801-24986). (d) Chicago Equity performs investment sub-advisory services for the Registrant and certain other customers. Chicago Equity is owned by its senior management. Information with respect to each director and officer of the investment sub-adviser is incorporated by reference to Form ADV filed by Chicago Equity with the SEC pursuant to the Advisers Act (file no. 801-55997). ITEM 27. Principal Underwriters (a) Stephens, distributor for the Registrant, does not presently act as investment adviser for any other registered investment companies, but does act as distributor for Nations Fund Trust, Nations Fund, Inc., Nations Reserves, Nations LifeGoal Funds, Inc., Nations Separate Account Trust, Wells Fargo Funds Trust, Wells Fargo Variable Trust, Barclays Global Investors Funds, Inc., and is the exclusive placement agent for Wells Fargo Core Trust, Nations Master Investment Trust and Master Investment Portfolio, all of which are registered open-end management investment companies, and has acted as principal underwriter for the Liberty Term Trust, Inc., Nations Government Income Term Trust 2003, Inc., Nations Government Income Term Trust 2004, Inc., Nations Balanced Target Maturity Fund, Inc., and Hatteras Income Securities, Inc., closed-end management investment companies. (b) Information with respect to each director and officer of the principal underwriter is incorporated by reference to Form ADV filed by Stephens with the SEC pursuant to the 1940 Act (file No. 501-15510). (c) Not applicable. ITEM 28. Location of Accounts and Records (1) BA Advisors, One Bank of America Plaza, Charlotte, NC 28255 (records relating to its function as investment adviser and co-administrator). (2) BACAP, One Bank of America Plaza, Charlotte, NC 28255 (records relating to its function as investment sub-adviser). (3) Brandes, 11988 El Camino Real, San Diego, CA 92130 (records relating to its function as investment sub-adviser). (4) Chicago Equity, 180 North LaSalle, Suite 3800, Chicago, IL 60601 (records relating to its function as investment sub-adviser). (5) Stephens, 111 Center Street, Little Rock, AR 72201 (records relating to its function as distributor and co-administrator). (6) PFPC, 400 Bellevue Parkway, Wilmington, DE 19809 (records relating to its function as transfer agent). C-8 (7) BNY, 100 Church Street, New York, NY 10286 (records relating to its function as custodian and sub-administrator). (8) Bank of America, One Bank of America Plaza, Charlotte, NC 28255 (records relating to its function as sub-transfer agent). ITEM 29. Management Services Not Applicable ITEM 30. Undertakings Not Applicable SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all the requirements for effectiveness of this Post-Effective Amendment to the Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Little Rock, State of Arkansas on the 31st day of July, 2001. NATIONS FUNDS TRUST By: * ----------------------------------- A. Max Walker President and Chairman of the Board of Trustees By: /s/ Richard H. Blank, Jr. ----------------------------------- Richard H. Blank, Jr. *Attorney-in-Fact Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated:
SIGNATURES TITLE DATE ---------- ----- ---- * President and Chairman July 31, 2001 - ------------------------- of the Board of Trustees (A. Max Walker) (Principal Executive Officer) /s/ Richard H. Blank, Jr. Treasurer July 31, 2001 - ------------------------- Secretary (Richard H. Blank, Jr.) (Principal Financial and Accounting Officer) * Trustee July 31, 2001 - ------------------------- (Edmund L. Benson, III) * Trustee July 31, 2001 - ------------------------- (William P. Carmichael) * Trustee July 31, 2001 - ------------------------- (James Ermer) * Trustee July 31, 2001 - ------------------------- (William H. Grigg) * Trustee July 31, 2001 - ------------------------- (Thomas F. Keller) * Trustee July 31, 2001 - ------------------------- (Carl E. Mundy, Jr.) * Trustee July 31, 2001 - ------------------------- (Cornelius J. Pings) * Trustee July 31, 2001 - ------------------------- (Charles B. Walker) * Trustee July 31, 2001 - ------------------------- (Thomas S. Word) * Trustee July 31, 2001 - ------------------------- (James B. Sommers)
/s/ Richard H. Blank, Jr. - ------------------------- Richard H. Blank, Jr. *Attorney-in-Fact Nations Funds Trust Exhibit Index
Exhibit No. Description - ----------- ----------- EX-99.23(d)(1) Investment Advisory Agreement EX-99.23(d)(2) Investment Sub-Advisory Agreement with BACAP EX-99.23(d)(4) Investment Sub-Advisory Agreement with Chicago Equity EX-99.23(e)(1) Distribution Agreement EX-99.23(g)(1) Amended and Restated Custody Agreement EX-99.23(g)(2) Custody Agreement EX-99.23(h)(1) Co-Administration Agreement EX-99.23(h)(2) Sub-Administration Agreement EX-99.23(h)(3) Shareholder Servicing Plan relating to Investor B Shares EX-99.23(h)(4) Shareholder Servicing Plan relating to Investor C Shares EX-99.23(h)(5) Transfer Agency and Services Agreement EX-99.23(h)(8) Sub-Transfer Agency and Services Agreement EX-99.23(h)(11) Amended and Restated Foreign Custody Agreement EX-99.23(i)(1) Opinion and Consent of Counsel - Morrison & Foerster LLP EX-99.23(j)(1) Consent of Independent Accountants - PricewaterhouseCoopers LLP EX-99.23(m)(1) Shareholder Administration Plan relating to Primary B Shares EX-99.23(m)(2) Shareholder Servicing and Distribution Plan relating to Investor A Shares EX-99.23(m)(3) Distribution Plan relating to Investor B Shares EX-99.23(m)(4) Distribution Plan relating to Investor C Shares EX-99.23(o)(1) Rule 18f-3 Multi-Class Plan EX-99.23(p)(5) Chicago Equity Code of Ethics
EX-99.23(D)(1) 3 ex99-23d1_87612.txt INV. ADVISORY INVESTMENT ADVISORY AGREEMENT NATIONS FUNDS TRUST THIS AGREEMENT is made as of March 30, 2000, by and between NATIONS FUNDS TRUST, a Delaware business trust (the "Trust"), and BANC OF AMERICA ADVISORS, INC., a North Carolina corporation (the "Adviser"), on behalf of those series of the Trust now or hereafter identified on Schedule I (each, a "Fund" and collectively, the "Funds"). WHEREAS, the Trust is registered with the Securities and Exchange Commission (the "Commission") as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); WHEREAS, the Adviser is registered with the Commission as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act"); WHEREAS, the Trust desires that the Adviser manage the investment operations of the Funds and the Adviser desires to manage said operations; and WHEREAS, the Board of Trustees of the Trust (the "Board"), including a majority of the Trustees who are not "interested persons" (as defined herein) of any party to this Agreement, have approved this arrangement; NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. Appointment of Adviser. The Trust hereby appoints the Adviser and the Adviser hereby agrees to manage the investment operations of each Fund subject to the terms of this Agreement and subject to the supervision of the Board. The Trust and the Adviser contemplate that certain duties of the Adviser under this Agreement may be delegated to one or more investment sub-adviser(s) (the "Sub-Adviser(s)") pursuant to separate investment sub-advisory agreement(s) (the "Sub-Advisory Agreement(s)"). The Adviser may, in its discretion, provide services under this Agreement through its own employees or through one or more affiliated companies that are qualified to act as investment advisers under applicable law and are under common control of Bank of America Corporation. 2. Services of Adviser. The Adviser shall perform, or arrange for the performance of, the management services necessary for the investment operations of each Fund, including but not limited to: (a) Managing the investment and reinvestment of all assets, now or hereafter acquired by each Fund, including determining what securities and other investments are to be purchased or sold for each Fund and executing transactions accordingly; (b) Transmitting trades to each Fund's custodian for settlement in accordance with each Fund's procedures and as may be directed by the Trust; 1 (c) Assisting in the preparation of all shareholder communications, including shareholder reports, and participating in shareholder relations; (d) Making recommendations as to the manner in which voting rights, rights to consent to Fund action and any other rights pertaining to each Fund's portfolio securities shall be exercised; (e) Making recommendations to the Board with respect to Fund investment policies and procedures, and carrying out such investment policies and procedures as are adopted by the Board; (f) Supplying reports, evaluations, analyses, statistical data and information to the Board or to the Funds' officers and other service providers as the Board may reasonably request from time to time or as may be necessary or appropriate for the operation of the Trust as an open-end investment company or as necessary to comply with Section 3(a) of this Agreement; (g) Maintaining all required books and records with respect to the investment decisions and securities transactions for each Fund; (h) Furnishing any and all other services, subject to review by the Board, that the Adviser from time to time determines to be necessary or useful to perform its obligations under this Agreement or as the Board may reasonably request from time to time. 3. Responsibilities of Adviser. In carrying out its obligations under this Agreement, the Adviser agrees that it will: (a) Comply with all applicable law, including but not limited to the 1940 Act and the Advisers Act, the rules and regulations of the Commission thereunder, and the conditions of any order affecting the Trust or a Fund issued thereunder; (b) Use the same skill and care in providing such services as it uses in providing services to other fiduciary accounts for which it has investment responsibilities; (c) Not make loans to any person for the purpose of purchasing or carrying Fund shares; (d) Place, or arrange for the placement of, all orders pursuant to its investment determinations for the Funds either directly with the issuer or with any broker or dealer (including any affiliated broker or dealer). In executing portfolio transactions and selecting brokers or dealers, the Adviser will use its best efforts to seek on behalf of each Fund the best overall terms available. In assessing the best overall terms available for any transaction, the Adviser shall consider all factors that it deems relevant, including the 2 breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. In evaluating the best overall terms available, and in selecting the broker or dealer to execute a particular transaction, the Adviser may also consider whether such broker or dealer furnishes research and other information or services to the Adviser; (e) Adhere to the investment objective, strategies and policies and procedures of the Trust adopted on behalf of each Fund; and (f) Maintain a policy and practice of conducting its investment advisory services hereunder independently of the commercial banking operations of its affiliates. In making investment recommendations for a Fund, the Adviser's investment advisory personnel will not inquire or take into consideration whether the issuers (or related supporting institutions) of securities proposed for purchase or sale for the Fund's account are customers of the commercial departments of its affiliates. In dealing with commercial customers, such commercial departments will not inquire or take into consideration whether securities of those customers are held by the Fund. 4. Confidentiality of Information. Each party agrees that it will treat confidentially all information provided by the other party regarding such other party's business and operations, including without limitation the investment activities or holdings of a Fund. All confidential information provided by a party hereto shall not be disclosed to any unaffiliated third party without the prior consent of the providing party. The foregoing shall not apply to any information that is public when provided or thereafter becomes public or which is required to be disclosed by any regulatory authority in the lawful and appropriate exercise of its jurisdiction over a party, by any auditor of the parties hereto, by judicial or administrative process or otherwise by applicable law or regulation. 5. Delegation of Duties. Subject to the approval of the Board and, if required, the shareholders of the Funds, the Adviser may delegate to one or more Sub-Adviser(s) any or all of its duties hereunder, provided that the Adviser shall continue to supervise and monitor the performance of the duties delegated to the Sub-Adviser(s) and any such delegation shall not relieve the Adviser of its duties and obligations under this Agreement. The Adviser shall be solely responsible for compensating the Sub-Adviser(s) for performing any of the duties delegated to them. The Adviser may request that the Trust pay directly to the Sub-Adviser(s) the portion of the Adviser's compensation that the Adviser is obligated to pay to the Sub-Adviser(s). If the Trust agrees to such request, it will pay such portion to the Sub-Adviser(s) on behalf of the Adviser, thereby reducing the compensation paid to the Adviser by the amount paid directly to the Sub-Adviser(s). However, such an arrangement will not relieve the Adviser of its responsibility for compensating the Sub-Adviser(s). In the event that any Sub-Adviser appointed hereunder is terminated, the Adviser may provide investment advisory services pursuant to this Agreement through its own employees or through one or more affiliated companies that are 3 qualified to act as investment advisers under applicable law and are under common control of Bank of America Corporation or through other Sub-Adviser(s) as approved by the Trust in accordance with applicable law. 6. Services Not Exclusive. The services furnished by the Adviser hereunder are deemed not to be exclusive, and the Adviser shall be free to furnish similar services to others so long as its provision of services under this Agreement is not impaired thereby. To the extent that the purchase or sale of securities or other investments of the same issuer may be deemed by the Adviser to be suitable for two or more accounts managed by the Adviser, the available securities or investments may be allocated in a manner believed by the Adviser to be equitable to each account. It is recognized that in some cases this procedure may adversely affect the price paid or received by a Fund or the size of the position obtainable for or disposed of by a Fund. Nothing in this Agreement shall limit or restrict the right of any of the Adviser's partners, officers or employees to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any business, whether of a similar or dissimilar nature, nor limit or restrict the Adviser's right to engage in any other business or to render services of any kind to any other corporation, firm, individual or association. 7. Delivery of Documents. The Trust has furnished the Adviser with copies, properly certified or authenticated, of each of the following: (a) the Trust's Certificate of Trust, as filed with the Secretary of State of Delaware, and Declaration of Trust (such Declaration of Trust, as presently in effect and as from time to time amended, is herein called the "Declaration of Trust"); (b) the most recent prospectus(es) and statement(s) of additional information relating to each Fund (such prospectus(es) together with the related statement(s) of additional information, as presently in effect and all amendments and supplements thereto, are herein called the "Prospectus"); and (c) any and all applicable policies and procedures approved by the Board. The Trust will promptly furnish the Adviser with copies of any and all amendments of or additions or supplements to the foregoing. 8. Books and Records. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Adviser hereby agrees that all records that it maintains for each Fund under this Agreement are the property of the Trust and further agrees to surrender promptly to the Trust any of such records upon request. The Adviser further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act. 9. Expenses of the Funds. Except to the extent expressly assumed by the Adviser and except to any extent required by law to be paid or reimbursed by the Adviser, the Adviser 4 shall have no duty to pay any ordinary operating expenses incurred in the organization and operation of the Funds. Ordinary operating expenses include, but are not limited to, brokerage commissions and other transaction charges, taxes, legal, auditing, printing, or governmental fees, other service providers' fees and expenses, expenses of issue, sale, redemption and repurchase of shares, expenses of registering and qualifying shares for sale, expenses relating to Board and shareholder meetings, the cost of preparing and distributing reports and notices to shareholders and interest payments and other fees or charges associated with any credit facilities established by or on behalf of the Funds. 10. Compensation. Except as otherwise provided herein, for the services provided to each Fund and the expenses assumed pursuant to this Agreement, the Trust will pay the Adviser and the Adviser will accept as full compensation therefor a fee determined in accordance with Schedule I attached hereto; provided, however, that the compensation paid to the Adviser shall be reduced by any amount paid by the Trust directly to the Sub-Advisor(s) pursuant to Section 5 of this Agreement. In addition, BAAI or its affiliated persons may receive compensation or reimbursement of recordkeeping, bookkeeping, accounting, administrative and transactional fees or charges incurred in connection with any credit facilities established by or on behalf of the Funds. The fees or charges attributable to each Fund shall be a separate charge to such Fund and shall be the several (and not joint or joint and several) obligation of each such Fund. The Trust and the Adviser may, from time to time, agree to reduce, limit or waive the amounts payable hereunder with respect to one or more Funds for such period or periods they deem advisable. 11. Liability of Adviser. The Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with the performance of its duties under this Agreement, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services, or a loss resulting from willful misfeasance, bad faith or negligence on the part of the Adviser or any of its officers, directors, employees or agents, in the performance of their duties under this Agreement, or from reckless disregard by it of obligations and duties under this Agreement. 12. Term and Approval. This Agreement will become effective as of the date set forth herein above, and shall continue in effect until the second anniversary of its effective date. This Agreement will become effective with respect to each additional Fund as of the date set forth on Schedule I when each such Fund is added thereto. The Agreement shall continue in effect for a Fund after the second anniversary of the effective date for successive annual periods ending on each anniversary of such date, provided that the continuation of the Agreement is specifically approved for the Fund at least annually: (a)(i) by the Board or (ii) by the vote of "a majority of the outstanding voting securities" of the Fund (as defined in Section 2(a)(42) of the 1940 Act); and (b) by the affirmative vote of a majority of the Trustees of the Trust who are not parties to this Agreement or "interested persons" (as defined in the 1940 Act) of a party to this Agreement (other than as Trustees of the 5 Trust), by votes cast in person at a meeting specifically called for such purpose. 13. Termination. This Agreement may be terminated without payment of any penalty at any time by: (a) the Trust with respect to a Fund, by vote of the Board or by vote of a majority of a Fund's outstanding voting securities, upon sixty (60) days' written notice to the Adviser; or (b) the Adviser with respect to a Fund, upon sixty (60) days' written notice to the Trust. Any party entitled to notice may waive the notice provided for herein. This Agreement shall automatically terminate in the event of its assignment, unless an order is issued by the Commission conditionally or unconditionally exempting such assignment from the provisions of Section 15(a) of the 1940 Act, in which event this Agreement shall remain in full force and effect subject to the terms of such order. For the purposes of this paragraph, the definitions contained in Section 2(a) of the 1940 Act and the applicable rules under the 1940 Act shall apply. 14. Amendment of this Agreement. No provision of this Agreement may be changed, waived, discharged or terminated orally, except by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 15. Notices. Any notices under this Agreement shall be in writing, addressed and delivered or mailed postage paid to such address as may be designated for the receipt of such notice. Until further notice, it is agreed that the address of the Trust shall be c/o Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201, Attention: Secretary, and that of the Adviser shall be One Bank of America Plaza, 33rd Floor, 101 South Tryon Street, Charlotte, North Carolina 28255, Attention: President. 16. Release. The names "Nations Funds Trust" and "Trustees of Nations Funds Trust" refer respectively to the Trust created by the Declaration of Trust and the Trustees as Trustees but not individually or personally. All parties hereto acknowledge and agree that any and all liabilities of the Trust arising, directly or indirectly, under this Agreement will be satisfied solely out of the assets of the Trust and that no Trustee, officer or shareholder shall be personally liable for any such liabilities. All persons dealing with any Fund of the Trust must look solely to the property belonging to such Fund for the enforcement of any claims against the Trust. 17. Miscellaneous. This Agreement contains the entire understanding of the parties hereto. Each provision of this Agreement is intended to be severable. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 6 18. Governing Law. This Agreement shall be governed by, and construed in accordance with, Delaware law and the federal securities laws, including the 1940 Act and the Advisers Act. 19. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. 7 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written. NATIONS FUNDS TRUST on behalf of the Funds By: /s/ A. Max Walker ------------------------------------- A. Max Walker President and Chairman of the Board of Trustees BANC OF AMERICA ADVISORS, INC. By: /s/ Robert H. Gordon ------------------------------------- Robert H. Gordon President 8 SCHEDULE I The Trust shall pay the Adviser, as full compensation for services provided and expenses assumed hereunder, an advisory fee for each Fund, computed daily and payable monthly at the annual rates listed below as a percentage of the average daily net assets of the Fund: Rate of Fund Compensation Effective Date - ---- ------------ -------------- Nations MidCap Index Fund 0.40% 3/30/00 Nations Kansas Municipal Income Fund 0.50% 7/14/00 Nations Financial Services Fund 0.75% 3/29/01 Nations Classic Value Fund 0.65% 4/9/01 Nations Global Value Fund 0.90% 4/9/01 Nations Government Securities Fund 0.50% up to $100 million 6/8/01 0.45% up to $250 million 0.40% in excess of $250 million Nations Asset Allocation Fund 0.65% 6/8/01 Nations LifeGoal Growth Portfolio 0.25% 6/8/01 Nations LifeGoal Balanced Growth Portfolio 0.25% 6/8/01 Nations LifeGoal Income and Growth Portfolio 0.25% 6/8/01
Approved: December 9, 1999 Last Amended: June 8, 2001 9 IN WITNESS WHEREOF, the parties hereto have caused this amended Schedule I to be executed by their officers designated below as of the 8th day of June, 2001. BANC OF AMERICA ADVISORS, LLC (formerly Banc of America Advisors, Inc.) By: /s/ Edward D. Bedard -------------------- Edward D. Bedard Senior Vice President and Chief Operating Officer NATIONS FUNDS TRUST on behalf of the Funds By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Secretary 10 EX-99.23(D)(2) 4 ex99-23d2_87612.txt INV. SUB-ADVISORY BACAP INVESTMENT SUB-ADVISORY AGREEMENT NATIONS FUNDS TRUST THIS AGREEMENT is made as of March 30, 2000, by and between BANC OF AMERICA ADVISORS, INC., a North Carolina corporation (the "Adviser"), BANC OF AMERICA CAPITAL MANAGEMENT, INC., a Maryland corporation (the "Sub-Adviser"), and NATIONS FUNDS TRUST, a Delaware business trust (the "Trust"), on behalf of those series of the Trust now or hereafter identified on Schedule I (each a "Fund" and collectively, the "Funds"). WHEREAS, the Trust is registered with the Securities and Exchange Commission (the "Commission") as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); WHEREAS, the Adviser is registered with the Commission as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act"); WHEREAS, the Sub-Adviser is also registered with the Commission as an investment adviser under the Advisers Act; WHEREAS, the Adviser and the Trust have entered into an investment advisory agreement (the "Investment Advisory Agreement"), pursuant to which the Adviser manages the investment operations of each Fund and may delegate certain duties of the Adviser to one or more investment sub-adviser(s); and WHEREAS, the Adviser, with the approval of the Board of Trustees of the Trust (the "Board"), including a majority of the Trustees who are not "interested persons" (defined herein) of any party to this Agreement, desires to delegate to the Sub-Adviser the duty to manage the portfolio investments of the Funds; NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. Appointment of Sub-Adviser. The Adviser hereby appoints the Sub-Adviser and the Sub-Adviser hereby agrees to manage the portfolio investments of each Fund subject to the terms of this Agreement and subject to the supervision of the Adviser and the Board. 2. Services of Sub-Adviser. The Sub-Adviser shall perform all services necessary for the management of the portfolio investments of each Fund, including but not limited to: (a) Managing the investment and reinvestment of all assets, now or hereafter acquired by each Fund, including determining what securities and other investments are to be purchased or sold for each Fund and executing transactions accordingly; 1 (b) Transmitting trades to each Fund's custodian for settlement in accordance with each Fund's procedures and as may be directed by the Trust; (c) Assisting in the preparation of all shareholder communications, including shareholder reports, and participating in shareholder relations; (d) Making recommendations as to the manner in which voting rights, rights to consent to Fund action and any other rights pertaining to each Fund's portfolio securities shall be exercised; (e) Making recommendations to the Adviser and the Board with respect to Fund investment policies and procedures, and carrying out such investment policies and procedures as are approved by the Board or by the Adviser under authority delegated by the Board to the Adviser; (f) Supplying reports, evaluations, analyses, statistical data and information to the Adviser, the Board or to the Funds' officers and other service providers as the Adviser or the Board may reasonably request from time to time or as may be necessary or appropriate for the operation of the Trust as an open-end investment company or as necessary to comply with Section 3(a) of this Agreement; (g) Maintaining all required books and records with respect to the investment decisions and securities transactions for each Fund; (h) Furnishing any and all other services, subject to review by the Board, that the Adviser from time to time determines to be necessary or useful to perform its obligations under the Investment Advisory Agreement or as the Board may reasonably request from time to time. 3. Responsibilities of Sub-Adviser. In carrying out its obligations under this Agreement, the Sub-Adviser agrees that it will: (a) Comply with all applicable law, including but not limited to the 1940 Act and the Advisers Act, the rules and regulations of the Commission thereunder, and the conditions of any order affecting the Trust or a Fund issued thereunder; (b) Use the same skill and care in providing such services as it uses in providing services to other fiduciary accounts for which it has investment responsibilities; (c) Not make loans to any person for the purpose of purchasing or carrying Fund shares; (d) Place, or arrange for the placement of, all orders pursuant to its investment determinations for the Funds either directly with the issuer or with any 2 broker or dealer (including any affiliated broker or dealer). In executing portfolio transactions and selecting brokers or dealers, the Sub-Adviser will use its best efforts to seek on behalf of each Fund the best overall terms available. In assessing the best overall terms available for any transaction, the Sub-Adviser shall consider all factors that it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. In evaluating the best overall terms available, and in selecting the broker or dealer to execute a particular transaction, the Sub-Adviser may also consider whether such broker or dealer furnishes research and other information or services to the Sub-Adviser; (e) Adhere to the investment objective, strategies and policies and procedures of the Trust adopted on behalf of each Fund; (f) Maintain a policy and practice of conducting its investment advisory services hereunder independently of the commercial banking operations of its affiliates. In making investment recommendations for a Fund, the Sub-Adviser's investment advisory personnel will not inquire or take into consideration whether the issuers (or related supporting institutions) of securities proposed for purchase or sale for a Fund's account are customers of the commercial departments of its affiliates. In dealing with commercial customers, such commercial departments will not inquire or take into consideration whether securities of those customers are held by the Fund. 4. Confidentiality of Information. Each party agrees that it will treat confidentially all information provided by another party regarding such other party's business and operations, including without limitation the investment activities or holdings of a Fund. All confidential information provided by a party hereto shall not be disclosed to any unaffiliated third party without the prior consent of the providing party. The foregoing shall not apply to any information that is public when provided or thereafter becomes public or which is required to be disclosed by any regulatory authority in the lawful and appropriate exercise of its jurisdiction over a party, by any auditor of the parties hereto, by judicial or administrative process or otherwise by applicable law or regulation. 5. Services Not Exclusive. The services furnished by the Sub-Adviser hereunder are deemed not to be exclusive, and the Sub-Adviser shall be free to furnish similar services to others so long as its provision of services under this Agreement is not impaired thereby. To the extent that the purchase or sale of securities or other investments of the same issuer may be deemed by the Sub-Adviser to be suitable for two or more accounts managed by the Sub-Adviser, the available securities or investments may be allocated in a manner believed by the Sub-Adviser to be equitable to each account. It is recognized that in some cases this procedure may adversely affect the price paid or received by a Fund or the size of the position obtainable 3 for or disposed of by a Fund. Nothing in this Agreement shall limit or restrict the right of any of the Sub-Adviser's partners, officers or employees to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any business, whether of a similar or dissimilar nature, nor limit or restrict the Sub-Adviser's right to engage in any other business or to render services of any kind to any other corporation, firm, individual or association. 6. Delivery of Documents. The Trust will provide the Sub-Adviser with copies, properly certified or authenticated, of each of the following: (a) the Trust's Certificate of Trust, as filed with the Secretary of State of Delaware, and Declaration of Trust (such Declaration of Trust, as presently in effect and as from time to time amended, is herein called the "Declaration of Trust"); (b) the most recent prospectus(es) and statement(s) of additional information relating to each Fund (such prospectus(es) together with the related statement(s) of additional information, as presently in effect and all amendments and supplements thereto, are herein called the "Prospectus"); and (c) any and all applicable policies and procedures approved by the Board. The Trust will promptly furnish the Sub-Adviser with copies of any and all amendments of or additions or supplements to the foregoing. 7. Books and Records. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Sub-Adviser hereby agrees that all records that it maintains for each Fund under this Agreement are the property of the Trust and further agrees to surrender promptly to the Trust or the Adviser any of such records upon request. The Sub-Adviser further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act. 8. Expenses of the Funds. Except to the extent expressly assumed by the Sub-Adviser and except to any extent required by law to be paid or reimbursed by the Sub-Adviser, the Sub-Adviser shall have no duty to pay any ordinary operating expenses incurred in the organization and operation of the Funds. Ordinary operating expenses include, but are not limited to, brokerage commissions and other transaction charges, taxes, legal, auditing, printing, or governmental fees, other Fund service providers' fees and expenses, expenses of issue, sale, redemption and repurchase of shares, expenses of registering and qualifying shares for sale, expenses relating to Board and shareholder meetings, and the cost of preparing and distributing reports and notices to shareholders. 9. Compensation. Except as otherwise provided herein, for the services provided to each Fund and the expenses assumed pursuant to this Agreement, the Adviser will pay the Sub-Adviser and the Sub-Adviser will accept as full compensation therefor a fee determined in 4 accordance with Schedule I attached hereto. It is understood that the Adviser shall be solely responsible for compensating the Sub-Adviser for performing any of the duties delegated to the Sub-Adviser and the Sub-Adviser agrees that it shall have no claim against the Trust or any Fund with respect to compensation under this Agreement. The Adviser and the Sub-Adviser may, from time to time, agree to reduce, limit or waive the amounts payable hereunder with respect to one or more Funds for such period or periods they deem appropriate. 10. Liability of Sub-Adviser. The Sub-Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Adviser or the Trust in connection with the performance of its duties under this Agreement, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services, or a loss resulting from willful misfeasance, bad faith or negligence on the part of the Sub-Adviser or any of its officers, directors, employees or agents, in the performance of their duties under this Agreement, or from reckless disregard by it of obligations and duties under this Agreement. 11. Term and Approval. This Agreement will become effective as of the date set forth herein above, and shall continue in effect until the second anniversary of its effective date. This Agreement will become effective with respect to each additional Fund as of the date set forth on Schedule I when each such Fund is added thereto. The Agreement shall continue in effect for a Fund after the second anniversary of the effective date for successive annual periods ending on each anniversary of such date, provided that the continuation of the Agreement is specifically approved for the Fund at least annually: (a)(i) by the Board or (ii) by the vote of "a majority of the outstanding voting securities" of the Fund (as defined in Section 2(a)(42) of the 1940 Act); and (b) by the affirmative vote of a majority of the Trustees of the Trust who are not parties to this Agreement or "interested persons" (as defined in the 1940 Act) of a party to this Agreement (other than as Trustees of the Trust), by votes cast in person at a meeting specifically called for such purpose. 12. Termination. This Agreement may be terminated without payment of any penalty at any time by: (a) the Trust with respect to a Fund, by vote of the Board or by vote of a majority of a Fund's outstanding voting securities, upon sixty (60) days' written notice to the other parties to this Agreement; or (b) the Adviser or the Sub-Adviser with respect to a Fund, upon sixty (60) days' written notice to the other parties to this Agreement. Any party entitled to notice may waive the notice provided for herein. This Agreement shall automatically terminate in the event of its assignment, unless an order is issued by the Commission conditionally or unconditionally exempting such assignment from the provisions of 5 Section 15(a) of the 1940 Act, in which event this Agreement shall remain in full force and effect subject to the terms of such order. For the purposes of this paragraph, the definitions contained in Section 2(a) of the 1940 Act and the applicable rules under the 1940 Act shall apply. 14. Amendment of this Agreement. No provision of this Agreement may be changed, waived, discharged or terminated orally, except by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 15. Notices. Any notices under this Agreement shall be in writing, addressed and delivered or mailed postage paid to such address as may be designated for the receipt of such notice. Until further notice, it is agreed that the address of the Trust shall be c/o Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201, Attention: Secretary, that of the Adviser shall be One Bank of America Plaza, 33rd Floor, 101 South Tryon Street, Charlotte, North Carolina 28255, Attention: President and that of the Sub-Adviser shall be One Bank of America Plaza, 33rd Floor, 101 South Tryon Street, Charlotte, North Carolina 28255, Attention: President. 16. Release. The names "Nations Funds Trust" and "Trustees of Nations Funds Trust" refer respectively to the Trust created by the Declaration of Trust and the Trustees as Trustees but not individually or personally. All parties hereto acknowledge and agree that any and all liabilities of the Trust arising, directly or indirectly, under this Agreement will be satisfied solely out of the assets of the Trust and that no Trustee, officer or shareholder shall be personally liable for any such liabilities. All persons dealing with any Fund of the Trust must look solely to the property belonging to such Fund for the enforcement of any claims against the Trust. 17. Miscellaneous. This Agreement contains the entire understanding of the parties hereto. Each provision of this Agreement is intended to be severable. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 18. Governing Law. This Agreement shall be governed by, and construed in accordance with, Delaware law and the federal securities laws, including the 1940 Act and the Advisers Act. 19. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. 6 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written. NATIONS FUNDS TRUST on behalf of the Funds By: /s/ A. Max Walker ------------------------------------ A. Max Walker President and Chairman of the Board of Trustees BANC OF AMERICA ADVISORS, INC. By: /s/ Robert H. Gordon ------------------------------------ Robert H. Gordon President BANC OF AMERICA CAPITAL MANAGEMENT, INC. By: /s/ Michael E. Kenneally ------------------------------------ Michael E. Kenneally President 7 SCHEDULE I The Adviser shall pay the Sub-Adviser, as full compensation for services provided and expenses assumed hereunder, a sub-advisory fee for each Fund, computed daily and payable monthly at the annual rates listed below as a percentage of the average daily net assets of the Fund:
Rate of Fund Compensation Effective Date ---- ------------ -------------- Nations MidCap Index Fund 0.10% 3/30/00 Nations Kansas Municipal Income Fund 0.07% 7/14/00 Nations Financial Services Fund 0.25% 3/29/01 Nations Government Securities Fund 0.15% 6/8/01 Nations Asset Allocation Fund (non-equity portion) 0.25% 6/8/01 Nations LifeGoal Growth Portfolio 0.05% 6/8/01 Nations LifeGoal Balanced Growth Portfolio 0.05% 6/8/01 Nations LifeGoal Income and Growth Portfolio 0.05% 6/8/01
Approved: December 9, 1999 Last Amended: June 8, 2001 8 IN WITNESS WHEREOF, the parties hereto have caused this amended Schedule I to be executed by their officers designated below as of the 8th day of June, 2001. BANC OF AMERICA ADVISORS, LLC (formerly Banc of America Advisors, Inc.) By: /s/ Robert H. Gordon --------------------- Robert H. Gordon President BANC OF AMERICA CAPITAL MANAGEMENT, LLC (formerly Banc of America Capital Management, Inc.) By: /s/ Edward D. Bedard --------------------- Edward D. Bedard Managing Director NATIONS FUNDS TRUST on behalf of the Funds By: /s/ Richard H. Blank, Jr. --------------------------- Richard H. Blank, Jr. Secretary EX-99.23(D)(4) 5 ex99-23d4_87612.txt INV. SUB-ADVISORY CHICAGO EQUITY INVESTMENT SUB-ADVISORY AGREEMENT NATIONS FUNDS TRUST THIS AGREEMENT is made as of June 8, 2001, by and between BANC OF AMERICA ADVISORS, LLC, a North Carolina corporation (the "Adviser"), CHICAGO EQUITY PARTNERS, LLC, a Delaware corporation (the "Sub-Adviser"), and NATIONS FUNDS TRUST, a Delaware business trust (the "Trust"), on behalf of those series of the Trust now or hereafter identified on Schedule I (each a "Fund" and collectively, the "Funds"). WHEREAS, the Trust is registered with the Securities and Exchange Commission (the "Commission") as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); WHEREAS, the Adviser is registered with the Commission as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act"); WHEREAS, the Sub-Adviser is also registered with the Commission as an investment adviser under the Advisers Act; WHEREAS, the Adviser and the Trust have entered into an investment advisory agreement (the "Investment Advisory Agreement"), pursuant to which the Adviser manages the investment operations of each Fund and may delegate certain duties of the Adviser to one or more investment sub-adviser(s); and WHEREAS, the Adviser, with the approval of the Board of Trustees of the Trust (the "Board"), including a majority of the Trustees who are not "interested persons" (defined herein) of any party to this Agreement, desires to delegate to the Sub-Adviser the duty to manage the portfolio investments of the Funds; NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. Appointment of Sub-Adviser. The Adviser hereby appoints the Sub-Adviser and the Sub-Adviser hereby agrees to manage the portfolio investments of each Fund subject to the terms of this Agreement and subject to the supervision of the Adviser and the Board. 2. Services of Sub-Adviser. The Sub-Adviser shall perform all services necessary for the management of the portfolio investments of each Fund, including but not limited to: (a) Managing the investment and reinvestment of all assets, now or hereafter acquired by each Fund, including determining what securities and other investments are to be purchased or sold for each Fund and executing transactions accordingly, provided, however, that with respect to Nations Asset Allocation Fund, the Sub-Adviser will manage such Fund's equity -1- investments, as a percentage of such Fund as may be determined from time-to-time by Banc of America Capital Management, Inc.; (b) Transmitting trades to each Fund's custodian for settlement in accordance with each Fund's procedures and as may be directed by the Trust; (c) Assisting in the preparation of all shareholder communications, including shareholder reports, and participating in shareholder relations; (d) Making recommendations as to the manner in which voting rights, rights to consent to Fund action and any other rights pertaining to each Fund's portfolio securities shall be exercised; (e) Making recommendations to the Adviser and the Board with respect to Fund investment policies and procedures, and carrying out such investment policies and procedures as are approved by the Board or by the Adviser under authority delegated by the Board to the Adviser; (f) Supplying reports, evaluations, analyses, statistical data and information to the Adviser, the Board or to the Funds' officers and other service providers as the Adviser or the Board may reasonably request from time to time or as may be necessary or appropriate for the operation of the Trust as an open-end investment company or as necessary to comply with Section 3(a) of this Agreement; (g) Maintaining all required books and records with respect to the investment decisions and securities transactions for each Fund; (h) Furnishing any and all other services, subject to review by the Board, that the Adviser from time to time determines to be necessary or useful to perform its obligations under the Investment Advisory Agreement or as the Board may reasonably request from time-to-time. 3. Responsibilities of Sub-Adviser. In carrying out its obligations under this Agreement, the Sub-Adviser agrees that it will: (a) Comply with all applicable law, including but not limited to the 1940 Act and the Advisers Act, the rules and regulations of the Commission thereunder, and the conditions of any order affecting the Trust or a Fund issued thereunder; (b) Use the same skill and care in providing such services as it uses in providing services to other fiduciary accounts for which it has investment responsibilities; (c) Not make loans to any person for the purpose of purchasing or carrying Fund shares; -2- (d) Place, or arrange for the placement of, all orders pursuant to its investment determinations for the Funds either directly with the issuer or with any broker or dealer (including any affiliated broker or dealer). In executing portfolio transactions and selecting brokers or dealers, the Sub-Adviser will use its best efforts to seek on behalf of each Fund the best overall terms available. In assessing the best overall terms available for any transaction, the Sub-Adviser shall consider all factors that it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. In evaluating the best overall terms available, and in selecting the broker or dealer to execute a particular transaction, the Sub-Adviser may also consider whether such broker or dealer furnishes research and other information or services to the Sub-Adviser; and (e) Adhere to the investment objective, strategies and policies and procedures of the Trust adopted on behalf of each Fund. 4. Confidentiality of Information. Each party agrees that it will treat confidentially all information provided by another party regarding such other party's business and operations, including without limitation the investment activities or holdings of a Fund. All confidential information provided by a party hereto shall not be disclosed to any unaffiliated third party without the prior consent of the providing party. The foregoing shall not apply to any information that is public when provided or thereafter becomes public or which is required to be disclosed by any regulatory authority in the lawful and appropriate exercise of its jurisdiction over a party, by any auditor of the parties hereto, by judicial or administrative process or otherwise by applicable law or regulation. 5. Services Not Exclusive. The services furnished by the Sub-Adviser hereunder are deemed not to be exclusive, and the Sub-Adviser shall be free to furnish similar services to others so long as its provision of services under this Agreement is not impaired thereby. To the extent that the purchase or sale of securities or other investments of the same issuer may be deemed by the Sub-Adviser to be suitable for two or more accounts managed by the Sub-Adviser, the available securities or investments may be allocated in a manner believed by the Sub-Adviser to be equitable to each account. It is recognized that in some cases this procedure may adversely affect the price paid or received by a Fund or the size of the position obtainable for or disposed of by a Fund. 6. Delivery of Documents. The Trust will provide the Sub-Adviser with copies, properly certified or authenticated, of each of the following: (a) the Trust's Certificate of Trust, as filed with the Secretary of State of Delaware, and Declaration of Trust (such Declaration of Trust, as presently in effect and as from time-to-time amended, is herein called the "Declaration of Trust"); -3- (b) the Trust's Bylaws, if any; (c) the most recent prospectus(es) and statement(s) of additional information relating to each Fund (such prospectus(es) together with the related statement(s) of additional information, as presently in effect and all amendments and supplements thereto, are herein called the "Prospectus"); and (d) any and all applicable policies and procedures approved by the Board. The Trust will promptly furnish the Sub-Adviser with copies of any and all amendments of or additions or supplements to the foregoing. 7. Books and Records. In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Sub-Adviser hereby agrees that all records that it maintains for each Fund under this Agreement are the property of the Trust and further agrees to surrender promptly to the Trust or the Adviser any of such records upon request. The Sub-Adviser further agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule 31a-1 under the 1940 Act. 8. Expenses of the Funds. Except to the extent expressly assumed by the Sub-Adviser and except to any extent required by law to be paid or reimbursed by the Sub-Adviser, the Sub-Adviser shall have no duty to pay any ordinary operating expenses incurred in the organization and operation of the Funds. Ordinary operating expenses include, but are not limited to, brokerage commissions and other transaction charges, taxes, legal, auditing, printing, or governmental fees, other Fund service providers' fees and expenses, expenses of issue, sale, redemption and repurchase of shares, expenses of registering and qualifying shares for sale, expenses relating to Board and shareholder meetings, and the cost of preparing and distributing reports and notices to shareholders. The Sub-Adviser shall pay all other expenses incurred by it in connection with its services under this Agreement. 9. Compensation. Except as otherwise provided herein, for the services provided to each Fund and the expenses assumed pursuant to this Agreement, the Adviser will pay the Sub-Adviser and the Sub-Adviser will accept as full compensation therefor a fee determined in accordance with Schedule I attached hereto. It is understood that the Adviser shall be solely responsible for compensating the Sub-Adviser for performing any of the duties delegated to the Sub-Adviser and the Sub-Adviser agrees that it shall have no claim against the Trust or any Fund with respect to compensation under this Agreement. To the extent that the advisory fee that the Trust would be obligated to pay to the Adviser with respect to a Fund pursuant to the Investment Advisory Agreement is reduced or reimbursed, the fee that the Sub-Adviser would otherwise receive pursuant to this Agreement shall be reduced or reimbursed proportionately. 10. Liability of Sub-Adviser. The Sub-Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Adviser or the Trust in connection with the performance of its duties under this Agreement, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services, from willful misfeasance, -4- bad faith or negligence on the part of the Sub-Adviser or any of its officers, directors, employees or agents, in connection with the performance of their duties under this Agreement, from reckless disregard by it or its officers, directors, employees or agents of any of their obligations and duties under this Agreement, or from any violations of securities laws, rules, regulations, statutes and codes, whether federal or state, by the Sub-Adviser or any of its officers, directors, employees or agents. 11. Indemnification. The Sub-Adviser shall indemnify and hold harmless the Funds and the Adviser from and against any and all direct or indirect claims, losses, liabilities or damages (including reasonable attorney's fees and other related expenses) resulting from a breach of fiduciary duty with respect to the receipt of compensation for services, from willful misfeasance, bad faith or negligence on the part of the Sub-Adviser or any of its officers, directors, employees or agents, in connection with the performance of their duties under this Agreement, from reckless disregard by it or its officers, directors, employees or agents of any of their obligations and duties under this Agreement, or resulting from any violations of securities laws, rules, regulations, statutes and codes, whether federal or state, by the Sub-Adviser or any of its officers, directors, employees or agents; provided, however, that the Sub-Adviser shall not be required to indemnify or otherwise hold the Funds or the Adviser harmless under this Section 11 where the claim against, or the loss, liability or damage experienced by the Funds or the Adviser, is caused by or is otherwise directly related to the Funds' or the Adviser's own willful misfeasance, bad faith or negligence, or to the reckless disregard by the Funds or the Adviser of their duties under this Agreement. 12. Term and Approval. This Agreement will become effective as of the date set forth herein above, and shall continue in effect until the second anniversary of its effective date. This Agreement will become effective with respect to each additional Fund as of the date set forth on Schedule I when each such Fund is added thereto. The Agreement shall continue in effect for a Fund after the second anniversary of the effective date for successive annual periods ending on each anniversary of such date, provided that the continuation of the Agreement is specifically approved for the Fund at least annually: (a)(i) by the Board or (ii) by the vote of "a majority of the outstanding voting securities" of the Fund (as defined in Section 2(a)(42) of the 1940 Act); and (b) by the affirmative vote of a majority of the Trustees of the Trust who are not parties to this Agreement or "interested persons" (as defined in the 1940 Act) of a party to this Agreement (other than as Trustees of the Trust), by votes cast in person at a meeting specifically called for such purpose. 13. Termination. This Agreement may be terminated without payment of any penalty at any time by: -5- (a) the Trust with respect to a Fund, by vote of the Board or by vote of a majority of a Fund's outstanding voting securities, upon sixty (60) days' written notice to the other parties to this Agreement; or (b) the Adviser or the Sub-Adviser with respect to a Fund, upon sixty (60) days' written notice to the other parties to this Agreement. Any party entitled to notice may waive the notice provided for herein. This Agreement shall automatically terminate in the event of its assignment, unless an order is issued by the Commission conditionally or unconditionally exempting such assignment from the provisions of Section 15(a) of the 1940 Act, in which event this Agreement shall remain in full force and effect subject to the terms of such order. For the purposes of this paragraph, the definitions contained in Section 2(a) of the 1940 Act and the applicable rules under the 1940 Act shall apply. 14. Code of Ethics. The Sub-Adviser represents that it has adopted a written code of ethics complying with the requirements of Rule 17j-1 under the 1940 Act and will provide the Adviser or the Trust with a copy of such code, any amendments or supplements thereto and its policies and/or procedures implemented to ensure compliance therewith. 15. Insurance. The Sub-Adviser shall maintain for the term of this Agreement and provide evidence thereof to the Trust or the Adviser a blanket bond and professional liability (error and omissions) insurance in an amount reasonably acceptable to Adviser. 16. Representations and Warranties. Each party to this Agreement represents and warrants that the execution, delivery and performance of its obligations under this Agreement are within its powers, have been duly authorized by all necessary actions and that this Agreement constitutes a legal, valid and binding obligation enforceable against it in accordance with its terms. The Sub-Adviser further represents and warrants that it is duly registered as an investment adviser under the Advisers Act. 17. Amendment of this Agreement. No provision of this Agreement may be changed, waived, discharged or terminated orally, except by an instrument in writing signed by the party against which enforcement of the change, waiver, discharge or termination is sought. 18. Notices. Any notices under this Agreement shall be in writing, addressed and delivered or mailed postage paid to such address as may be designated for the receipt of such notice. Until further notice, it is agreed that the address of the Trust shall be c/o Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201, Attention: Secretary, that of the Adviser shall be One Bank of America Plaza, 33rd Floor, 101 South Tryon Street, Charlotte, North Carolina 28255, Attention: President and that of the Sub-Adviser shall be 180 North LaSalle, Suite 3800, Chicago, Illinois 60697, Attention: Peter C. Williams, Compliance Director. The Sub-Adviser agrees to promptly notify the Adviser and the Trust in writing of the occurrence of any event which could have a material impact on the performance of its duties under this Agreement, including but not limited to (i) the occurrence of any event which could disqualify the Sub-Adviser from serving as an investment adviser pursuant to Section 9 of the 1940 Act; (ii) any material change in the Sub-Adviser's business activities; (iii) any event that would constitute a -6- change in control of the Sub-Adviser; (iv) any change in the portfolio manager or portfolio management team of a Fund; (v) the existence of any pending or threatened audit, investigation, examination, complaint or other inquiry (other than routine audits or regulatory examinations or inspections) relating to any Fund; and (vi) any material violation of the Sub-Adviser's code of ethics. 19. Release. The names "Nations Funds Trust" and "Trustees of Nations Funds Trust" refer respectively to the Trust created by the Declaration of Trust and the Trustees as Trustees but not individually or personally. All parties hereto acknowledge and agree that any and all liabilities of the Trust arising, directly or indirectly, under this Agreement will be satisfied solely out of the assets of the Trust and that no Trustee, officer or shareholder shall be personally liable for any such liabilities. All persons dealing with any Fund of the Trust must look solely to the property belonging to such Fund for the enforcement of any claims against the Trust. 20. Miscellaneous. This Agreement contains the entire understanding of the parties hereto. Each provision of this Agreement is intended to be severable. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 21. Governing Law. This Agreement shall be governed by, and construed in accordance with, Delaware law and the federal securities laws, including the 1940 Act and the Advisers Act. 22. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. 23. Use of the Name "Nations Funds". The Sub-Adviser agrees that it will not use the name "Nations Funds", any derivative thereof, or the name of the Adviser, the Trust or any Fund except in accordance with such policies and procedures as may be mutually agreed to in writing. -7- IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written. NATIONS FUNDS TRUST on behalf of the Funds By: /s/ A. Max Walker ------------------------------ A. Max Walker President and Chairman of the Board of Trustees BANC OF AMERICA ADVISORS, LLC By: /s/ Robert H. Gordon ------------------------------ Robert H. Gordon President CHICAGO EQUITY PARTNERS, LLC By: /s/ James D. Miller ------------------------------ James D. Miller President -8- SCHEDULE I The Adviser shall pay the Sub-Adviser as, full compensation for services provided and expenses assumed hereunder, a sub-advisory fee for each Fund, computed daily and payable monthly at the annual rates listed below as a percentage of the average daily net assets of the Fund under the Sub-Adviser's management: Rate of Fund Compensation Effective Date ---- ------------ -------------- Nations Asset Allocation Fund (equity portion) 0.25% 6/8/01
Approved: August 23, 2000 -9- EX-99.23(E)(1) 6 ex99-23e1_87612.txt DISTRIBUTION DISTRIBUTION AGREEMENT NATIONS FUNDS TRUST Stephens Inc. 111 Center Street Little Rock, Arkansas 72201 Gentlemen: This is to confirm that, in consideration of the agreements hereinafter contained, the undersigned, Nations Funds Trust (the "Trust"), a Delaware business trust, has agreed that Stephens Inc. (the "Distributor") shall be, for the period of this Agreement, the exclusive distributor of the units of beneficial interest in all classes of shares ("Shares") of the investment portfolios of the Trust listed on Schedule I (individually, a "Fund" and collectively the "Funds"). Absent written notification to the contrary by either the Trust or the Distributor, each new investment portfolio established in the future shall automatically become a "Fund" for all purposes hereunder and shares of each new class established in the future shall automatically become "Shares" for all purposes hereunder as if set forth on Schedule I. 1. Services as Distributor. 1.1. The Distributor will act as agent for the distribution of Shares in accordance with the instructions of the Trust's Board of Trustees and the Trust's registration statement and prospectus then in effect under the Securities Act of 1933, as amended (the "1933 Act"), and will transmit promptly any orders received by it for the purchase or redemption of Shares to the Trust or its transfer agent. 1.2. The Distributor agrees to use appropriate efforts to solicit orders for the sale of Shares and will undertake such advertising and promotion as it believes appropriate in connection with such solicitation. The Trust understands that the Distributor is and may in the future be the distributor of shares of other investment company portfolios including portfolios having investment objectives similar to those of the Funds. The Trust further understands that existing and future investors in the Funds may invest in shares of such other portfolios. The Trust agrees that the Distributor's duties to such portfolios shall not be deemed in conflict with its duties to the Trust under this paragraph 1.2. 1.3. The Distributor shall, at its own expense, finance such activities as it deems reasonable and which are primarily intended to result in the sale of Shares, including, but not limited to, advertising, compensation of underwriters, dealers and sales personnel, the printing and mailing of prospectuses to other than current shareholders, and the printing and mailing of sales literature. The Distributor shall be responsible for reviewing and providing advice and counsel on all sales literature (e.g., advertisements, brochures and shareholder communications) with respect to each of the Funds. In addition, the Distributor will provide one 1 or more persons, during normal business hours, to respond to telephone questions with respect to the Funds. 1.4. All activities by the Distributor and its agents and employees as distributor of Shares shall comply with all applicable laws, rules and regulations, including, without limitation, all rules and regulations made or adopted pursuant to the Investment Company Act of 1940, as amended (the "1940 Act") by the Securities and Exchange Commission (the "SEC") or any securities association registered under the Securities Exchange Act of 1934, as amended. 1.5. Whenever in their judgment such action is warranted by unusual market, economic or political conditions, or by other circumstances of any kind, the Trust's officers may decline to accept any orders for, or make any sales of Shares until such time as those officers deem it advisable to accept such orders and to make such sales. 1.6. The Trust agrees at its own expense to execute any and all documents and to furnish any and all information and otherwise to take all actions that may be reasonably necessary in connection with the registration or qualification of Shares for sale in such states as the Distributor may designate to the Trust and the Trust may approve, and the Trust shall pay all fees and other expenses incurred in connection with such registration or qualification. 1.7. The Trust shall furnish from time to time, for use in connection with the sale of Shares, such information with respect to the Funds and Shares as the Distributor may reasonably request; and the Trust warrants that the statements contained in any such information shall fairly show or represent what they purport to show or represent. The Trust shall also furnish the Distributor upon request with: (a) audited annual and unaudited semi-annual statements of the Trust's books and accounts with respect to each Fund, and (b) from time to time such additional information regarding the Funds' financial condition as the Distributor may reasonably request. 1.8. The Distributor may be reimbursed for all or a portion of the expenses described above to the extent permitted by a distribution plan adopted by the Trust on behalf of a Fund pursuant to Rule 12b-1 under the 1940 Act. No provision of this Agreement shall be deemed to prohibit any payments by a Fund to the Distributor or by a Fund or the Distributor to investment dealers, banks or other financial institutions through whom shares of the Fund are sold where such payments are made under a distribution plan adopted by the Trust on behalf of such Fund pursuant to Rule 12b-1 under the 1940 Act. In addition, the Distributor shall be entitled to retain any front-end sales charge imposed upon the sale of the Shares (and reallow a portion thereof) as specified in the Trust's registration statement and the Trust shall pay to the Distributor the proceeds from any contingent deferred sales charge imposed on the redemption of the shares as specified in the Trust's registration statement. 1.9. The Distributor will execute and deliver agreements with broker/dealers, financial institutions and other industry professionals based on the forms attached hereto or based on the additional forms of agreement approved from time to time by the Trust's Board of Trustees with respect to the various classes of shares of the Funds, including but not limited to forms of sales support agreements and shareholder servicing agreements approved in connection 2 with a distribution plan and/or shareholder servicing plan approved in accordance with Rule 12b-1 under the 1940 Act. 2. Representations; Indemnification. 2.1. The Trust represents to the Distributor that all registration statements and prospectuses filed by the Trust with the SEC under the 1933 Act, with respect to Shares have been prepared in conformity with the requirements of the 1933 Act and rules and regulations of the SEC thereunder. As used in this Agreement, the terms "registration statement" and "prospectus" shall mean any registration statement and then current prospectus (together with any related then current statement of additional information) filed with the SEC with respect to Shares, and any amendments and supplements thereto which at any time shall have been filed therewith. The Trust represents and warrants to the Distributor that any registration statement and prospectus, when such registration statement becomes effective, will contain all statements required to be stated therein in conformity with the 1933 Act and the rules and regulations of the SEC; that all statements of fact contained in any such registration statement and prospectus will be true and correct when such registration statement and prospectus become effective; and that neither any registration statement nor any prospectus when any registration statement becomes effective will include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading to a purchaser of Shares. The Trust may, but shall not be obligated to, propose from time to time such amendment or amendments to any registration statement and such supplement or supplements to any prospectus which in light of future developments, may, in the opinion of the Trust's counsel, be necessary or advisable. The Trust shall promptly notify the Distributor of any advice given to it by the Trust's counsel regarding the necessity or advisability so to amend or supplement such registration statement or prospectus. If the Trust shall not propose such amendment or amendments and/or supplement or supplements within fifteen days after receipt by the Trust of a written request from the Distributor to do so, the Distributor may, at its option, terminate this Agreement. The Trust shall not file any amendment to any registration statement or supplement to any prospectus without giving the Distributor reasonable notice thereof in advance; provided, however, that nothing contained in this Agreement shall in any way limit the Trust's right to file at any time such amendments to any registration statement and/or supplements to any prospectus, of whatever character, as the Trust may deem advisable, such right being in all respects absolute and unconditional. 2.2. The Trust authorizes the Distributor and dealers to use any prospectus in the form furnished from time to time in connection with the sale of Shares and represented by the Trust as being the then current form of prospectus. The Trust agrees to indemnify, defend and hold the Distributor, its several officers and directors, and any person who controls the Distributor within the meaning of Section 15 of the 1933 Act free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Distributor, its officers and directors, or any such controlling person, may incur under the 1933 Act or under common law or otherwise, arising out of or based upon any untrue statement, or alleged untrue statement, of a material fact contained in any registration statement or any prospectus or arising out of or based upon any omission, or alleged omission, 3 to state a material fact required to be stated in any registration statement or prospectus or necessary to make any statement in such documents not misleading; provided, however, that the Trust's agreement to indemnify the Distributor, its officers or directors, and any such controlling person shall not be deemed to cover any claims, demands, liabilities or expenses arising out of any untrue statement or alleged untrue statement or omission or alleged omission made in any registration statement or prospectus or in any financial or other statements in reliance upon and in conformity with any information furnished to the Trust by the Distributor or any affiliate thereof and used in the preparation thereof; and further provided that the Trust's agreement to indemnify the Distributor and the Trust's representations and warranties herein set forth shall not be deemed to cover any liability to the Trust or its shareholders to which the Distributor would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of the Distributor's reckless disregard of its obligations and duties under this Agreement. The Trust's agreement to indemnify the Distributor, its officers and directors, and any such controlling person, as aforesaid, is expressly conditioned upon the Trust's being notified of any action brought against the Distributor, its officers or directors, or any such controlling person, such notification to be given by letter or by telegram or transmitted by similar telecommunications device, addressed to the Trust at its principal office and sent to the Trust by the person against whom such action is brought, within a reasonable period of time after the summons or other first legal process shall have been served. The failure to so notify the Trust of any such action shall not relieve the Trust from any liability which the Trust may have to the person against whom such action is brought by reason of any such untrue, or allegedly untrue, statement or omission, or alleged omission, otherwise than on account of the Trust's indemnity agreement contained in this paragraph 2.2. The Trust will be entitled to assume the defense of any suit brought to enforce any such claim, demand or liability, but, in such case, such defense shall be conducted by counsel of good standing chosen by the Trust and approved by the Distributor, which approval shall not unreasonably be withheld. In the event the Trust elects to assume the defense of any such suit and retain counsel of good standing approved by the Distributor, the defendant or defendants in such suit shall bear the fees and expenses of any additional counsel retained by any of them; but in case the Trust does not elect to assume the defense of any such suit, or in case the Distributor reasonably does not approve of counsel chosen by the Trust, the Trust will reimburse the Distributor, its officers and directors, or the controlling person or persons named as defendant or defendants in such suit, for the fees and expenses of any counsel retained by the Distributor or them. The Trust's indemnification agreement contained in this paragraph 2.2 and the Trust's representations and warranties in this Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Distributor, its officers and directors, or any controlling person, and shall survive the delivery of any Shares. This agreement of indemnity will inure exclusively to the Distributor's benefit, to the benefit of its several officers and directors, and their respective estates, and to the benefit of the controlling persons and their successors. The Trust agrees promptly to notify the Distributor of the commencement of any litigation or proceedings against the Trust or any of its officers or Trustees in connection with the issue and sale of any Shares. 2.3. The Distributor agrees to indemnify, defend and hold the Trust, its several officers and Trustees, and any person who controls the Trust within the meaning of Section 15 of the 1933 Act free and harmless from and against any and all claims, demands, liabilities and 4 expenses (including the costs of investigation or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Trust, its officers or Trustees or any such controlling person, may incur under the 1933 Act or under common law or otherwise, but only to the extent that such liability or expense incurred by the Trust, its officers or Trustees, or such controlling person resulting from such claims or demands, shall arise out of or be based upon any untrue, or alleged untrue, statement of a material fact contained in information furnished by the Distributor or any affiliate thereof to the Trust or its counsel and used in the Trust's registration statement or corresponding statements made in the prospectus, or shall arise out of or be based upon any omission, or alleged omission, to state a material fact in connection with such information furnished by the Distributor or any affiliate thereof to the Trust or its counsel required to be stated in such answers or necessary to make such information not misleading. The Distributor's agreement to indemnify the Trust, its officers and Trustees, and any such controlling person, as aforesaid, is expressly conditioned upon the Distributor's being notified of any action brought against the Trust, its officers or Trustees, or any such controlling person, such notification to be given by letter or telegram addressed to the Distributor at its principal office in Little Rock, Arkansas and sent to the Distributor by the person against whom such action is brought, within a reasonable period of time after the summons or other first legal process shall have been served. The Distributor shall have the right to control the defense of such action, with counsel of its own choosing, satisfactory to the Trust, if such action is based solely upon such alleged misstatement or omission on the Distributor's part or any affiliate thereof, and in any other event the Trust, its officers or Trustees or such controlling person shall each have the right to participate in the defense or preparation of the defense of any such action. The failure so to notify the Distributor of any such action shall not relieve the Distributor or any affiliate thereof from any liability which the Distributor or any affiliate thereof may have to the Trust, its officers or Trustees, or to such controlling person by reason of any such untrue or alleged untrue statement, or omission or alleged omission, otherwise than on account of the Distributor's indemnity agreement contained in this paragraph 2.3. 2.4. No Shares shall be offered by either the Distributor or the Trust under any of the provisions of this Agreement and no orders for the purchase or sale of Shares hereunder shall be accepted by the Trust if and so long as the effectiveness of the registration statement then in effect or any necessary amendments thereto shall be suspended under any of the provisions of the 1933 Act, or if and so long as a current prospectus, as required by Section 10(b) of the 1933 Act is not on file with the SEC; provided, however, that nothing contained in this paragraph 2.4 shall in any way restrict or have any application to or bearing upon the Trust's obligation to repurchase Shares from any shareholder in accordance with the provisions of the Trust's prospectus or Declaration of Trust. 2.5. The Trust agrees to advise the Distributor as soon as reasonably practicable: (a) of any request by the SEC for amendments to the registration statement or prospectus then in effect; 5 (b) of the issuance by the SEC of any stop order suspending the effectiveness of the registration statement or prospectus then in effect or of the initiation of any proceeding for that purpose; (c) of the happening of any event that makes untrue any statement of a material fact made in the registration statement or prospectus then in effect or which requires the making of a change in such registration statement or prospectus in order to make the statements therein not misleading; (d) of all actions of the SEC with respect to any amendment to any registration statement or prospectus which may from time to time be filed with the SEC; and (e) if a current prospectus is not on file with the SEC. For purposes of this section, informal requests by or acts of the staff of the SEC shall not be deemed actions of or requests by the SEC. 3. Confidentiality. The Distributor agrees on behalf of itself and its employees to treat confidentially and as proprietary information of the Trust all records and other information relative to the Funds and/or the Trust and its prior, present or potential shareholders, and not to use such records and information for any purpose other than performance of its responsibilities and duties hereunder, except after prior notification to and approval in writing by the Trust, which approval shall not be unreasonably withheld and may not be withheld where the Distributor may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, or when so requested by the Trust. 4. Limitations of Liability. Except as provided in paragraph 2.3, the Distributor shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust or any Fund in connection with matters to which this agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard of its obligations and duties under this agreement. 5. Term. This agreement shall become effective on the date of its execution and, unless sooner terminated as provided herein, shall continue in effect for a period of two years from the date written below. This Agreement shall thereafter continue from year to year, provided such continuance is specifically approved at least annually by (i) the Trust's Board of Trustees, or (ii) by a vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Fund, provided that in either event the continuance is also approved by the majority of the Trust's Trustees who are not parties to this agreement or interested persons (as defined in the 1940 Act) of any such party, by vote cast in person at a meeting called for the purpose of voting on such approval. This agreement is not assignable and is terminable with respect to a Fund, 6 without penalty, on not less than sixty (60) days' notice, by the Trust's Board of Trustees, by vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of such Fund, or by the Distributor. This agreement will also terminate automatically in the event of its assignment (as defined in the 1940 Act). 6. Miscellaneous. 6.1. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which an enforcement of the change, waiver, discharge or termination is sought. 6.2. This agreement shall be governed by the laws of the State of Arkansas. 7. Counterparts. 7.1. This Agreement may be executed in any manner of counterparts, each of which shall be deemed an original. 7 Please confirm that the foregoing is in accordance with your understanding by indicating your acceptance hereof at the place indicated below, whereupon it shall become a binding agreement between us. Yours very truly, NATIONS FUNDS TRUST By: /s/ A. Max Walker ----------------- A. Max Walker President and Chairman of the Board of Trustees Accepted: STEPHENS INC. By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Senior Vice President Dated as of February 14, 2000 8 SCHEDULE I 1. Nations High Yield Bond Fund 2. Nations Kansas Municipal Income Fund 3. Nations Marsico 21st Century Fund 4. Nations Marsico International Opportunities Fund 5. Nations MidCap Index Fund 6. Nations Financial Services Fund 7. Nations Classic Value Fund 8. Nations Global Value Fund 9. Nations Asset Allocation Fund 10. Nations Government Securities Fund 11. Nations Marsico Focused Equities Fund 12. Nations Marsico Growth & Income Fund 13. Nations LifeGoal Growth Portfolio 14. Nations LifeGoal Balanced Growth Portfolio 15. Nations LifeGoal Income and Growth Portfolio Approved: December 9, 1999 Last Amended: June 8, 2001 9 EX-99.23(G)(1) 7 ex99-23g1_87612.txt CUSTODY AMMENDED AMENDED AND RESTATED CUSTODY AGREEMENT THIS AGREEMENT is made as of the 2nd day of July, 2001 by and between The Bank of New York, a New York corporation authorized to do a banking business ("Custodian"), and Nations Funds Trust, a Delaware business trust (the "Trust"). W I T N E S S E T H WHEREAS, the Trust is a registered open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, by a Custody Agreement made as of the 14th day of February, 2000 (the "Original Custody Agreement") the Trust retained Custodian to serve as custodian for the Trust, on behalf of its portfolios listed on Schedule I (individually a "Fund" and collectively the "Funds") and to provide the services described therein, and Custodian agreed to serve and to provide such services; and WHEREAS, the Trust and Custodian desire to amend and restate the Original Custody Agreement in a single agreement (hereinafter the "Agreement"); NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the Trust and Custodian hereby agree as follows: 1. Appointment. The Trust hereby appoints Custodian to act as custodian of its portfolio securities, cash and other property on the terms set forth in this Agreement. Custodian accepts such appointment and agrees to furnish theservices herein set forth in return for the compensation as provided inParagraph 23 hereof. Custodian agrees to comply with all relevant provisions of the 1940 Act and applicable rules and regulations thereunder. The Trust may from time to time issue separate series or classes, and classify and reclassify shares of any such series or class. The Trust shall promptly specify to Custodian in writing such series or classes, or any reclassification and thereafter Custodian shall identify to each such series or class Property, as hereinafter defined, belonging to such series or class, and such reports, confirmations and notices to the Trust as are called for under this Agreement shall identify the series or class to which such report, confirmation or notice pertains. 2. Delivery of Documents. The Trust has furnished Custodian with copies properly certified or authenticated of each of the following: (a) votes of the Trust's Board of Trustees authorizing the appointment of Custodian as custodian of portfolio securities, cash and other property of the Trust, respectively, and approving and consenting to this Agreement; (b) schedules identifying and containing the signatures of all of the Trust's officers and any other persons authorized to issue Oral Instructions and to sign Written Instructions, as hereinafter defined, on behalf of the Funds of the Trust; (c) the Trust's current registration statement on Form N-1A (the "Registration Statement") under the Securities Act of 1933, as amended (the "1933 Act"), and under the 1940 Act (File Nos. 333-89661 and 811-09645), as filed with the Securities and Exchange Commission (the "SEC"), relating to the Funds' shares of beneficial interest, without par value (the "Shares"); (d) the current prospectus(es) and statement(s) of additional information of each of the Funds, including all amendments and supplements thereto (collectively the "Prospectuses"); and (e) a copy of the opinion of counsel for the Trust, filed with the SEC as part of the Trust's current Registration Statement. The Trust will furnish Custodian from time to time with copies, properly certified or authenticated, of all amendments of or supplements to any of the foregoing, if any. 3. Definitions. ----------- (a) "Authorized Person". As used in this Agreement, the term "Authorized Person" means any of the Trust's officers, and any other person, whether or not any such person is an officer or employee of the Trust, duly authorized by the Board of Trustees of the Trust to give Oral and Written Instructions to Custodian on behalf of the Trust and listed on a schedule provided to Custodian pursuant to Section 2 of this Agreement. Authorized Persons duly authorized by the Board of Trustees of the Trust to buy and sell foreign currency on a spot and forward basis and options to buy and sell foreign currency are denoted by an asterisk thereon. (b) "Book-Entry System". As used in this Agreement, the term "Book-Entry System" means the Federal Reserve/Treasury book-entry system for United States and federal agency securities, its successor or successors and its nominee or nominees and any book-entry system maintained by a clearing agency registered with the SEC under Section 17A of the Securities Exchange Act of 1934 (the "1934 Act"). 2 (c) "Composite Currency Unit". Shall mean the European Currency Unit or any other composite unit consisting of the aggregate of specified amounts of specified Currencies as such unit may be constituted from time to time. (d) "Currency". Shall mean money denominated in a lawful currency of any country or the European Currency Unit. (e) "FX Transaction". Shall mean any transaction for the purchase by one party of an agreed amount in one Currency against the sale by it to the other party of an agreed amount in another Currency. (f) "Instructions". Shall mean instruction communications transmitted by appropriately safeguarded (whether by password protection or other means) electronic or telecommunications media including but not limited to S.W.I.F.T., LASER, computer-to-computer interface, dedicated transmission line and tested telex. (g) "Oral Instructions". As used in this Agreement, the term "Oral Instructions" means oral instructions actually received by Custodian from an Authorized Person or from a person reasonably believed by Custodian to be an Authorized Person. (h) "Officer's Certificate". The term "Officer's Certificate" as used in this Agreement means instructions delivered by hand, mail, tested telegram, cable, telex, or facsimile sending device, and actually received by Custodian signed or reasonably believed by Custodian to be signed by two officers of the Trust listed on a schedule provided to Custodian pursuant to Section 2 of this Agreement. (i) "Property". The term "Property", as used in this Agreement, means: (i) any and all securities and other property of the Trust which the Trust may from time to time deliver to Custodian, as applicable, or which Custodian may from time to time hold for the Trust; (ii) all income in respect of any securities or other property described in immediately preceding clause (i); (iii) all proceeds of sales of any of such securities or other property described in preceding clause (i) actually received by Custodian; and (iv) proceeds of the sale of Shares received by Custodian from time to time from or on behalf of the Trust. (j) "Securities Depository". As used in this Agreement, the term "Securities Depository" shall not include any Eligible Securities Depository as defined in Paragraph 27B hereof and shall mean The Depository Trust Company, a clearing agency 3 registered with the SEC or its successor or successors and its nominee or nominees; and shall also mean any other registered clearing agency, its successor or successors specifically identified in a certified copy of a vote of the Trust's Board of Trustees approving deposits by Custodian therein. (k) "Written Instructions". As used in this Agreement, "Written Instructions" means instructions delivered by hand, mail, tested telegram, cable, telex, or facsimile sending device, and actually received by Custodian, signed or reasonably believed by Custodian to be signed by an appropriate number of Authorized Person(s), and the term Written Instructions shall also include Instructions, except that Instructions need not be signed or reasonably believed to be signed by any Authorized Person(s) where such Instructions are transmitted by Software pursuant to Paragraph 26A. A fax receipt or comparable confirmation of transmission of any Written Instructions shall be deemed evidence of actual receipt by Custodian. 4. Delivery and Registration of the Property. The Trust shall deliver or cause to be delivered to Custodian all securities and all monies owned by the Funds, including cash received for the issuance of Shares, at any time during the period of this Agreement, except for securities and monies to be delivered to any sub-custodian appointed, with approval of the Trust, by Custodian pursuant to Paragraphs 7, 27, or 28(g) hereof. Custodian will not be responsible for such securities and such monies until actually received by it. All securities delivered to Custodian or any such sub-custodian (other than in bearer form) shall be registered in the name of the Fund or in the name of a nominee of a Fund or in the name of Custodian or any nominee of Custodian (with or without indication of fiduciary status) or in the name of any sub-custodian or any nominee of such sub-custodian appointed, with approval of the Trust, pursuant to Paragraphs 7, 27, or 28(g) hereof or shall be properly endorsed and in form for transfer satisfactory to Custodian. 5. Voting and Other Rights. With respect to all securities, however registered, it is understood that the voting and other rights and powers shall be exercised by the Trust. Custodian's only duty with respect to such rights shall be to mail to the Trust within two (2) business days following receipt by Custodian any documents received by Custodian as custodian, including notices of corporate action, proxies, proxy soliciting materials and offering circulars, with any elections or proxies for securities registered in a nominee name executed by such nominee. In addition, Custodian shall provide notice of Custodian's receipt of such documents by electronic means (e.g., posting notice on LASER), as agreed between the parties. Where warrants, options, tenders or other securities have fixed expiration dates, the Trust understands that in order for Custodian to act, Custodian must receive the Trust's instructions at its offices in New York, addressed as Custodian may from time to time request, by no later than noon (New York City time) at least one (1) business day prior to the last scheduled date to act with respect thereto (or such earlier date or time as Custodian may reasonably notify the Trust). Absent Custodian's timely receipt of such instructions, such instructions will 4 expire without liability to Custodian. Custodian shall have no duty to forward to the Trust any annual, quarterly or special reports issued by companies whose securities are held by Custodian hereunder. 6. Receipt and Disbursement of Money. --------------------------------- (a) Custodian shall open and maintain a custody account for each Fund of the Trust, subject only to draft or order by Custodian acting pursuant to the terms of this Agreement, and, subject to Paragraphs 7, 27, or 28(g) hereof, shall hold in such account, subject to the provisions hereof, all cash received by it from or for the Funds. Custodian shall make payments of cash to, or for the account of, each Fund from such cash only: (i) for the purchase of securities for the Funds as provided in Paragraph 14 hereof; (ii) upon receipt of an Officer's Certificate for the payment of dividends or other distributions on or with respect to Shares, or for the payment of interest, taxes, administration, distribution or advisory fees or expenses which are to be borne by the Funds under the terms of this Agreement and, with respect to each Fund, and under the terms of any investment advisory agreements, administration agreements or distribution agreements; (iii) upon receipt of Written Instructions for payments in connection with the conversion, exchange or surrender of securities owned or subscribed to by the Funds and held by or to be delivered to Custodian; (iv) to a sub-custodian pursuant to Paragraphs 7, 27, or 28(g) hereof; (v) for the redemption of Shares; or (vi) upon receipt of an Officer's Certificate for other corporate purposes. (b) Custodian is hereby authorized to endorse and collect all checks, drafts or other orders for the payment of money received as Custodian for the Funds. 7. Receipt of Securities. --------------------- (a) Except as provided by Paragraphs 7(c), 8, 27, or 28(g) hereof, and except as otherwise directed by Oral or Written Instructions described in Paragraph 11 hereof, Custodian shall hold and physically segregate in a separate account with respect to each Fund, identifiable from those of any other person, all securities and non-cash property received by it for the Funds. All such securities and non-cash property are to be held or disposed of by Custodian for each Fund pursuant to the terms of this Agreement. In the absence of Written Instructions accompanied by a certified vote authorizing the specific transaction by the Trust's Board of Trustees, and subject to Paragraph 25 hereof, Custodian shall have no power or authority to withdraw, deliver, assign, hypothecate, pledge or otherwise dispose of any such securities and investments, except in accordance with the express terms provided for in this Agreement. In no case may any Trustee, officer, employee or agent of the Trust withdraw any securities. In connection with its duties under this Paragraph 7(a), Custodian may enter into sub-custodian agreements with other banks or trust companies for the receipt of certain securities and cash to be held by Custodian for the account of a Fund pursuant to this Agreement, provided Custodian obtains the prior written approval of the Trust to any such sub-custody arrangement. Custodian will provide the Trust with a copy of each sub-custodian agreement it executes 5 pursuant to this Paragraph 7(a). Custodian shall be liable for acts or omissions of any such sub-custodian selected by it pursuant to this Paragraph 7(a), under the standards of care provided for herein, except for any such sub-custodian engaged at the specific direction of the Funds. Notwithstanding anything herein to the contrary, this Paragraph 7(a) shall not apply to Custodian's engagement of foreign sub-custodians, which shall instead be governed by Paragraph 27 hereof. (b) Promptly after the close of business on each day, Custodian shall furnish the Trust with confirmations and a summary of all transfers to or from the account of each Fund during said day. Where securities are transferred to the account of any Fund established at a Securities Depository or the Book Entry System pursuant to Paragraph 8 herein, Custodian shall also, by book-entry or otherwise, identify as belonging to such Fund the quantity of securities in a fungible bulk of securities registered in the name of Custodian (or its nominee) or shown in Custodian's account on the books of a Securities Depository or the Book-Entry System. At least monthly and from time to time, Custodian shall furnish the Trust with a detailed statement of the Property held for each Fund under this Agreement. (c) Notwithstanding any provision elsewhere contained herein, Custodian shall not be required to obtain possession of any instrument or certificate representing any futures contract, any option, or any futures contract option until after it shall have determined, or shall have received an Officer's Certificate from the Trust stating that any such instruments or certificates are available. The Trust shall deliver to Custodian such an Officer's Certificate no later than the business day preceding the availability of any such instrument or certificate. Prior to such availability, Custodian shall comply with the 1940 Act in connection with the purchase, sale, settlement, closing out or writing of futures contracts, options, or futures contract options by making payments or deliveries specified in such Officer's Certificates or Written Instructions received by Custodian in connection with any such purchase, sale, writing, settlement or closing out upon its receipt from a broker, dealer, or futures commission merchant of a statement or confirmation reasonably believed by Custodian to be in the form customarily used by brokers, dealers, or future commission merchants with respect to such futures contracts, options, or futures contract options, as the case may be, confirming that the same is held by such broker, dealer or futures commission merchant, in book-entry form or otherwise, in the name of Custodian (or any nominee of Custodian) as Custodian for the Fund, provided, however, that notwithstanding the foregoing, and subject to Paragraph 13(b) hereof, payments to or deliveries from any margin account, and payments with respect to future contracts, options, or future contract options to which a margin account relates, shall be made in accordance with the terms and conditions of the Trust's relevant margin account agreement. Whenever any such instruments or certificates are available, Custodian shall, notwithstanding any provision in this Agreement to the contrary, make payment for any futures contract, option, or futures contract option for which such instruments or such certificates are available against the delivery to Custodian of such instrument or such certificate, and deliver any futures 6 contract, option or futures contract option for which such instruments or such certificates are available only against receipt by Custodian of payment therefor. Any such instrument or certificate delivered to Custodian shall be held by Custodian hereunder in accordance with, and subject to, the provisions of this Agreement. 8. Use of Securities Depository or the Book-Entry System. The Trust shall deliver to Custodian a certified vote of the Board of Trustees of the Trust approving, authorizing and instructing Custodian on a continuous and ongoing basis until instructed to the contrary by Written Instructions: (i) to deposit in a Securities Depository or the Book-Entry System all securities of the Funds held hereunder eligible for deposit therein, and (ii) to utilize a Securities Depository or the Book-Entry System to the extent possible in connection with the performance of its duties hereunder, including without limitation, settlements of purchases and sales of securities by the Funds, and deliveries and returns of securities loaned, subject to repurchase agreements or used as collateral in connection with borrowings. Without limiting the generality of such use, the following provisions shall apply thereto: (a) Securities and any cash of the Funds deposited by Custodian in a Securities Depository or the Book-Entry System will at all times be segregated from any assets and cash controlled by Custodian in other than a fiduciary or custodian capacity. Subject to Paragraph 28(m) hereof, Custodian and its sub-custodians, if any, will pay out money only upon receipt of securities and will deliver securities only upon receipt of money, absent Written Instructions to the contrary. (b) All books and records maintained by Custodian that relate to the Funds' participation in a Securities Depository or the Book-Entry System will at all times during Custodian's regular business hours be open to inspection by the Trust's duly authorized employees or agents and the Trust's independent auditors in accordance with applicable regulations, it being understood, however, that such records may be kept in an off-site Custodian storage location and the Trust will be furnished with all information in respect of the services rendered to it as it may require. (c) Custodian will provide the Trust with copies of any report obtained by Custodian on the system of internal accounting control of the Securities Depository or Book-Entry System promptly after receipt of such a report by Custodian. Custodian will also provide the Trust with such reports on its own system of internal control as the Trust may reasonably request from time to time. 9. Instructions Consistent With the Charter, Etc. Unless otherwise provided in this Agreement, Custodian shall act only upon Officer's Certificates, Oral Instructions and/or Written Instructions. Custodian may assume that any Officer's Certificate, Oral Instructions or Written Instructions received hereunder are not in any way inconsistent with any provision of the Declaration of Trust or any vote of the Trust's Board of Trustees, or any committee thereof. Custodian shall be entitled to rely upon any Oral Instructions or Written Instructions actually received by Custodian pursuant to this 7 Agreement, and upon any certificate, oral instructions, or written instructions reasonably believed by Custodian to be an Officer's Certificate, Oral Instructions or Written Instructions. The Trust agrees to forward to Custodian, Written Instructions confirming Oral Instructions in such manner that the Written Instructions are received by Custodian at the close of business of the same day that such Oral Instructions are given to Custodian. The Trust agrees that the fact that such confirming Written Instructions are not received by Custodian shall in no way affect the validity of any of the transactions authorized by the Trust by giving Oral Instructions, and that Custodian's records with respect to the content of Oral Instructions shall be controlling. 10. Transactions Not Requiring Instructions. Custodian is authorized to take the following action without Oral Instructions, Written Instructions, or an Officer's Certificate: (a) Collection of Income and Other Payments. Custodian shall subject to Paragraph 28(f) hereof: (i) Collect and receive for the account of any Fund, all income and other payments and distributions, including (without limitation) stock dividends, rights, warrants and similar items, included or to be included in the Property of any Fund, and promptly advise the Trust of such receipt and shall credit such income, as collected, to such Fund of the Trust. From time to time, Custodian may elect, but shall not be so obligated, to credit the account with interest, dividends or principal payments on the payable or contractual settlement date, in anticipation of receiving same from a payor, central depository, Securities Depository, broker or other agent employed by the Trust or Custodian. Any such crediting and posting shall be at the Trust's sole risk, and Custodian shall be authorized to reverse (A) any such advance posting in the event it does not receive good funds from any such payor, central depository, Securities Depository, broker or agent, and (B) any other payment or crediting, including, without limitation, payments made by check or draft, in the event it does not receive good funds or final payment; (ii) With respect to securities of foreign issue, and subject to Paragraph 27 hereof, effect collection of dividends, interest and other income, and to promptly transmit to the Trust all reports, written information or notices actually received by Custodian as Custodian, including notices of any call for redemption, offer of exchange, right of subscription, reorganization, or other proceedings affecting such securities, or any default in payments due thereon. It is understood, however, that Custodian shall be under no responsibility for any failure or delay in effecting such collections or giving such notice with respect to securities of foreign issue, regardless of whether or not the relevant information is published in any financial service available to it unless such failure or delay is due to Custodian's own negligence. Collections of income in foreign currency are, to the extent possible, to be converted into United States dollars unless otherwise instructed in writing, and in effecting such conversion Custodian 8 may use such methods or agencies as it may see fit, including the facilities of its own foreign division at customary rates. All risk and expenses incident to such collection and conversion are for the account of the Funds and Custodian shall have no responsibility for fluctuations in exchange rates affecting any such conversions; (iii) Endorse and deposit for collection in the name of the Trust and each of its Funds, checks, drafts, or other orders for the payment of money on the same day as received; (iv) Receive and hold for the account of each of the Fund's securities received by the Funds as a result of a stock dividend, share split-up or reorganization, recapitalization, readjustment or other rearrangement or distribution of rights or similar securities issued with respect to any portfolio securities of the Funds held by Custodian hereunder; (v) Present for payment and collect the amount payable upon all securities which may mature or be called, redeemed or retired, or otherwise become payable on the date such securities become payable, but, with respect to calls, early redemptions, or early retirements, only if Custodian either: (i) receives a written notice of the same, or (ii) notice of the same appears in one or more of the publications then listed in Appendix A hereto, which Appendix may be amended to add other publications at any time by Custodian without prior notice to or consent from the Trust and which may be amended to delete a publication with the prior notice and consent from the Trust; (vi) Subject to Paragraphs 28(e) and (f) hereof, take any action which may be necessary and proper in connection with the collection and receipt of such income and other payments and the endorsement for collection of checks, drafts and other negotiable instructions; and (vii) With respect to domestic securities, to exchange securities in temporary form for securities in definitive form, to effect an exchange of the shares where the par value of stock is changed, and to surrender securities at maturity or when advised by the Trust or the investment adviser to the Trust of an earlier call for redemption, against payment therefor in accordance with accepted industry practice. When fractional shares of stock of a declaring corporation are received as a stock distribution, Custodian is authorized to sell the fraction received and credit the Trust's account. Unless specifically instructed to the contrary in writing, Custodian is authorized to exchange securities in bearer form for securities in registered form. If any Property registered in the name of a nominee of Custodian is called for partial redemption by the issuer of such Property, Custodian is authorized to allot the called portion to the respective beneficial holders of the Property in such manner deemed to be fair and equitable by Custodian in its reasonable discretion. 9 (b) Miscellaneous Transactions. Custodian is authorized to deliver or cause to be delivered Property against payment or other consideration or written receipt therefor in the following cases: (i) for examination by a broker selling for the account of the Trust in accordance with street delivery custom; (ii) for the exchange for interim receipts or temporary securities for definitive securities; (iii) for transfer of securities into the name of the Funds or Custodian or a nominee of either, or for exchange of securities for a different number of bonds, certificates, or other evidence, representing the same aggregate face amount or number of units bearing the same interest rate, maturity date and call provisions, if any; provided that, in any such case, the new securities are to be delivered to Custodian. 11. Transactions Requiring Instructions. Upon receipt of Oral or Written Instructions, and not otherwise, Custodian, directly or through the use of a Securities Depository or the Book-Entry System, shall: (a) execute and deliver to such persons as may be designated in such Oral or Written Instructions, proxies, consents, authorizations, and any other instruments whereby the authority of the Funds as owners of any securities may be exercised; (b) deliver any securities held for any Fund against receipt of other securities or cash issued or paid in connection with the liquidation, reorganization, refinancing, merger, consolidation or recapitalization of any corporation, or the exercise of any conversion privilege; (c) deliver any securities held for any Fund to any protective committee, reorganization committee or other person in connection with the reorganization, refinancing, merger, consolidation, recapitalization or sale of assets of any corporation, against receipt of such certificates or deposit, interim receipts or other instruments or documents as may be issued to it to evidence such delivery; (d) make such transfers or exchanges of the assets of any Fund and take such other steps as shall be stated in said instructions to be for the purposes of effectuating any duly authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the Funds; (e) subject to Paragraph 25(b) hereof, release securities belonging to any Fund to any bank or trust company for the purpose of pledge or hypothecation to secure any loan incurred by such Fund; provided, however, that securities shall be released only upon payment to Custodian of the monies borrowed, except that in cases where additional collateral is required to secure a borrowing already made, subject to 10 proper prior authorization, further securities may be released for that purpose; and pay such loan upon redeliveryto it of the securities pledged or hypothecated therefor and upon surrender of the note or notes evidencing the loan; (f) deliver any securities held for any Fund upon the exercise of a covered call option written by such Fund on such securities; (g) release and deliver securities owned by a Fund in connection with any repurchase agreement entered into on behalf of such Fund, but subject to Paragraph 28(m) hereof, only on receipt of payment therefor; and pay out monies of such Fund in connection with such repurchase agreements, but only upon the delivery of the securities; (h) otherwise transfer, exchange or deliver securities in accordance with Oral or Written Instructions specifying the purpose of such transfer, including without limitation, loans of securities, short sales, or reverse repurchase agreements, and subject to Paragraph 7(a) hereof. 12. Segregated Accounts. Custodian shall upon receipt of Written or Oral Instructions establish and maintain a segregated account or accounts on its records for and on behalf of any Fund, into which account or accounts shall be credited, but only pursuant to an Officer's Certificate or Written Instructions specifying the particular securities and/or amount of cash, cash and/or securities, including securities in the Book-Entry System: (i) for the purposes of compliance by the Funds and the Trust with the procedures required by a securities or option exchange, (ii) for the purpose of compliance by the Funds and the Trust with the 1940 Act and Release No. 10666 or any subsequent release, releases or any other guidance of the SEC relating to the maintenance of segregated accounts by registered investment companies, and (iii) for other proper corporate purposes. 13. Dividends and Distributions. --------------------------- (a) The Trust shall furnish Custodian with appropriate evidence of action by the Trust's Board of Trustees declaring and authorizing the payment of any dividends and distributions. Upon receipt by Custodian of an Officer's Certificate with respect to dividends and distributions declared by the Trust's Board of Trustees and payable to interestholders of any Fund who are entitled to receive cash for fractional shares and those who have elected in the proper manner to receive their distributions on dividends in cash, and in conformance with procedures mutually agreed upon by Custodian and the Trust, and the Trust's administrator or transfer agent, Custodian shall pay to the Fund's transfer agent, as agent for the interestholders, an amount equal to the amount indicated in said Officer's Certificate as payable by the Fund to such interestholders for distribution in cash by the transfer agent to such interestholders. 11 (b) Custodian may enter into separate custodial agreements with various futures commission merchants ("FCMs") that the Trust uses (each a "FCM Agreement"), pursuant to which the Funds' margin deposits in any transactions involving futures contracts and options on futures contracts will be held by Custodian in accounts (each a "FCM Account") subject to the disposition by the FCM involved in such contracts in accordance with the customer contract between the FCM and the Trust ("FCM Contract"), SEC rules governing such segregated accounts, Commodity Futures Trading Commission ("CFTC") rules and the rules of the applicable commodities exchange. Such FCM Agreements shall only be entered into by Custodian upon receipt by Custodian of Written Instructions from the Trust which state that: (i) an FCM Contract has been entered into; (ii) the Trust is in compliance with all the rules and regulations of the CFTC; and (iii) the FCM Agreement is acceptable to the Trust. Transfers of initial margin shall be made into a FCM Account only upon Written Instructions; transfers of premium and variation margin may be made into an FCM Account pursuant to Oral Instructions. Transfers of funds from a FCM Account to the FCM for which Custodian holds such an account may only occur in accordance with the terms of the FCM Agreement. 14. Purchase of Securities. Promptly after each purchase of securities by the Trust on behalf of any Fund, the Trust shall deliver to Custodian Oral or Written Instructions specifying with respect to each such purchase: (a) the name of the issuer and the title of the securities; (b) the number of shares of the principal amount purchased and accrued interest, if any; (c) the dates of purchase and settlement; (d) the purchase price per unit; (e) the total amount payable upon such purchase; (f) the name of the person from whom or the broker through whom the purchase was made; and (g) the Fund for which the purchase was made. Custodian shall upon receipt of securities purchased by or for the Trust pay out of the monies held for the account of the Trust the total amount payable to the person from whom or the broker through whom the purchase was made, provided that the same conforms to the total amount payable as set forth in such Oral or Written Instructions. 15. Sales of Securities. Promptly after each sale of securities by the Funds, the Trust shall deliver to Custodian Oral or Written Instructions, specifying with respect to each such sale: (a) the name of the issuer and the title of the security; (b) the number of shares or principal amount sold, and accrued interest, if any; (c) the dates of sale; (d) the sale price per unit; (e) the total amount payable to the Trust upon such sale; (f) the name of the broker through whom or the person to whom the sale was made; and (g) the Fund for which the sale was made. Custodian shall, subject to Paragraph 28(m) hereof, deliver the securities against payment of the total amount payable to the Trust upon such sale, provided that the same conforms to the total amount payable as set forth in such Oral and Written Instructions. 16. Records. The books and records pertaining to the Funds and the Trust which are in the possession of Custodian shall be the property of the Trust. Such books 12 and records shall be prepared and maintained as required by the 1940 Act and other applicable securities laws, rules and regulations. The SEC, the Trust, or the Trust's authorized representatives, shall have access to such books and records at all times during Custodian's normal business hours. Upon the reasonable request of the Trust, copies of any such books and records shall be provided by Custodian to the Trust or the Trust's authorized representative, and the Trust shall reimburse Custodian reasonable expenses for providing such copies. Upon reasonable request of the Trust, Custodian shall provide in hard copy, tape or on micro-film, or such other medium as agreed to among the Trust and Custodian, and any books and records maintained by Custodian. 17. Reports. ------- (a) Custodian shall furnish the Trust the following reports: (i) such periodic and special reports as the Trust may reasonably request from time to time; (ii) a monthly statement summarizing all transactions and entries for the account of each Fund; (iii) a monthly report of portfolio securities belonging to each Fund showing the adjusted average cost of each issue and market value at the end of such month; (iv) a monthly report of the cash account of each Fund showing disbursements; (v) the reports to be furnished to the Trust pursuant to Rule 17f-4 under the 1940 Act; and (vi) such other information as may be agreed upon from time to time between the Trust and Custodian. (b) Subject to Paragraphs 5 and 27(g) hereof, Custodian shall transmit promptly to the Trust any proxy statement, proxy materials, notice of a call or conversion or similar communications actually received by Custodian as custodian of the Property. (c) Custodian shall report as the market value at the end of each month the last closing bid, offer or sale price to the extent, and as the same, is furnished to Custodian by a pricing or similar service utilized or subscribed to by Custodian. Custodian shall not be responsible for, have any liability with respect to, or be under any duty to inquire into, nor deemed to make any assurances with respect to, the accuracy or completeness of such information, even if The Bank of New York in performing services for others, including services similar to those performed hereunder, receives different valuations of the same or different securities of the same issuer. 13 18. Cooperation with Accountants. Custodian shall cooperate with the Trust's independent certified public accountants and shall take all reasonable action in the performance of its obligations under this Agreement, to assure that the necessary information is made available to such accountants. 19. Confidentiality. Custodian agrees on behalf of itself and its employees to treat all record and other information relative to the Trust, its prior, present or potential interestholders, its service providers and its prior, present or potential customers, as confidential information, and to protect and safeguard the same to the extent required by applicable law, provided, however, that Custodian may make such disclosure as required by applicable law, regulation, court order, decrees or legal process and upon receipt of any of the foregoing requiring such disclosure, Custodian's only obligation shall be to notify the Trust thereof. Custodian further agrees not to otherwise use such records and information for any purpose other than performance of its responsibilities and duties hereunder, except after prior notification to and approval in writing by the Trust. 20. Equipment Failures. In the event of equipment failures beyond Custodian's control, Custodian shall take reasonable steps to minimize service interruptions but shall not have any further liability with respect thereto. Notwithstanding the foregoing, Custodian shall maintain sufficient back up electronic data processing equipment to enable Custodian to fulfill its obligations under this Agreement consistent with standard industry practices. 21. Right to Receive Advice. ----------------------- (a) Advice of Fund. If Custodian shall be in doubt as to any action to be taken or omitted by Custodian, it may request, and shall receive, from the Trust clarification or advice, including Oral or Written Instructions. (b) Advice of Counsel. If Custodian shall be in doubt as to any question of law involved in any action to be taken or omitted by Custodian, it may request at its option advice from its own counsel, at its own expense, or advice from the Trust's counsel. (c) Conflicting Advice. In case of conflict between directions, advice or Oral or Written Instructions received by Custodian pursuant to subparagraph (a) of this paragraph and advice received by Custodian pursuant to subparagraph (b) of this paragraph, Custodian shall be entitled to rely on and follow the advice received pursuant to subparagraph (b) alone. (d) Protection of Custodian. Custodian shall be protected in any action or inaction which it takes or omits to take in reliance on any directions, advice or Oral or Written Instructions received pursuant to subparagraphs (a) or (b) of this section which it, after receipt of any such directions, advice or Oral or Written Instructions, in good faith reasonably believes to be consistent with such directions, advice or Oral or 14 Written Instructions, as the case may be. Nothing in this Paragraph 21 shall be construed as imposing upon Custodian any obligation: (i) to seek such directions, advice or Oral or Written Instructions, or (ii) to act in accordance with such directions, advice or Oral or Written Instructions when received, unless, under the terms or another provision of this Agreement, the same is a condition to Custodian's properly taking or omitting to take such action. Nothing in this Paragraph 21(d) shall excuse Custodian when an action or omission on the part of Custodian constitutes willful misfeasance or bad faith, or negligence or reckless disregard by Custodian of its duties under this Agreement. 22. Compliance with Governmental Rules and Regulations. Custodian undertakes to comply with the laws, rules and regulations of governmental authorities having jurisdiction over Custodian and its express duties hereunder. 23. Compensation. As compensation for the services rendered by Custodian during the term of this Agreement, the Trust shall pay to Custodian, in addition to reimbursement of its out-of-pocket expenses, such compensation as may be agreed upon from time to time in writing by the Trust and Custodian as set forth in Schedule III. 24. Indemnification. The Trust agrees to indemnify Custodian against, and hold harmless from all taxes, charges, expenses (including reasonable fees and expenses of counsel), assessments, claims, losses, demands and liabilities whatsoever (including, without limitation, liabilities arising under the 1933 Act, the 1934 Act and the 1940 Act, and any state and foreign securities laws, all as currently in effect or as may be amended from time to time) and expenses, including without limitation, reasonable attorney's fees and disbursements, howsoever arising or incurred because of or in connection with this Agreement, except for such liability, claim, loss, demand, charge, expense, tax or assessment arising out of Custodian's, or such nominees', willful misconduct or negligence or reckless disregard of its duties under this Agreement. For the purposes of this Agreement, including, without limitation, for purposes of Paragraphs 24 and 28, neither Custodian's acceptance of Instructions in accordance with Paragraph 26A nor Custodian's use of Foreign Sub-Custodians pursuant to agreements that do not permit actual examination by independent public accountants, nor the denial of examination by any Foreign Sub-Custodian, as defined in Paragraph 27, shall, in and of itself, constitute, or be deemed to constitute, a breach by Custodian of this Agreement or negligence, willful misconduct, or reckless disregard of its duties by Custodian, provided the relevant agreement between Custodian and a Foreign Sub-Custodian satisfies the requirements of Rule 17f-5. 25. Overdrafts or Indebtedness. -------------------------- (a) Custodian shall advance funds under this Agreement with respect to any Fund which results in an overdraft because the moneys held by Custodian in the separate account for such Fund shall be insufficient to pay the total amount payable upon a purchase of securities by such Fund, as set forth in an Officer's Certificate or Oral or Written Instructions, or which results in an overdraft in the separate account of such Fund 15 for some other reason, or if the Trust is for any other reason indebted to Custodian, including any indebtedness to The Bank of New York under the Trust's Cash Management and Related Services Agreement, (except a borrowing for investment or for temporary or emergency purposes using securities as collateral pursuant to a separate agreement and subject to the provisions of Paragraph 25(b) hereof), such overdraft or indebtedness shall be deemed to be a loan made by Custodian to the Trust for such Fund payable on demand and shall bear interest from the date incurred at a rate per annum (based on a 360-day year for the actual number of days involved) equal to the overdraft rate specified in Schedule III to this Agreement. In addition, the Trust hereby agrees that to the extent of such overdraft or indebtedness, Custodian shall have a continuing lien, security entitlement and security interest in and to any property at any time held by it for the benefit of such Fund or in which the Fund may have an interest which is then in Custodian's possession or control or in possession or control of any third party acting on Custodian's behalf. The Trust authorizes Custodian, in its sole discretion, at any time to charge any such overdraft or indebtedness together with interest due thereon against any balance of account standing to such Fund's credit on Custodian's books. In addition, the Trust hereby covenants that on each Business Day on which either it intends to enter a Reverse Repurchase Agreement and/or otherwise borrow from a third party, or which next succeeds a Business Day on which at the close of business the Trust had outstanding a Reverse Repurchase Agreement or such a borrowing, it shall prior to 1:00 p.m., New York City time, advise Custodian, in writing, of each such borrowing, shall specify the Fund to which the same relates, and shall not incur any indebtedness not so specified other than from Custodian. (b) The Trust will cause to be delivered to Custodian by any bank (including, if the borrowing is pursuant to a separate agreement, Custodian) from which it borrows money for investment or for temporary or emergency purposes using securities held by Custodian hereunder as collateral for such borrowings, a notice or undertaking in the form currently employed by such bank setting forth the amount which such bank will loan to the Trust against delivery of a stated amount of collateral. The Trust shall promptly deliver to Custodian Written Instructions specifying with respect to each such borrowing: (a) the Fund to which such borrowing relates; (b) the name of the bank; (c) the amount and terms of the borrowing, which may be set forth by incorporating by reference an attached promissory note, duly endorsed by the Fund, or other loan agreement; (d) the time and date, if known, on which the loan is to be entered into; (e) the date on which the loan becomes due and payable; (f) the total amount payable to the Fund on the borrowing date; (g) the market value of securities to be delivered as collateral for such loan, including the name of the issuer, the title and the number of shares or the principal amount of any particular securities and (h) a statement specifying whether such loan is for investment purposes or for temporary or emergency purposes and that such loan is in conformance with the 1940 Act and the Fund's prospectus. Custodian shall deliver on the borrowing date specified in Written Instructions the specified collateral and the executed promissory note, if any, against delivery by the lending bank of the total amount of the loan payable, provided that the same conforms to the total amount payable 16 as set forth in such Written Instructions. Custodian may, at the option of the lending bank, keep such collateral in its possession, but such collateral shall be subject to all rights therein given the lending bank by virtue of any promissory note or loan agreement. Custodian shall deliver such securities as additional collateral as may be specified in Written Instructions to collateralize further any transaction described in this Paragraph 25(b). The Trust shall cause all securities released from collateral status to be returned directly to Custodian, and Custodian shall receive from time to time such return of collateral as may be tendered to it. In the event that the Trust fails to specify in Written Instructions the Fund, the name of the issuer, the title and number of shares or the principal amount of any particular securities to be delivered as collateral by Custodian, Custodian shall not be under any obligation to deliver any securities. 26A. Instructions. ------------ (a) It is understood and agreed that Custodian may, from time to time, provide software to the Trust for purposes of enabling a Fund to transmit Instructions to Custodian (the "Software"). Such Software has been designed to include password protection or other features to restrict the use of the Software to Authorized Persons; provided, however, that the Custodian makes no warranty or representations of any kind with respect to such protections or features, express or implied, including, but not limited to, any implied warranties of merchantability or fitness for a particular purpose. The Trust and the Custodian shall use commercially reasonable efforts to develop other mechanisms (i) to enable the Trust to restrict the use of the Software to Authorized Persons, (ii) to identify transmissions from a terminal other than an authorized terminal, and (iii) for the prompt and accurate transmission of Instructions by Authorized Persons to Custodian. It is further understood and agreed that Custodian may provide specialized hardware or other equipment to enable the Trust and the Funds to utilize the Software. With respect to any such Software, Custodian grants to the Trust and its service providers a personal, nontransferable and nonexclusive license to use the Software solely for the purpose of transmitting Instructions to, and receiving communications from, Custodian in connection with its account(s). The Trust and its service providers agree not to sell, reproduce, lease or otherwise provide, directly or indirectly, the Software or any portion thereof to any third party without the prior written consent of Custodian. At no time shall the Trust be obligated to use the Software to transmit Instructions to Custodian. (b) The Trust shall obtain and maintain at its own cost and expense all equipment and services, including but not limited to communications services, necessary for it to utilize the Software and transmit Instructions to Custodian; provided, however, that the parties acknowledge and agree that if any specialized equipment is necessary to enable the Trust to utilize the Software, Custodian shall, at its own expense, provide and maintain such equipment. (c) The Trust acknowledges that the Software, all databases made available to the Trust by utilizing the Software (other than databases relating solely to the 17 assets of the Funds and transactions with respect thereto), and any proprietary data, processes, information and documentation (other than those which are or become part of the public domain or are legally required to be made available to the public) (collectively, the "Information"), are the exclusive and confidential property of Custodian. The Trust shall keep the Information confidential by using the same care and discretion that the Trust uses with respect to its own confidential property and trade secrets and shall neither make nor permit any disclosure without the prior written consent of Custodian. Upon termination of this Agreement or the Software license granted hereunder for any reason, the Trust shall return to Custodian all copies of the Information which are in its possession or under its control or which the Trust distributed to third parties. (d) Custodian reserves the right to modify the Software from time to time upon reasonable prior notice and the Trust shall, if it desires in its sole discretion to continue to use the Software, install new releases of the Software as Custodian may direct. The Trust agrees not to modify or attempt to modify the Software without Custodian's prior written consent. The Trust acknowledges that any modifications to the Software, whether by the Trust or Custodian and whether with or without Custodian's consent, shall become the property of Custodian. (e) Where the method for transmitting Instructions by the Trust involves an automatic systems acknowledgment to the Trust by Custodian of its receipt of such Instructions, including any transmission of Instructions using the Software, then (i) if an acknowledgment is not actually received by the Trust, Custodian shall not be deemed to have received any such Instructions, and (ii) if an acknowledgment is actually received by the Trust, the Custodian shall be deemed to have received such Instructions and shall be responsible for any error, omission, interruption or delay in connection with the transmission of such Instructions; provided, however, that the Trust shall promptly review all acknowledgments actually received and notify the Custodian in the event of any apparent discrepancy. (f) (i) The Trust agrees that where it delivers to Custodian Instructions hereunder using the Software, it shall be the Trust's sole responsibility to ensure that only persons duly authorized by the Trust and the correct number of such persons transmit such Instructions to Custodian and the Trust will cause all such persons to treat applicable use and authorization codes, passwords and authentication keys with extreme care, and authorizes Custodian to act in accordance with and rely upon Instructions received by it pursuant hereto using the Software. (ii) The Trust hereby represents, acknowledges and agrees that it is fully informed of the protections and risks associated with the various methods of transmitting Instructions to Custodian and that there may be more secure methods of transmitting Instructions to Custodian than the method(s) selected by the Trust. (iii) With respect to all Oral Instructions and all Written Instructions other than Instructions delivered to Custodian using the Software provided by Custodian, Custodian shall exercise all commercially reasonable efforts to form a reasonable belief that each 18 such instruction has been given by an Authorized Person and, where required, signedby an appropriate number of Authorized Person(s). (g) The Trust shall notify Custodian of any errors, omissions or interruptions in, or delay or unavailability of, its ability to send Instructions using the Software provided by Custodian as promptly as practicable, and in any event within 24 hours after the earliest of (i) discovery thereof, (ii) the business day on which discovery should have occurred through the exercise of reasonable care and (iii) in the case of any error, the date of actual receipt of the earliest notice which reflects such error, it being agreed that discovery and receipt of notice may only occur on a business day. Custodian shall, as promptly as practicable, and in any event within 24 hours after the earliest of (i) discovery thereof, (ii) the business day on which discovery should have occurred through the exercise of reasonable care and (iii) in the case of any error, the date of actual receipt of the earliest notice which reflects such error, it being agreed that discovery and receipt of notice may only occur on a business day, advise the Trust whenever Custodian learns or reasonably should have learned, of any errors, omissions or interruption in, or delay or unavailability of, the Trust's ability to send Instructions using the Software provided by Custodian. 26B. FX Transactions. --------------- (a) Whenever a Fund shall enter into a FX Transaction, the Fund shall promptly deliver to Custodian a Certificate or Oral Instructions specifying with respect to such FX Transaction: (i) the Series to which such FX Transaction is specifically allocated; (ii) the type and amount of Currency to be purchased by the Fund; (iii) the type and amount of Currency to be sold by the Fund; (iv) the date on which the Currency to be purchased is to be delivered; (v) the date on which the Currency to be sold is to be delivered; and (vi) the name of the person from whom or through whom such Currencies are to be purchased and sold. Unless otherwise instructed by a Certificate or Oral Instructions, Custodian shall deliver, or shall instruct a Foreign Sub-Custodian to deliver, the Currency to be sold on the date on which such delivery is to be made, as set forth in the Certificate, and shall receive, or instruct a Foreign Sub-Custodian to receive, the Currency to be purchased on the date as set forth in the Certificate. (b) Where the Currency to be sold is to be delivered on the same day as the Currency to be purchased, as specified in the Certificate or Oral Instructions, Custodian or a Foreign Sub-Custodian may arrange for such deliveries and receipts to be made in accordance with the customs prevailing from time to time among brokers or dealers in Currencies, and such receipt and delivery may not be completed simultaneously. The Fund assumes all responsibility and liability for all credit risks involved in connection with such receipts and deliveries, which responsibility and liability shall continue until the Currency to be received by the Fund has been received in full. 19 (c) Any foreign exchange transaction effected by Custodian in connection with this Agreement may be entered with Custodian, any office, branch or subsidiary of The Bank of New York, or any Foreign Sub-Custodian (as defined below) acting as principal or otherwise through customary banking channels. The Fund may issue a standing Certificate with respect to foreign exchange transactions but Custodian may establish rules or limitations concerning any foreign exchange facility made available to the Fund. The Fund shall bear all risks of investing in securities or holding Currency. Without limiting the foregoing, the Fund shall bear the risks that rules or procedures imposed by a Foreign Sub-Custodian or foreign depositories, exchange controls, asset freezes or other laws, rules, regulations or orders shall prohibit or impose burdens or costs on the transfer to, by or for the account of the Fund of securities or any cash held outside the Fund's jurisdiction or denominated in Currency other than its home jurisdiction or the conversion of cash from one Currency into another Currency. Custodian shall not be obligated to substitute another Currency for a Currency (including a Currency that is a component of a Composite Currency Unit) whose transferability, convertibility or availability has been affected by such law, regulation, rule or procedure. Neither Custodian nor any Foreign Sub-Custodian shall be liable to the Fund for any loss resulting from any of the foregoing events. 27A. Duties of Custodian with Respect to Property of any Fund Held -------------------------------------------------------------- Outside of the United States by a Foreign Sub-Custodian. -------------------------------------------------------- (a) Custodian is authorized and instructed to employ, as sub-custodian for each Fund's Foreign Assets, as defined in Rule 17f-5 under the 1940 Act, Eligible Foreign Custodians as defined in said Rule 17f-5 selected from time to time by Custodian as the Foreign Custody Manager appointed by the Trust's Board of Trustees ("Foreign Sub-Custodians") to carry out their respective responsibilities in accordance with the terms of the sub-custodian agreement between each such Foreign Sub-Custodian and Custodian (each such agreement, a "Foreign Sub-Custodian Agreement"). Upon receipt of an Officer's Certificate, the Trust may designate any additional foreign sub-custodian with which Custodian has an agreement for such entity to act as Custodian's agent, as its sub-custodian and any such additional foreign sub-custodian shall be deemed a Foreign Sub-Custodian hereunder. Upon receipt of an Officer's Certificate, Custodian shall cease using any one or more Foreign Sub-Custodians for the Fund's assets. (b) Each Foreign Sub-Custodian Agreement shall be substantially in the form delivered to the Trust herewith and will not be amended in a way that materially or adversely affects the Trust without the Trust's prior written consent. (c) Custodian shall identify on its books as belonging to each Fund the Foreign Assets of such Fund held by each Foreign Sub-Custodian. At the election of the Trust, it shall be entitled to be subrogated to any claims by the Trust or any Fund against a Foreign Sub-Custodian as a consequence of any loss, damage, cost, expense, liability or claim sustained or incurred by the Trust or any Fund if and to the extent that the Trust or 20 such Fund has been made whole by Custodian for any such loss, damage, cost, expense, liability or claim. (d) Upon request of the Trust, Custodian will, consistent with the terms of the applicable Foreign Sub-Custodian Agreement, use reasonable efforts to arrange for the independent accountants of the Trust to be afforded access to the books and records of any Foreign Sub-Custodian insofar as such books and records relate to the performance of such Foreign Sub-Custodian under its agreement with Custodian on behalf of the Trust. (e) Custodian will supply to the Trust from time to time, as mutually agreed upon, statements in respect of the Foreign Assets of each Fund held by Foreign Sub-Custodians, including but not limited to, an identification of entities having possession of each Fund's Foreign Assets, and advises or notifications of any transfers of Foreign Assets to or from each custodial account maintained by a Foreign Sub-Custodian for Custodian on behalf of the Fund. (f) Custodian shall transmit promptly to the Trust all notices, reports or other written information received pertaining to the Funds' Foreign Assets, including without limitation, notices of corporate action, proxies and proxy solicitation materials. (g) Notwithstanding any provision of this Agreement to the contrary, settlement and payment for securities received for the account of the Trust or any Fund and delivery of securities maintained for the account of the Trust or any Fund may be effected in accordance with the customary or established securities trading or securities processing practices and procedures in the jurisdiction or market in which the transaction occurs, including, without limitation, delivery of securities to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) against a receipt with the expectation of receiving later payment for such securities from such purchaser or dealer. (h) With respect to any losses or damages arising out of or relating to any actions or omissions of any Foreign Sub-Custodian, the sole responsibility and liability of Custodian shall be to take all appropriate and reasonable action at the Trust's expense to recover such loss or damage from the Foreign Sub-Custodian. It is expressly understood and agreed that, unless Custodian has breached its standard of care set forth in Paragraph 28 hereof, Custodian's sole responsibility and liability shall be limited to amounts so recovered from the Foreign Sub-Custodian. 27B. Property of Any Fund Held Outside of the United States by a ----------------------------------------------------------- Foreign Depository. ------------------- (a) Custodian is authorized and instructed to employ, and to authorize any Foreign Sub-Custodian to employ, an Eligible Securities Depository as defined in Rule 17f-7 under the 1940 Act (the "Rule") to hold foreign securities and other assets of each Fund. The use of any particular Eligible Securities Depository as defined in the 21 Rule shall be authorized by an Officer's Certificate provided to Custodian specifying, or by delivery of Oral or Written Instructions contemplating or requiring the use of, such Eligible Securities Depository. Use of any such Eligible Securities Depository shall be subject to the rules and procedures of any such Eligible Securities Depository. (b) The Trust hereby represents and warrants, which representations and warranties shall be continuing and shall be deemed to be reaffirmed upon any delivery of an Officer's Certificate specifying such an Eligible Securities Depository, or any giving of Oral or Written Instructions contemplating or requiring the use of a Foreign Depository, as the case may be, that the Trust or its investment advisor has determined that the custody arrangements of such Eligible Securities Depository provide reasonable safeguards against the custody risks associated with maintaining assets with such Eligible Securities Depository within the meaning of the Rule. (c) With respect to each Eligible Securities Depository as defined in the Rule, Custodian shall exercise reasonable care, prudence, and diligence such as a person having responsibilities for the safekeeping of the Fund's Foreign Assets would exercise in (i) providing the Fund and its investment adviser with an analysis of the custody risks associated with maintaining assets with the Foreign Depository, and (ii) monitoring such custody risks on a continuing basis and promptly notifying the Fund and its investment adviser of any material change in such risks. Custodian shall also provide to a Fund with respect to the status of an institution as an Eligible Securities Depository information gathered from Foreign Sub-Custodians or trade associations of which Custodian is a member and other publicly available information obtained by Custodian. The Fund acknowledges and agrees that such analysis and monitoring shall not include any evaluation of Country Risks. Custodian will endeavor to include in its analysis and monitoring, where appropriate among other things, a Foreign Depository's expertise and market reputation, the quality of its services, its financial strength, any insurance or indemnification arrangements, the extent and quality of regulation and independent examination of the depository, its standing in published ratings, its internal controls and other procedures for safeguarding investments, and any related legal protections. As used herein the term "Country Risks" shall mean with respect to any Foreign Depository: (a) the financial infrastructure of the country in which it is organized, but not of any Foreign Depository to the extent covered by an analysis described in clause (i) of this Section, (b) such country's prevailing settlement practices, (c) nationalization, expropriation or other governmental actions, (d) such country's regulation of the banking or securities industry, (e) currency controls, restrictions, devaluations or fluctuations, and (f) market conditions which affect the order execution of securities transactions or affect the value of securities. (d) With respect to any losses or damages arising out of or relating to any actions or omissions of any Eligible Securities Depository as defined in the Rule, the sole responsibility and liability of Custodian shall be to take all appropriate and reasonable action at the Trust's expense to recover such loss or damage from the Eligible Securities Depository. It is expressly understood and agreed that, unless Custodian has 22 breached its standard of care set forth in Paragraph 28 hereof, Custodian's sole responsibility and liability shall be limited to amounts so recovered from the Eligible Securities Depository. 28. Concerning Custodian. -------------------- (a) (i) Custodian shall exercise reasonable care, prudence, and diligence and act in good faith and use all commercially reasonable efforts in the performance of its duties hereunder. Custodian shall be responsible to the Trust for its own failure or the failure of any sub-custodian that it shall appoint (other than a Foreign Sub-Custodian referred to in Paragraph 27 or a sub-custodian appointed by Custodian at the specific direction of the Trust) or that of its employees or agents, to perform its duties, obligations or responsibilities in accordance with this Agreement, but only to the extent that such failure results from acts or omissions that constitute willful misfeasance, bad faith or negligence on the part of Custodian, or on the part of its employees or agents, or reckless disregard of such duties, obligations and responsibilities. (ii) Without limiting the generality of the foregoing or any other provision of this Agreement, in no event shall Custodian be liable to the Fund or any third party nor, except as otherwise provided in this subparagraph for special, indirect or consequential damages or lost profits or loss of business, arising under or in connection with this Agreement, even if previously informed of the possibility of such damages and regardless of the form of action. Custodian may, with respect to questions of law arising under any FCM Agreement, apply for and obtain the advice and opinion of counsel to the Trust at the expense of the Trust, or of its own counsel at its own expense, and shall be fully protected with respect to anything done or omitted by it in good faith in conformity with such advice or opinion. Custodian shall be liable to the Trust for any loss or damage resulting from the use of the Book-Entry System or any Securities Depository arising by reason of any negligence or willful misconduct on the part of Custodian or any of its employees or agents. (iii) Custodian's liability pursuant to the last sentence of subparagraph (a)(i) shall include, but not be limited to, reimbursing the Trust for court-ordered damage awards, fines, penalties, and judicially-approved settlements (and attorney's fees and disbursements relating thereto) arising out of or in connection with the conduct giving rise to such liability. (iv) If the Trust receives notice of the commencement of any action, suit, or proceeding (an "Action"), or notice that any Action may be commenced, for which Custodian may be liable to the Trust pursuant to this Paragraph 28, the Trust shall give notice to Custodian of the commencement of the Action or of the possibility that an Action will be commenced. Any omission to notify Custodian will not relieve Custodian from any liability which it may have under this Paragraph, except to the extent the failure to notify Custodian prejudices the rights of Custodian. Custodian will be entitled at its sole expense and liability, to exercise full control of the defense, 23 compromise or settlement of any such Action, provided that Custodian: (1) notifies the Trust in writing of Custodian's intention to assume such defense; and (2) retains legal counsel reasonably satisfactory to the Trust to conduct the defense of such Action. If Custodian advises the Trust that it does not wish to exercise full control of any defense, compromise or settlement of any Action, Custodian shall be responsible for the fees and expenses of counsel selected by the Trust, in addition to any other amounts for which Custodian may be liable pursuant to this Paragraph 28. The other person will cooperate with the person assuming the defense, compromise or settlement of any Action in accordance with this Paragraph in any manner that such person reasonably may request. If Custodian so assumes the defense of any such Action, the Trust will have the right to employ a separate counsel and to participate in (but not control) the defense, compromise or settlement of the Action, but the fees and expenses of such counsel will be at the expense of the Trust unless: (a) Custodian has agreed to pay such fees and expenses, (b) any relief other than the payment of money damages is sought against the Trust, or (c) the Trust has been advised by its counsel that there may be one or more defenses available to it which are different from or additional to those available to Custodian and that a conflict of interest therefore exists, and in any such case that portion of the fees and expenses of such separate counsel that are reasonably related to matters for which Custodian is liable pursuant to this Paragraph will be paid by Custodian. The Trust will not settle or compromise any such Action for which Custodian is liable pursuant to this Paragraph without the prior written consent of Custodian, unless Custodian has failed, after reasonable notice, to undertake control of such Action in the manner provided in this Paragraph. Custodian will not settle or compromise any such Action in which any relief other than the payment of money damages is sought against the Trust without the consent of the Trust, such consent not to be unreasonably withheld. In the event that Custodian intends to settle or compromise any Action in which solely money damages are sought, Custodian shall give the Trust fifteen (15) business days prior written notice. (b) Without limiting the generality of the foregoing, Custodian shall be under no obligation to inquire into, and shall not be liable for: (i) the validity of the issue of any securities purchased, sold, or written by or for the Trust or any Fund, the legality of the purchase, sale or writing thereof, or the propriety of the amount paid or received therefor; (ii) the legality of the sale or redemption of any Shares, or the propriety of the amount to be received or paid therefor; (iii) the legality of the declaration or payment of any dividend by the Trust; (iv) the legality of any borrowing by the Trust using securities as collateral; 24 (v) the legality of any loan of portfolio securities, or under any duty or obligation to see to it that any cash collateral delivered to it by a broker, dealer, or financial institution or held by it at any time as a result of such loan of portfolio securities is adequate collateral for or against any loss Custodian, the Trust or any Fund might sustain as a result of such loan. Custodian specifically, but not by way of limitation, shall not be under any duty or obligation periodically to check or notify the Trust or any Fund that the amount of such cash collateral held by Custodian for the Trust is sufficient collateral for the Trust, but such duty or obligation shall be the sole responsibility of the Trust. In addition, Custodian shall be under no duty or obligation to see that any broker, dealer or financial institution to which portfolio securities are lent makes payment to it of any dividends or interest which are payable to or for the account of the Trust during the period of such loan or at the termination of such loan, provided, however, that Custodian shall promptly notify the Trust in the event that such dividends or interest are not paid and received when due; or (vi) the sufficiency or value of any amounts of money and/or securities held in any segregated account described in Paragraph 12(a) hereof in connection with transactions by the Funds, or whether such segregated account provides the compliance intended to be achieved. In addition, Custodian shall not be under any duty or obligation to see that any broker, dealer, FCM or Clearing Member makes payment to the Fund of any variation margin payment or similar payment which the Fund may be entitled to receive from such broker, dealer, FCM or Clearing Member, to see that any payment received by Custodian from any broker, dealer, FCM or Clearing Member is the amount the Trust is entitled to receive, or to notify the Trust or a Fund of Custodian's receipt or non-receipt of any such payment. (c) Custodian shall not be liable for, or considered to be sub-custodian or custodian of, any money, whether or not represented by any check, draft, or other instrument for the payment of money, received by Custodian on behalf of the Trust until Custodian actually receives and collects such money directly or by the final crediting of the account representing the Fund's interest at the Book-Entry System or a Securities Depository. (d) Custodian shall not have any responsibility or be liable for ascertaining or acting upon any calls, conversions, exchange offers, tenders, interest rate changes or similar matters relating to securities held in a Securities Depository, unless Custodian shall have actually received timely notice from such Securities Depository. In no event shall Custodian have any responsibility or liability for the failure of any Securities Depository to collect, or for the late collection or late crediting by a Securities Depository of any amount payable upon securities deposited in a Securities Depository which may mature or be redeemed, retired, called or otherwise become payable. Upon receipt of Written Instructions from the Trust of an overdue amount on securities held in a Securities Depository, Custodian shall make a claim against a Securities Depository on behalf of the Trust, except that Custodian shall not be under any obligation to appear in, 25 prosecute or defend any action suit or proceeding in respect to any securities held by a Securities Depository which in its opinion may involve it in expense or liability, unless indemnity satisfactory to it against all expense and liability be furnished as often as may be required. (e) Custodian shall not be under any duty or obligation to take action to effect collection of any amount due to the Trust from a transfer agent of the Trust nor to take any action to effect payment or distribution by the transfer agent of the Trust of any amount paid by Custodian to the transfer agent of the Trust in accordance with this Agreement. (f) Custodian shall not be under any duty or obligation to take action to effect collection of any amount, if the securities upon which such amount is payable are in default, or if payment is refused after due demand or presentation, unless and until: (i) it shall be directed to take such action by Written Instructions, and (ii) it shall be assured to its reasonable satisfaction of reimbursement of its costs and expenses in connection with any such action. (g) Custodian may in addition to the employment of Foreign Sub-Custodians pursuant to Paragraphs 7 and 27, hereof appoint one or more banking institutions as Depository or Depositories, as a sub-custodian or as sub-custodians, or as a co-custodian or as co-custodians, including, but not limited to, banking institutions located in foreign countries, of securities and moneys at any time owned by the Funds, upon such terms and conditions as may be approved in an Officer's Certificate or contained in an agreement executed by Custodian and the Trust and the appointed institution. (h) Custodian shall not be under any duty or obligation: (i) to ascertain whether any securities at any time delivered to, or held by it or by any Foreign Sub-Custodian, for the account of the Trust and specifically allocated to a Fund are such as properly may be held by the Trust or such Fund under the provisions of its Prospectus, or (ii) to ascertain whether any transactions by the Fund, whether or not involving Custodian, are such transactions as may properly be engaged in by the Fund. (i) Custodian shall charge its compensation and any expenses with respect to the Funds of the Trust incurred by Custodian in the performance of its duties under this Agreement only against the money of the Fund or Funds of the Trust from which such compensation or expenses is actually due and payable, and under no circumstances shall any compensation or expenses due to Custodian be considered to be a joint, or joint and several, obligation of the Funds of the Trust. To the extent that Custodian is entitled to recover from the Trust any loss, damage, liability or expense (including counsel fees) under this Agreement, Custodian shall charge the amount due in respect of such loss, damage, liability or expense (including counsel fees) only against the money held by it for the Fund or Funds of the Trust that is/are identified by the Trust in an Officer's Certificate, unless and until the Trust instructs Custodian by an Officer's 26 Certificate to charge against money held by it for the account of a Fund such Fund's pro rata share (based on such Fund's net asset value at the time of the charge in proportion to the aggregate net asset value of all Funds at that time) of the amount of such loss, damage, liability or expense (including counsel fees). (j) Custodian shall be entitled to rely upon any Officer's Certificate, Written Instructions, notice or other instrument in writing received by Custodian and reasonably believed by Custodian, to be an Officer's Certificate or Written Instructions. Custodian shall be entitled to rely upon any Oral Instructions actually received by Custodian. The Trust agrees to forward to Custodian Written Instructions confirming such Oral Instructions in such manner so that such Written Instructions are received by Custodian, whether by hand delivery, telecopier or other similar device, or otherwise, by the close of business of the same day that such Oral Instructions are received by Custodian. The Trust agrees that the fact that such confirming instructions are not received, or that contrary instructions are received, by Custodian shall in no way affect the validity of the transactions or enforceability of the transactions hereby authorized by the Trust. The Trust agrees that Custodian shall not incur any liability to the Trust in acting upon Oral Instructions given to Custodian hereunder concerning such transactions provided such instructions reasonably appear to have been received from an Authorized Person. (k) Custodian shall be entitled to rely upon any instrument, instruction or notice received by it and reasonably believed by it to be given in accordance with the terms and conditions of any FCM Agreement. Without limiting the generality of the foregoing, Custodian shall not be under any duty to inquire into, and Custodian shall not be liable for, the accuracy of any statements or representations contained in any such instrument or other notice including, without limitation, any specification of any amount to be paid to a broker, dealer, futures commission merchant or clearing member. (l) Custodian shall provide the Trust with any report obtained by Custodian on the system of internal accounting control of the Book-Entry System, any Securities Depository utilized hereunder the Depository or the Options Clearing Corporation, and with such reports on its own systems of internal accounting control as the Trust may reasonably request from time to time. (m) Subject to the foregoing provisions of this Agreement, including, without limitation, those contained in Paragraph 27 hereof, Custodian may deliver and receive securities, and receipts with respect to such securities, and arrange for payments to be made and received by Custodian in accordance with the customs prevailing from time to time among brokers or dealers in such securities. When Custodian is instructed to deliver securities against payment, delivery of such securities and receipt of payment therefor may not be completed simultaneously. The Fund assumes all responsibility and liability for all credit risks involved in connection with Custodian's delivery of securities 27 pursuant to proper instructions of the Fund, which responsibility and liability shall continue until final payment in full has been received by Custodian. (n) Custodian shall not have any duties or responsibilities whatsoever except such duties and responsibilities as are specifically set forth in this Agreement, and no covenant or obligation shall be implied in this Agreement against Custodian. 29. Termination. Any of the parties hereto may terminate this Agreement by giving to the other parties a notice in writing specifying the date of such termination, which shall be not less than ninety (90) days after the date of giving of such notice. Upon the date set forth in such notice this Agreement shall terminate, and Custodian shall on that date deliver directly to the Trust or a successor custodian designated by the Trust all securities and moneys then owned by the Trust and held by Custodian, after deducting all fees, expenses and other amounts for the payment or reimbursement of which it shall then be entitled; provided, however, that transaction fees and expenses payable by the Trust in connection with a deconversion to a successor custodian shall be limited to Custodian's actual direct cost. 30. Notices. All notices and other communications (collectively referred to as "Notice" or "Notices" in this paragraph) hereunder shall be in writing or by confirm in telegram, cable, telex, or facsimile sending device. Notices shall be addressed: (a) if to Custodian, at Custodian's address, 90 Washington Street, 22nd Floor, New York, New York 10286, Attention: Frank Ajosa; (b) if to the Trust, at the address of the Trust's Secretary, 111 Center Street, Little Rock, Arkansas 72201, Attention: Richard H. Blank, Jr., Secretary; or (c) if to none of the foregoing, at such other address as shall have been notified to the sender of any such Notice or other communication. Notice shall be deemed to have been given when actually received by the other party. All postage, cable, telegram, telex and facsimile sending device charges arising from the sending of a Notice hereunder shall be paid by the sender. 31. Further Actions. Each party agrees to perform such further acts and execute such further documents as it deems necessary to effectuate the purposes hereof. 32. Amendments. This Agreement or any part hereof may be changed or waived only by an instrument in writing signed by the party against which enforcement of such change or waiver is sought. 33. Miscellaneous. ------------- (a) The Trust agrees that Custodian may be a counterparty in any purchase or sale of foreign currency by or for the Trust on a spot or forward basis, and on any option to buy or sell foreign currency. (b) This Agreement embodies the entire Agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings 28 relating to the subject matter hereof. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement shall be deemed to be a contract made in New York and governed by New York law. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. 34. Release. The names "Nations Funds Trust" and "Trustees of Nations Funds Trust" refer respectively to the Trust created and the Trustees, as trustees but not individually or personally, acting from time to time under a Declaration of Trust which is hereby referred to and a copy of which is on file at the principal office of the Trust. The obligations of "Nations Funds Trust" entered into in the name or on behalf thereof by any of the Trustees, representatives or agents are made not individually, but in such capacities, and are not binding upon any of the Trustees, Interestholders, or representatives of the Trust personally, but bind only the Trust Property (as defined in the Declaration of Trust), and all persons dealing with any class of Shares of the Trust Property, and all persons dealing with any class of Shares of the Trust must look solely to the Trust Property belonging to such class for the enforcement of any claims against the Trust. 35. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. 29 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the day and year first above written. NATIONS FUNDS TRUST By: /s/ A. Max Walker ----------------- A. Max Walker President and Chairman of the Board of Trustees THE BANK OF NEW YORK By: /s/ Ira Rosner -------------- Ira Rosner Vice President 30 SCHEDULE I The Custody Agreement between Nations Funds Trust and Sub-Custodian applies to the following Funds of the Trust: Nations Financial Services Fund Nations Classic Value Fund Nations High Yield Bond Fund Nations Kansas Municipal Income Fund Nations MidCap Index Fund Nations Marsico 21st Century Fund Nations Global Value Fund Nations Marsico International Opportunities Fund Nations Asset Allocation Fund Nations Government Securities Fund Nations Marsico Focused Equities Fund Nations Marsico Growth & Income Fund Approved: May 23, 2001 Last Amended: 31 SCHEDULE II PUBLICATIONS I, Ira Rosner, a Vice President with THE BANK OF NEW YORK do hereby designate the following publications: The Bond Buyer Depository Trust Company Services Financial Daily Card Service JJ Kenney Municipal Bond Service London Financial Times New York Times Standard & Poor's Called Bond Record Wall Street Journal 32 SCHEDULE III Domestic Custodian Fee Schedule For Nations Funds Trust Money Market Funds Safekeeping/Income Collection/Reporting DTC-ID Affirmation All Systems Development and Usage Charges - ----------------------------------------------------- 1/2 of one basis point per annum on the aggregate net assets of all Nations' Money Market Funds. Security Transaction Charges - ---------------------------- $ 7 DTC/FRB/PTC $ 15 Physicals $ 40 Euro C/D's Other Charges - ------------- $ 5 Bank official checks $ 2 Money transfers in/out of the Fund's custodian account not related to securities transactions. Earnings Credits on Balances/Interest on Overdrafts - --------------------------------------------------- Earnings credits are provided to each Fund on 80% of the daily balance in the domestic custodian account computed at the 90-day T-bill rate on the day of the balance. Overdrafts, excluding bank errors, will cause a reduction of earnings credits daily, computed at 1% above the average Federal Funds rate on the day of the overdraft. Credits and debits will be accumulated daily and offset monthly against the Bank's domestic custodian fees. To the extent a net debit is accumulated, each Fund will be billed for the expense. To the extent a net earnings credit is generated, such excess earnings credit can be carried forward to the next succeeding month. However, no earnings credit will be carried forward after year-end. 33 Domestic Custodian Fee Schedule For Nations Funds Trust Money Market Funds Out-of-Pocket Expenses - ---------------------- None. Billing Cycle - ------------- The above fees are billed monthly. Nations Funds Trust The Bank of New York - ------------------- -------------------- Approved by: /s/ A. Max Walker Approved by: /s/ Ira Rosner ------------------- ---------------- A. Max Walker President and Chairman of Ira Rosner the Board of Trustees Date: July 2, 2001 Vice President 34 Domestic Custodian Fee Schedule For Nations Funds Trust Non-Money Market Funds Safekeeping/Income Collection/Reporting/DTC-ID Affirmation All Systems Development and Usage Charges - ------------------------------------------------------- 3/4ths of one basis point per annum on the aggregate net assets of all Nations' Non-Money Market Funds up to $10 billion. 1/2 of a basis point on the excess. Security Transaction Charges/Paydowns - ------------------------------------- $ 5 Paydowns $ 7 DTC/FRB/PTC $ 15 Physicals, options, and futures $ 40 Euro C/D's Other Charges - ------------- $ 5 Bank official checks $ 2 Money transfer in/out of the Fund's custodian account not related to securities transactions. Earnings Credits on Balances/Interest on Overdrafts - --------------------------------------------------- Earnings credits are provided to each Fund on 80% of the daily balance in the domestic custodian account computed at the 90-day T-bill rate on the day of the balance. Overdrafts, excluding bank errors, will cause a reduction of earnings credits daily, computed at 1% above the average Federal Funds rate on the day of the overdraft. Credits and debits will be accumulated daily and offset monthly against the Bank's domestic custodian fees. To the extent a net debit is accumulated, each Fund will be billed for the expense. To the extent a net earnings credit is generated, such excess earnings credit can be carried forward to the next succeeding month. However, no earnings credit will be carried forward after year-end. 35 Domestic Custodian Fee Schedule For Nations Funds Trust Non-Money Market Funds Out-of-Pocket Expenses - ---------------------- None. Billing Cycle - ------------- The above fees are billed monthly. Nations Funds Trust The Bank of New York - ------------------- -------------------- Approved by: /s/ A. Max Walker Approved by: /s/ Ira Rosner ------------------- ---------------- A. Max Walker President and Chairman of Ira Rosner the Board of Trustees Date: July 2, 2001 Vice President Customer Contact - ---------------- Portfolio trades are coordinated by a dedicated administrative group reacting to instructions from your authorized persons. The group consists of a senior officer in charge, administrators assigned based on activity and complexity and ample backup on hand to ensure responsiveness to your needs. Safekeeping of Securities - ------------------------- We are a direct member of all major depositor systems, i.e., Depository Trust Company, Federal Reserve Book Entry, Participants Trust Company, etc. Agreements are in place with sub-custodians for book-entry municipal bond programs. Arrangements have been completed for numerous multi-party repurchase transactions. Vault Operations are constantly monitored via closed-circuit security systems. 36 Options/Futures - --------------- Issue escrow or depository receipts. Collect premiums and effect closing purchase transactions for covered call options. Issue guarantee letters for put options. Agreements are in place with numerous Futures Commission Merchants (FCMs), to settle transactions and service maintenance margin requirements. Segregated accounts are maintained to comply with collateral agreements with contra-brokers. Income Collection/Paydowns - -------------------------- Dividends and interest due to the account are pre-posted on the payable date. Proceeds from maturing securities are credited on the redemption date. Paydowns on GNMA, FNMA, FHLMC, and CMOs are posted on payable date and credited in Federal Funds on the business day after payable date when the factor is available (95% of issues held). Securities requiring registration are held in our nominee name to facilitate both sales and income collection. Reports - ------- The following reports are provided to allow your staff to monitor portfolio cash and security transactions: Daily Custodian Account Journal includes portfolio and cash transactions of the previous business day. Cash Balance Projection Report includes all trades reported to us that have not settled through the previous business day. Pending dividends, interest, maturities and called bonds are also listed on this report. Daily report of affirmed/unaffirmed trades. List of Assets reflects securities and cash held in the custodian account available daily, weekly, monthly, etc. 37 Monthly Cash Statement - summary of all Daily Custodian Account Journal activity for the previous month. Workstation - ----------- Our workstation will afford you the ability to review, edit, enter, and transmit all trade settlement instructions to the Bank for processing. Easily accessed via a PC, using a local telephone number, it increases your flexibility to input and retrieve information while significantly reducing your communication costs. The system is accessible 24 hours a day, 7 days a week. Our Cash Management Report is another of our on-line systems capabilities providing real-time settlement data regarding the current day's activity in your account. The activity would include pending and settled trades, income, paydowns and maturity payments as well as cash balances. This information puts effective cash management in your hands. Another of our dynamic on-line systems is called Q-TRAK. This on-line module of our system can be used to notify the bank of any inquiries regarding securities related problems. You can use Q-TRAK to route your inquiries directly to your Custody Administrative Team. Q-TRAK allows for prioritization of each inquiry and response, and permits you to monitor progress on each item as it is being researched. Many of the Bank's clients have found Q-TRAK to be an excellent tool in achieving timely resolutions to their questions. General Servicing - ----------------- Prompt notification of corporate actions. Corporate literature directly forwarded upon receipt. Proxies for securities held in our nominee are executed and forwarded to the Fund for voting. Payment of your authorized corporate expenses. 38 SCHEDULE IV OVERDRAFT RATE 39 EX-99.23(G)(2) 8 ex99-23g2_87612.txt CUSTODY CUSTODY AGREEMENT ----------------- THIS AGREEMENT is made this 8th day of June, 2001 by and between Nations Funds Trust (the "Trust") on behalf of its portfolios listed on Schedule I, as such Schedule may be amended from time to time (individually a "Fund" and collectively the "Funds") and Bank of America, N.A., a national banking association (the "Custodian"). W I T N E S S E T H ------------------- WHEREAS, the Trust is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Trust desires to retain the Custodian to serve as the Trust's custodian and the Custodian is willing to furnish such services; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is agreed between the parties hereto as follows: 1. Appointment. The Trust hereby appoints the Custodian to act as custodian of its portfolio securities, cash and other property on the terms set forth in this Agreement. The Custodian accepts such appointment and agrees to furnish the services herein set forth in return for the compensation as provided in Paragraph 24 of this Agreement. The Custodian agrees to comply with all relevant provisions of the 1940 Act and applicable rules and regulations thereunder. The Trust may from time to time issue separate series, classes or classify and reclassify shares of any such series or class. The Custodian shall identify to each such series or class Property, as hereinafter defined, belonging to such series or class and in such reports, confirmations and notices and to the Trust called for under this Agreement shall identify the series or class to which such report, confirmation or notice pertains. 2. Delivery of Documents. The Trust has furnished the Custodian with copies properly certified or authenticated of each of the following: 1 (a) Resolutions of the Trust's Board of Trustees authorizing the appointment of the Custodian as Custodian of the portfolio securities, cash and other property of the Trust and approving this Agreement; (b) Schedule A identifying and containing the signatures of the Trust's officers and/or other persons authorized to issue Oral Instructions and to sign Written Instructions, as hereinafter defined, on behalf of the Trust; (c) Schedule B setting forth the names and signatures of the present officers of the Trust; (d) The Trust's Declaration of Trust filed with the State of Delaware and all amendments thereto (such as currently in effect and as they shall from time to time be amended, are herein called the "Charter"); (e) The Trust's By-Laws (if any) and all amendments thereto (such By-Laws, as currently in effect and as they shall from time to time be amended, are herein called the "By-Laws"); (f) Resolutions of the Trust's Board of Trustees appointing the investment advisers and sub-adviser of the Trust and resolutions of the Trust's Board of Trustees and the Trust's shareholders approving (i) the Investment Advisory Agreement (the "Investment Advisory Agreement") dated June 8, 2001, between the Trust, on behalf of the Portfolios, and Banc of America Advisors, LLC ("BA Advisors"); (ii) the Sub-Advisory Agreement (the "Sub-Advisory Agreement") dated June 8, 2001 among the Trust, on behalf of the Portfolios, BA Advisors and Banc of America Capital Management, LLC ("BACAP") (as used herein the Adviser shall mean BA Advisors and/or BACAP as the context may require); (g) The Investment Advisory Agreement, dated June 8, 2001; (h) The Sub-Advisory Agreement, dated June 8, 2001; (i) The Distribution Agreement, dated June 8, 2001, between the Trust and Stephens Inc. ("Stephens"); 2 (j) The Administration Agreement, dated June 8, 2001, between the Trust on behalf of the Funds and Stephens; (k) The Co-Administration Agreement, dated June 8, 2001, between the Trust and PFPC Inc. (l) The Trust's Notification of Registration filed pursuant to Section 8(a) of the 1940 Act, as filed with the Securities and Exchange Commission (the "SEC"); (m) The Trust's current Registration Statement on Form N-1A under the 1940 Act and the Securities Act of 1933, as amended ("the 1933 Act") as filed with the SEC, relating to shares of common stock of the Trust, without par value (the "Shares"); (n) The current prospectuses and statements of additional information of each of the Funds, including all amendments and supplements thereto (the "Prospectuses"). The Trust will furnish the Custodian from time to time with copies of all amendments of or supplements to the foregoing, if any. The Trust will also furnish the Custodian with a copy of the opinion of counsel for the Trust with respect to the validity of the Shares and the status of such Shares under the 1933 Act filed with the SEC, and any other applicable federal law or regulation; and (o) Before any Fund of the Trust engages in any transactions regulated by the Commodity Futures Trading Commission ("CFTC"), a copy of either (i) a filed notice of eligibility to claim the exclusion from the definition of "commodity pool operator" contained in Section 2(a)(1)(A) of the Commodity Exchange Act ("CEA") that is provided in Rule 4.5 under the CEA, together with all supplements as are required by the CFTC, or (ii) a letter which has been granted to the Trust by the CFTC which states that the Trust will not be treated as a "pool" as defined in Section 4.10(d) of the CFTC's General Regulations, or (iii) a letter which has been granted to the Trust by the CFTC which states that the CFTC will not take any enforcement action if the Trust does not register as a "commodity pool operator." The Trust will furnish the Custodian from time to time with copies, properly certified or authenticated, of all amendments of or supplements to the foregoing, if any. 3 3. Definitions. -------------------- (a) "Authorized Person". As used in this Agreement, the term "Authorized Person" means any of the Trust's officers, and any other person, whether or not any such person is an officer or employee of the Trust, duly authorized by the Board of Trustees of the Trust to give Oral and Written Instructions on behalf of the Trust and listed on Schedule A, which may be amended from time to time. (b) "Book-Entry System". As used in this Agreement, the term "Book-Entry System" means the Federal Reserve/Treasury book-entry system for United States and federal agency securities, its successor or successors and its nominee or nominees and any book-entry system maintained by a clearing agency registered with the SEC under Section 17A of the Securities Exchange Act of 1934 (the "1934 Act"). (c) "Oral Instructions". As used in this Agreement, the term "Oral Instructions" means oral instructions actually received by the Custodian from an Authorized Person or from a person reasonably believed by the Custodian to be an Authorized Person. The Trust agrees to deliver to the Custodian, at the time and in the manner specified in Paragraph 9 of this Agreement Written Instructions confirming Oral Instructions. (d) "Officer's Certificate". The term "Officer's Certificate" as used in this Agreement means instructions delivered by hand, mail, tested telegram, cable, telex, facsimile sending device, and received by the Custodians signed by two officers of the Trust listed on Schedule B. (e) "Property". The term "Property", as used in this Agreement, means: (i) any and all securities and other property of the Trust which the Trust may from time to time deposit, or cause to be deposited, with the Custodian or which the Custodian may, from time to time, hold for the Trust; (ii) all income in respect of any other such securities or other property; (iii) all proceeds of the sales of any of such securities or other property; and 4 (iv) all proceeds of the sale of securities issued by the Trust, which are received by the Custodian from time to time from or on behalf of the Trust. (f) "Securities Depository". As used in this Agreement, the term "Securities Depository" shall mean The Depository Trust Company, a clearing agency registered with the SEC or its successor or successors and its nominee or nominees; and shall also mean any other registered clearing agency, its successor or successors specifically identified in a certified copy of a resolution of the Trust's Board of Trustees approving deposits by the Custodian therein. (g) "Written Instructions". As used in this Agreement, "Written Instructions" means instructions delivered by hand, mail, tested telegram, cable, telex, facsimile sending device, and received by the Custodian, signed by two Authorized Persons. 4. Delivery and Registration of the Property. The Trust will deliver or cause to be delivered to the Custodian all securities and all monies owned by it, including cash received for the issuance of its Shares, at any time during the period of this Agreement, except for securities and monies to be delivered to any sub-custodian appointed pursuant to Paragraph 7 hereof. The Custodian will not be responsible for such securities and such monies until actually received by it. All securities delivered to the Custodian or to any such sub-custodian (other than in bearer form) shall be registered in the name of the Trust or in the name of a nominee of the fund or in the name of the Custodian or any nominee of the Custodian (with or without indication of fiduciary status) or in the name of any sub-custodian or any nominee of such sub-custodian appointed pursuant to Paragraph 7 hereof or shall be properly endorsed and in form for transfer satisfactory to the Custodian. 5. Voting Rights. With respect to all securities, however registered, it is understood that the voting and other rights and powers shall be exercised by the Trust. The Custodian's only duty shall be to mail to the Trust any documents received, including proxy statements and offering circulars, with any proxies for securities registered in a nominee name executed by such nominee. Where warrants, options, tenders or other securities have fixed expiration dates, the Trust understands that in order for the Custodian to act, the Custodian must receive the Trust's 5 instructions at its offices in New York, addressed as the Custodian may from time to time request, by no later than noon (New York City time) at least one business day prior to the last scheduled date to act with respect thereto (or such earlier date or time as the Custodian may reasonably notify the Trust). Absent the Custodian's timely receipt of such instructions, such instructions will expire without liability to the Custodian. Corporate reports need not be forwarded to the Trust. 6. Receipt and Disbursement of Money. --------------------------------- (a) the Custodian shall open and maintain a custody account for each Fund of the Trust, subject only to draft or order by the Custodian acting pursuant to the terms of this Agreement, and shall hold in such account, subject to the provisions hereof, all cash received by it from or for the Trust. The Custodian shall make payments of cash to, or for the account of, each Fund of the Trust from such cash only (i) for the purchase of securities for the Trust as provided in paragraph 14 hereof; (ii) upon receipt of an Officer's Certificate for the payment of dividends or other distributions of shares, or for the payment of interest, taxes, administration, distribution or advisory fees or expenses which are to be borne by the Trust under the terms of this Agreement, and, with respect to each Fund, and Investment Advisory Agreement, Sub-Advisory Agreement, Administration Agreement or Distribution Agreement; (iii) upon receipt of Written Instructions for payments in connection with the conversion, exchange or surrender of securities owned or subscribed to by the Trust and held by or to be delivered to the Custodian; (iv) to a sub-custodian pursuant to Paragraph 7 hereof; or (v) for the redemption of Fund Shares; or (vi) upon receipt of an Officer's Certificate for other corporate purposes. No payment pursuant to (i) above shall be made unless the Custodian has received a copy of the broker's or dealer's confirmation or the payee's invoice as appropriate. (b) The Custodian is hereby authorized to endorse and collect all checks, drafts or other orders for the payment of money received as custodian for the Trust. (c) In the event that a payment required to be made under this Agreement exceeds the cash available in the account of a Fund, the Custodian, in its discretion, may advance 6 to the Fund an amount equal to that excess and such advance will be deemed a loan from Custodian to the Fund, payable on demand, bearing interest at such fair market rate as may be agreed upon from time to time by the parties hereto. Custodian may not unreasonably decline to advance funds. In exercising its discretion under this Paragraph 6(c), Custodian recognizes the interest of a Fund in avoiding failed trades and in meeting redemption requests on a same-day basis, and will inform the Fund immediately whenever Custodian anticipates that it may, in the future, be necessary to exercise its discretion to decline an advance of funds. In any event, where practicable, Custodian will give a Fund at least three business days' notice before declining to advance funds. In this regard, the parties agree to cooperate in good faith to minimize the need for advances under this Paragraph 6(c). 7. Receipt of Securities. --------------------- (a) Except as provided by Paragraph 8 hereof, the Custodian shall hold and physically segregate in a separate account with respect to each Fund, identifiable from those of any other person, all securities and non-cash property received by it for the Trust. All such securities and non-cash property are to be held or disposed of by the Custodian for each Fund of the Trust pursuant to the terms of this Agreement. In the absence of Written Instructions accompanied by a certified resolution authorizing the specific transaction by the Trust's Board of Trustees, the Custodian shall have no power or authority to withdraw, deliver, assign, hypothecate, pledge or otherwise dispose of any such securities and investments, except in accordance with the express terms provided for in this Agreement. In no case may any Trustee, officer, employee or agent of the Trust withdraw any securities except as provided in this Agreement and pursuant to a duly adopted resolution of the Board of Trustees. In connection with its duties under this Paragraph 7, the Custodian may, at its own expense, enter into sub-custodian Agreements with other banks or trust companies for the receipt of certain securities and cash to be held by the Custodian for the account of a Fund of the Trust pursuant to this Agreement; provided that each such bank or trust company has an aggregate capital, surplus and undivided profits, as shown by its last published report, of not less than one million dollars 7 ($1,000,000) for a Custodian subsidiary or affiliate, or of not less than twenty million dollars ($20,000,000) for a sub-custodian that is not a Custodian subsidiary or affiliate and that in either case such bank or trust company agrees with the Custodian to comply with all relevant provisions of the 1940 Act and applicable rules and regulations thereunder. The Custodian will provide the Trust with a copy of each sub-custodian agreement it executes relating to the Trust. The Custodian will be liable for acts or omissions of any such sub-custodian, under the standards of care provided for herein, of any bank or trust company that it chooses pursuant to this Paragraph 7. (b) Promptly after the close of business on each day the Custodian shall furnish the Trust with confirmations and a summary of all transfers to or from the account of each Fund of the Trust during said day. Where securities are transferred to the account of any Fund of the Trust established at a Securities Depository or the Book-Entry System pursuant to Paragraph 8 herein, the Custodian shall also by book-entry or otherwise, identify as belonging to such Fund the quantity of securities in a fungible bulk of securities registered in the name of the Custodian (or its nominee) or shown in the Custodian's account on the books of a Securities Depository or the Book-Entry System. At least monthly and from time to time, the Custodian shall furnish the Trust with a detailed statement of the Property held for each Fund under this Agreement. 8. Use of Securities Depository or the Book-Entry System. The Trust shall deliver to the Custodian a certified resolution of the Board of Trustees of the Trust approving, authorizing and instructing the Custodian on a continuous and ongoing basis until instructed to the contrary by Oral or Written Instructions actually received by the Custodian (i) to deposit in a Securities Depository or the Book-Entry System all securities of the Trust eligible for deposit therein and (ii) to utilize a Securities Depository or the Book-Entry System to the extent possible in connection with the performance of its duties hereunder, including without limitation settlements of purchases and sales of securities by the Trust, and deliveries and returns of securities loaned, subject to repurchase agreements or used as collateral in connection with borrowings. Without limiting the generality of such use, it is agreed that the following provisions shall apply thereto: 8 (a) Securities and any cash of the Trust deposited in a Securities Depository or the Book-Entry System will at all times be segregated from any assets and cash controlled by the Custodian in other than a fiduciary or custodian capacity. The Custodian and its sub-custodians, if any, will pay out money only upon receipt of securities and will deliver securities only upon receipt of money, unless the Trust has given the Custodian Written Instructions to the contrary. (b) All books and records maintained by the Custodian that relate to the Trust participation in a Securities Depository or the Book-Entry System will at all times during the Custodian's regular business hours be open to the inspection of the Trust's duly authorized employees or agents and the Trust's independent auditors in accordance with applicable regulations, and the Trust will be furnished with all information in respect of the services rendered to it as it may require. (c) The Custodian will provide the Trust with copies of any report obtained by the Custodian on the system of internal accounting control of the Securities Depository or Book-Entry System promptly after receipt of such a report by the Custodian. The Custodian will also provide the Trust with such reports on its own system of internal control as the Trust may reasonably request from time to time. 9. Instructions Consistent With the Charter, etc.. Unless otherwise provided in this Agreement, the Custodian shall act only upon Oral and Written Instructions. The Custodian may assume that any Oral or Written Instructions received hereunder are not in any way inconsistent with any provision of the Charter or By-Laws or any vote or resolution of the Trust's Board of Trustees, or any committee thereof. The Custodian shall be entitled to rely upon any Oral or Written Instructions actually received by the Custodian pursuant to this Agreement. The Trust agrees to forward to the Custodian Written Instructions confirming Oral Instructions in such manner that the Written Instructions are received by the Custodian at the close of business of the same day that such Oral Instructions are given to the Custodian. The Trust agrees that the fact that such confirming Written Instructions are not received by the Custodian shall in no way affect the validity of any of the transactions authorized by the Trust by giving Oral Instructions. The 9 Trust agrees that the Custodian shall incur no liability in acting upon Oral Instructions given to the Custodian hereunder concerning such transactions, provided that such instructions reasonably appear to have been received from an Authorized Person, unless any liability to the Trust results from the negligence or willful misconduct of the Custodian. In accordance with instructions from the Trust, as required by accepted industry practice or as the Custodian may elect in effecting the execution of the Trust instructions, advances of cash or other Property made by the Custodian, arising from the purchase, sale, redemption, transfer or other disposition of Property of the Trust, or in connection with the disbursement of funds to any party, or in payment of fees, expenses, claims or liabilities owed to the Custodian by the Trust, or to any other party which has secured judgment in a court of law against the Trust which creates an overdraft in the accounts or overdelivery of Property shall be deemed a loan by the Custodian to the Trust, payable on demand, bearing interest at such rate customarily charged by the Custodian for similar loans. 10. Transactions Not Requiring Instructions. The Custodian is authorized to take the following action without Written Instructions: (a) Collection of Income and Other Payments. The Custodian shall: (i) collect and receive for the account of any Fund of the Trust, all income and other payments and distributions, including (without limitation) stock dividends, rights, warrants and similar items, included or to be included in the Property of any Fund of the Trust, and promptly advise the Trust of such receipt and shall credit such income, as collected, to such Fund of the Trust. From time to time, the Custodian may elect, but shall not be so obligated, to credit the account with interest, dividends or principal payments on payable or contractual settlement date, in anticipation of receiving same from a payor, central depository, broker or other agent employed by the Trust or the Custodian. Any such crediting and posting shall be at the Trust's sole risk, and the Custodian shall be authorized to reverse any such advance posting in the event that it does not receive good funds from any such payor, central depository, broker or agent. 10 (ii) with respect to securities of foreign issue, effect collection of dividends, interest and other income, and to notify the Trust of any call for redemption, offer of exchange, right of subscription, reorganization, or other proceedings affecting such securities, or any default in payments due thereon. It is understood, however, that the Custodian shall be under no responsibility for any failure or delay in effecting such collections or giving such notice with respect to domestic securities regardless of whether or not the relevant information is published in any financial service available to it unless such failure or delay is due to its negligence; however, this sentence shall not be construed as creating any such responsibility with respect to securities of non-foreign issue, other than such responsibility of the Custodian. Collections of income in foreign currency are, to the extent possible, to be converted into United States dollars unless otherwise instructed in writing, and in effecting such conversion the Custodian may use such methods or agencies as it may see fit, including the facilities of its own foreign division at customary rates. All risk and expenses incident to such collection and conversion is for the account of the Trust and the Custodian shall have no responsibility for fluctuations in exchange rates affecting any such conversion. (iii) endorse and deposit for collection in the name of the Trust and each of its Funds, checks, drafts, or other orders for the payment of money on the same day as received; (iv) receive and hold for the account of each of the Trust's all securities received by the Trust as a result of a stock dividend, share or reorganization, recapitalization, readjustment or other rearrangement or distribution of rights or similar securities issued with respect to any portfolio securities of the Trust held by the Custodian hereunder; (v) present for payment and collect the amount payable upon all securities which may mature or be called, redeemed or retired, or otherwise become payable on the date such securities become payable; 11 (vi) take any action which may be necessary and proper in connection with the collection and receipt of such income and other payments and the endorsement for collection of checks, drafts and other negotiable instructions; (vii) with respect to domestic securities, to exchange securities in temporary form for securities in definitive form, to effect an exchange of the shares where the par value of stock is changed, and to surrender securities at maturity or when advised of earlier call for redemption, against payment therefor, in accordance with accepted industry practice. When fractional shares of stock of a declaring corporation are received as a stock distribution, the Custodian is authorized to sell the fraction received and credit the Trust account. Unless specifically instructed to the contrary in writing, the Custodian is authorized to exchange securities in bearer form for securities in registered form. If any Property registered in the name of a nominee of the Custodian is called for partial redemption by the issuer of such Property, the Custodian is authorized to allot the called portion to the respective beneficial holders of the Property in such manner deemed to be fair and equitable by the Custodian in its sole discretion. (b) Miscellaneous Transactions. The Custodian is authorized to deliver or cause to be delivered Property against payment or other consideration or written receipt therefor in the following cases: (c) for examination by a broker selling for the account of the Trust in accordance with street delivery custom; (d) for the exchange for interim receipts or temporary securities for definitive securities; (e) for transfer of securities into the name of the Trust or the Custodian or a nominee of either, or for exchange or securities for a different number of bonds, certificates, or other evidence, representing the same aggregate face amount or number of units bearing the same interest rate, maturity date and call provisions, if any; provided that, in any such case, the new securities are to be delivered to the Custodian. 12 11. Transactions Requiring Instructions. Upon receipt of Oral or Written Instructions and not otherwise, the Custodian, directly or through the use of a Securities Depository or the Book-Entry System, shall: (a) Execute and deliver to such persons as may be designated in such Oral or Written Instructions, proxies, consents, authorizations, and any other instruments whereby the authority of the Trust as owner of any securities may be exercised; b) Deliver any securities held for any Fund of the Trust against receipt of other securities or cash issued or paid in connection with the liquidation, reorganization, refinancing, merger, consolidation or recapitalization of any corporation, or the exercise of any conversion privilege; (c) Deliver any securities held for any Fund of the Trust to any protective committee, reorganization committee or other person in connection with the reorganization, refinancing, merger, consolidation, recapitalization or sale of assets of any corporation, against receipt of such certificates or deposit, interim receipts or other instruments or documents as may be issued to it to evidence such delivery; (d) Make such transfers or exchanges of the assets of any Fund of the Trust and take such other steps as shall be stated in said instructions to be for the purpose of effectuating any duly authorized plan of liquidation, reorganization, merger, consolidation or recapitalization of the Trust; (e) Release securities belonging to any Fund of the Trust to any bank or trust company for the purpose of pledge or hypothecation to secure any loan incurred by the Trust; provided, however, that securities shall be released only upon payment to the Custodian of the monies borrowed, except that in cases where additional collateral is required to secure a borrowing already made, subject to proper prior authorization, further securities may be released for that purpose; and pay such loan upon redelivery to it of the securities pledged or hypothecated therefor and upon surrender of the note or notes evidencing the loan; 13 (f) Deliver any securities held for the Trust upon the exercise of a covered call option written by the Trust on such securities; (g) Release and deliver securities owned by the Trust in connection with any repurchase agreement entered into on behalf of any Fund of the Trust, but only on receipt of payment therefor; and pay out monies of the Trust in connection with such repurchase agreements, but only upon the delivery of the securities; (h) Otherwise transfer, exchange or deliver securities in accordance with Oral or Written Instructions. 12. Segregated Accounts. (a) The Custodian shall, upon receipt of Written or Oral Instructions, establish and maintain a segregated account or accounts, on its records, for and on behalf of any Fund of the Trust, into which account or accounts may be transferred cash and/or securities, including securities in the Book-Entry System (i) for the purposes of compliance by the Trust with the procedures required by a securities or option exchange, providing such complies with the Investment Company Act and Release No. 10666 or any subsequent release or releases of the Securities and Exchange Commission relating to the maintenance of segregated accounts by registered investment companies and (ii) for other proper corporate purposes, but only, in the case of clause (ii), upon receipt of Written Instructions. 13. Dividend and Distributions. (a) The Trust shall furnish the Custodian with appropriate evidence of action by the Trust's Board of Trustees declaring and authorizing the payment of any dividends and distributions. Upon receipt by the Custodian of an Officer's Certificate with respect to dividends and distributions declared by the Trust's Board of Trustees and payable to shareholders of any Fund who are entitled to receive cash for fractional shares and those who have elected in the proper manner to receive their distributions on dividends in cash, and in conformance with procedures mutually agreed upon by the Custodian, the Trust and the Trust's Administrator or transfer agent, the Custodian shall pay to the Fund's transfer agent, as agent for the shareholders, 14 an amount equal to the amount indicated in said Officer's Certificate as payable by the fund to such shareholders for distribution in cash by the transfer agent to such shareholders. In lieu of paying the Trust's transfer agent cash dividends and distributions, the Custodian may arrange for the direct payment of cash dividends and distributions to shareholders by the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time by and among the Trust, the Custodian and the Trust's Administrator and Transfer Agent. In accordance with the Prospectuses, the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder, and with such procedures and controls as are mutually agreed upon from time to time by and among the Trust, the Custodian, the Trust's Administrator and Transfer Agent, the Custodian shall arrange for the establishment of Individual Retirement Accounts ("IRAs") as custodian accounts for such shareholders holding shares through IRA accounts. (b) The Custodian may enter into separate custodial agreements with various futures commission merchants ("FCMs") that the Trust uses (each an "FCM Agreement"), pursuant to which the Trust's margin deposits in any transactions involving futures contracts and options on futures contracts will be held by the Custodian in accounts (each an "FCM Account") subject to the disposition by the FCM involved in such contracts in accordance with the customer contract between FCM and the Trust ("FCM Contract"), SEC rules governing such segregated accounts, CFTC rules and the rules of the applicable commodities exchange. Such FCM Agreements shall only be entered into upon receipt of Written Instructions from the Trust which stated that (i) an FCM Contract has been entered into; and (ii) the Trust is in compliance with all the rules and regulations of the CFTC. Transfers of initial margin shall be made into FCM Account only upon Written Instructions; transfers of premium and variation margin may be made into an FCM Account pursuant to Oral Instructions. Transfers of funds from an FCM Account to the FCM for which the Custodian holds such an account may only occur upon certification by the FCM to the Custodian that pursuant to the FCM Agreement and the FCM Contract, all conditions precedent to its right to give the Custodian such instruction have been satisfied. 15 14. Purchase of Securities. Promptly after each purchase of securities by the Adviser on behalf of any Fund, the Trust shall deliver to the Custodian Oral or Written Instructions specifying with respect to each such purchase: (a) the name of the issuer and the title of the securities, (b) the number of shares of the principal amount purchased and accrued interest, if any, (c) the dates of purchase and settlement, (d) the purchase price per unit, (e) the total amount payable upon such purchase, (f) the name of the person, from whom, or the broker through whom, the purchase was made and (g) the Fund for which the purchase was made. The Custodian shall, upon receipt of securities purchased by or for the Trust, pay out of the monies held for the account of such Fund, the total amount payable to the person, from whom, or the broker through whom, the purchase was made, provided that the same conforms to the total amount payable as set forth in such Oral or Written Instructions. 15. Notation. With respect to each deposit or withdrawal of securities or when ordering the deposit or withdrawal of securities from safekeeping, the Custodian shall sign a notation in respect of each such deposit, withdrawal or order that shall show: (a) the date and time of the deposit, withdrawal or order; (b) the title and amount of the securities or other investments deposited, withdrawn or ordered to be withdrawn, and the identification thereof by certificate numbers or otherwise; (c) the manner of acquisition of the securities or similar investments deposited or the purpose for which they have been withdrawn, or ordered to be withdrawn; and (d) if withdrawn and delivered to another person, the name of such person. The time of any deposit, withdrawal or order means the time of the formal recording of such transactions on the books of the Custodian at the Custodian's close of business. Such notation shall be transmitted promptly to an officer or director of the Trust designated by the Board of Trustees who shall not otherwise be authorized to have access to the Trust's securities. Such notation shall be on serially numbered forms and shall be preserved for at least one year. 16. Sales of Securities. Promptly after each sale of securities by the Adviser, the Trust shall deliver to the Custodian Oral or Written Instructions, specifying with respect to each such sale: (a) the name of the issuer and the title of the security, (b) the number of the shares or 16 principal amount sold, and accrued interest, if any, (c) the dates of sale, (d) the sale price per unit, (e) the total amount payable to the Trust upon such sale, (f) the name of the broker, through whom, or the person to whom, the sale was made and (g) the Fund for which the sale was made. The Custodian shall deliver the securities upon receipt of the total amount payable to the Trust upon such sale, provided that the same conforms to the total amount payable as set forth in such Oral and Written Instructions. Subject to the foregoing, the Custodian may accept payment in such form as shall be satisfactory to it, and may deliver securities and arrange for payment in accordance with the customs prevailing among dealers in securities. 17. Records. The books and records pertaining to the Trust which are in the possession of the Custodian shall be the property of the Trust. Such books and records shall be prepared and maintained as required by the 1940 Act, as amended, and other applicable securities laws and rules and regulations. The SEC, the Trust, or the Trust's authorized representatives, shall have access to such books and records at all times during the Custodian's normal business hours, and such books and records shall be surrendered to the Trust promptly upon request. Upon reasonable request of the Trust, copies of any such books and records shall be provided by the Custodian to the Trust or the Trust's authorized representative at the Trust's expense. 18. Reports. (a) The Custodian shall furnish the Trust the following reports: (i) such periodic and special reports as the Trust may reasonably request; (ii) a monthly statement summarizing all transactions and entries for the account of each Fund of the Trust; (iii) a monthly report of portfolio securities belonging to each fund of the Trust showing the adjusted average cost of each issue and the market value at the end of such month; (iv) a monthly report of the cash account of each Fund of the Trust showing disbursements; 17 (v) the reports to be furnished to the Trust pursuant to Rule 17f-4 under the 1940 Act; and (vi) such other information as may be agreed upon from time to time between the Trust and the Custodian. (b) The Custodian shall transmit promptly to the Trust any proxy statement, proxy materials, notice of a call or conversation or similar communications received by it as Custodian of the Property. 19. Cooperation with Accountants. The Custodian shall cooperate with the Trust's independent certified public accountant and shall take all reasonable action in the performance of its obligations under this Agreement and those under Rule 17f-2 under the 1940 Act ("Rule 17f-2") to the extent such Rule is applicable, to assure that the necessary information is made available to such accountant for the expression of its unqualified opinion with respect to, including without limitation, the three audits required each year, the certificates with respect to such annual audits and the opinion included in the Trust's semi-annual report on Form N-SAR, and will require each sub-custodian appointed pursuant to paragraph 7 hereof to grant such access to the information to the fund's independent certified public accountant. The Custodian shall require any sub-custodian it appoints with respect to the Trust to comply with the provisions of this Paragraph 19. 20. Confidentiality. The Custodian agrees on behalf of itself and its employees to treat confidentially and as the proprietary information of the Trust, all record and other information relative to the Trust and its prior, present or potential shareholders and relative to the managers and its prior, present or potential customers, and not to use such records and information for any purpose other than performance of its responsibilities and duties hereunder, except after prior notification to and approval in writing by the Trust, which approval shall not be unreasonably withheld and may not be withheld where the Custodian may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities, or when so requested by the Trust. 18 21. Equipment Failures. In the event of equipment failures beyond the Custodian's control, the Custodian shall, at no additional expense to the Trust, take reasonable steps to minimize service interruptions but shall not have liability with respect thereto. The Custodian shall enter into and shall maintain in effect with appropriate parties one or more agreements making reasonable provision for back up emergency use of electronic data processing equipment to the extent appropriate equipment is available. 22. Right to Receive Advice. ----------------------- (a) Advice of Fund. If the Custodian shall be in doubt as to any action to be taken or omitted by it, it may request, and shall receive, from the Trust clarification or advice, including Oral or Written Instructions. (b) Advice of Counsel. If the Custodian shall be in doubt as to any question of law involved in any action to be taken or omitted by the Custodian, it may request advice at its own cost from counsel of its own choosing (who may be counsel for the Trust or the Custodian, at the option of the Custodian). (c) Conflicting Advice. In case of conflict between directions, advice or Oral or Written Instructions received by the Custodian pursuant to subparagraph (a) of this paragraph and advice received by the Custodian pursuant to subparagraph (b) of this paragraph, the Custodian shall be entitled to rely on and follow the advice received pursuant to the latter provision alone. (d) Protection of the Custodian. The Custodian shall be protected in any action or inaction which it takes or omits to take in reliance on any directions, advice or Oral or Written Instructions received pursuant to subparagraphs (a) or (b) of this section which the Custodian, after receipt of any such directions, advice or Oral or Written Instructions, in good faith believes to be consistent with such directions, advice or Oral or Written Instructions, as the case may be. Nothing in this paragraph shall be construed as imposing upon the Custodian any obligation (i) to seek such directions, advice or Oral or Written Instructions, or (ii) to act in accordance with such directions, advice or Oral or Written Instructions when received, unless, 19 under the terms or another provision of this Agreement, the same is a condition to the Custodian's properly taking or omitting to take such action. Nothing in this subparagraph shall excuse the Custodian when an action or omission on the part of the Custodian constitutes willful misfeasance, bad faith, negligence or reckless disregard by the Custodian of its duties under this Agreement. 23. Compliance with Governmental Rules and Regulations. The Custodian undertakes to comply with all applicable requirements of the 1933 Act, the 1934 Act, the 1940 Act and any laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties and obligations to be performed by the Custodian hereunder. The Custodian acknowledges that the Trust is subject to Rule 17f-2 and will undertake to assist the Trust in complying with its obligations thereunder. 24. Compensation. As compensation for the services rendered by the Custodian during the term of this Agreement, the Trust will pay to the Custodian, in addition to reimbursement of its out-of-pocket expenses, monthly fees as outlined in Schedule C, or as otherwise agreed upon from time to time in writing by the Custodian and the Trust. 25. Indemnification. The Trust, as sole owner of the Property, agrees to indemnify and hold harmless the Custodian and its nominees from all taxes, charges, expenses, assessments, claims, and liabilities (including, without limitation, liabilities arising under the 1933 Act, the Act of 1934, the 1940 Act, the CEA, and any state and foreign securities and blue sky laws, all as or to be amended from time to time) and expenses, including (without limitation) attorney's fees and disbursements, arising directly or indirectly (a) from the fact that securities included in the Property are registered in the name of any such nominee or (b) without limiting the generality of the foregoing clause (a) from any action or thing which the Custodian takes or does or omits to take or do (i) at the request or at the direction of or in reliance on the advice of the Trust, or (ii) upon Oral or Written Instructions, provided, that neither the Custodian nor any of its nominees or sub-custodians shall be indemnified against any liability to any Fund of the Trust or to its shareholders (or any expenses incident to such liability) arising out of (x) the Custodian's 20 or such nominee's or sub-custodian's own willful misfeasance, bad faith, negligence or reckless disregard of its duties under this Agreement or any agreement between the Custodian and any nominee or sub-custodian or (y) the Custodian's own negligent failure to perform its duties under this Agreement. In the event of any advance of cash for any purpose made by the Custodian resulting from Oral or Written Instructions of the Trust, or in the event that the Custodian or its nominee or sub-custodian shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Agreement, except such as may arise from its or its nominee's or sub-custodian's own negligent action, negligent failure to act, willful misconduct, or reckless disregard, the Trust shall promptly reimburse the Custodian for such advance of cash or such taxes, charges, expenses, assessment claims or liabilities. Notwithstanding anything to the contrary, any one Fund shall not provide indemnification to the Custodian for any loss or liability resulting from actions with respect to any other Fund. 26. Responsibility of The Custodian. The Custodian shall be under no duty to take any action on behalf of the Trust except as specifically set forth herein or as may be specifically agreed to by the Custodian in writing. In the performance of its duties hereunder, the Custodian shall be obligated to exercise care and diligence and to act in good faith and to use its best efforts within reasonable limits to ensure the accuracy of all services performed under this Agreement. The Custodian shall be responsible for its own negligent failure or that of any sub-custodian it shall appoint to perform its duties under this Agreement but to the extent that duties, obligations and responsibilities are not expressly set forth in this Agreement, the Custodian shall not be liable for any act or omission which does not constitute willful misfeasance, bad faith, or negligence on the part of the Custodian or reckless disregard of such duties, obligations and responsibilities. Without limiting the generality of the foregoing or of any other provision of this Agreement, the Custodian in connection with its duties under this Agreement shall not be under any duty or obligation to inquire into and shall not be liable for or in respect of (a) the validity or invalidity or authority or lack thereof of any advice, direction, notice or other instrument which conforms to the applicable requirements of this Agreement, if any, and which the Custodian 21 believes to be genuine, (b) the validity of the issue of any securities purchased or sold by the Trust, the legality of the purchase or sale thereof or the propriety of the amount paid or received therefor, (c) the legality of the issue or sale of any Shares, or the sufficiency of the amount to be received therefor, (d) delays or errors or loss of data occurring by reason of circumstances beyond the Custodian's control, including acts of civil or military authority, national emergencies, labor difficulties, fire, mechanical breakdown (except as provided in Paragraph 21), flood or catastrophe, acts of God, insurrection, war, riots, or failure of the mail, transportation, communication or power supply. 27. Collection. All collections of monies or other property in respect, or which are to become part, of the Property (but not the safekeeping thereof upon receipt by the Custodian) shall be at the sole risk of the Trust. In any case in which the Custodian does not receive any payment due the Trust within a reasonable time after the Custodian has made proper demands for the same, it shall so notify the Trust in writing, including copies of all demand letters, any written responses thereto, and memoranda of all oral responses thereto, and to telephonic demands, and await instructions from the Trust. The Custodian shall not be obliged to take legal action for collection unless and until reasonably indemnified to its satisfaction. The Custodian shall also notify the Trust as soon as reasonably practicable whenever income due on securities is not collected in due course. 28. Duration and Termination. This Agreement shall be effective as of the date hereof and shall continue until termination by the Trust or by the Custodian on 60 days written notice provided that this Agreement shall terminate at the end of two years from the date hereof unless the Agreement is approved on an annual basis thereafter by the Board of Trustees of the Trust, including a majority of the Trustees who are not "interested persons" under the 1940 Act. Upon any termination of this Agreement, pending appointment of a successor to the Custodian or a vote of the shareholders of the Trust to dissolve or to function without a custodian of its cash, securities or other property, the Custodian shall not deliver cash, securities or other property of the Trust to the Trust, but may deliver them to a bank or trust company of its own selection, 22 having aggregate capital, surplus and undivided profits, as shown by its last published report of not less than twenty million dollars ($20,000,000) as a custodian for the Trust to be held under terms similar to those of this Agreement, provided, however, that the Custodian shall not be required to make any such delivery or payment until full payment shall have been made by the Trust of all liabilities constituting a charge on, or against, the properties then held by the Custodian, or on or against the Custodian, and until full payment shall have been made to the Custodian of all of its fee, compensation, costs and expenses, subject to the provisions of Paragraph 21 of this Agreement. 29. Notices. All notices and other communications (collectively referred to as "Notice" or "Notices" in this paragraph) hereunder shall be in writing or by confirm in telegram, cable, telex, or facsimile sending device. Notices shall be addressed (a) if the Custodian, at the Custodian's address, 101 South Tryon Street, Charlotte, North Carolina 28255, Attention: Edward D. Bedard, Senior Vice President; (b) if to the Trust, at the address of Nations Funds Trust, 111 Center Street, Little Rock, Arkansas 72201, Attention: Richard H. Blank, Jr., Secretary; or (c) if to neither of the foregoing, at such other address as shall have been notified to the sender of any such Notice or other communication. Notice shall be deemed to have been given when actually received by the other party. All postage, cable, telegram, telex and facsimile sending device charges arising from the sending of a Notice hereunder shall be paid by the sender. 30. Further Actions. Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof. 31. Amendments. This Agreement or any party hereof may be changed or waived only by an instrument in writing signed by the party against which enforcement of such change or waiver is sought. 32. Miscellaneous. This Agreement embodies the entire Agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings relating to the subject matter hereof. The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or 23 otherwise affect their construction or effect. This Agreement shall be deemed to be a contract made in New York and governed by New York law. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. 24 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their offices designated below as of the day and year first above written. NATIONS FUNDS TRUST By: /s/ A. Max Walker ATTEST: /s/ Richard H. Blank ----------------------------- ------------------------------ A. Max Walker Secretary President and Chairman of the Board of Trustees BANK OF AMERICA, N. A. ATTEST: /s/ Edward D. Bedard ------------------------------- Senior Vice President By: /s/ Edward D. Bedard ----------------------------- Name: Edward D. Bedard Title: Senior Vice President 25 SCHEDULE A AUTHORIZED PERSONS FOR ORAL AND WRITTEN INSTRUCTIONS Edward D. Bedard Gerald Murphy Tracie Persinger Brian Smith 26 SCHEDULE B OFFICERS OF THE TRUST A. Max Walker President Richard H. Blank, Jr. Treasurer Carolyn Wyse Assistant Treasurer Richard H. Blank, Jr. Secretary Michael W. Nolte Assistant Secretary Carolyn Wyse Assistant Secretary Michael Simons Assistant Secretary 27 SCHEDULE C FEE SCHEDULE Each Portfolio of the Trust shall pay the Custodian the following annual fees: 1. 1.25% of 1.00% of the average daily net assets of each Fund; 2. $10.00 per Repurchase Collateral movement; and 3. $15.00 per Purchase, Sale and Maturity transaction This fee will be paid monthly, based upon the average daily net assets of each Fund. 28 SCHEDULE I The Custody Agreement between the Trust and the Custodian applies to the following portfolios of the Trust: Nations LifeGoal Growth Portfolio Nations LifeGoal Balanced Growth Portfolio Nations LifeGoal Income and Growth Portfolio 29 EX-99.23(H)(1) 9 ex99-23h1_87612.txt CO-ADMINISTRATION CO-ADMINISTRATION AGREEMENT NATIONS FUNDS TRUST This CO-ADMINISTRATION AGREEMENT (the "Agreement") is made as of February 14, 2000 by and among STEPHENS INC. ("Stephens"), BANC OF AMERICA ADVISORS, INC. ("BAAI") and NATIONS FUNDS TRUST (the "Trust"). WHEREAS, the Trust is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Trust desires to retain Stephens and BAAI to render certain administrative services for the investment portfolios of the Trust listed on Schedule I (individually, a "Fund" and collectively, the "Funds"), and Stephens and BAAI are willing to render such services. NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed among the parties hereto as follows: 1. Appointment. ----------- (a) The Trust hereby appoints Stephens to act as Co-Administrator of the Funds and Stephens hereby accepts such appointment and agrees to render such services and duties set forth in Paragraph 3, for the compensation and on the terms herein provided. Absent written notification to the contrary by the Trust, BAAI or Stephens, each new investment portfolio established in the future by the Trust shall automatically become a "Fund" for all purposes hereunder as if listed on Schedule I. (b) The Trust also hereby appoints BAAI to act as Co-Administrator of the Funds, and BAAI hereby accepts such appointment and agrees to render such services and duties set forth in Paragraph 4, for the compensation and on the terms herein provided. Absent written notification to the contrary by either the Trust or BAAI, each new investment portfolio established in the future by the Trust shall automatically become a "Fund" for all purposes hereunder as if listed on Schedule I. 2. Delivery of Documents. The Trust has furnished Stephens and BAAI with copies properly certified or authenticated of each of the following: (a) The Trust's registration statement on Form N-1A (the "Registration Statement") under the Securities Act of 1933, as amended, and under the 1940 Act (File Nos. 333-89661 and 811-09645), as filed with the Securities and Exchange Commission (the "SEC") relating to the Funds' shares of beneficial interest (the "Shares"); (b) The Funds' most recent prospectus(es); and (c) The Funds' most recent statement(s) of additional information. 1 The Trust will furnish Stephens and BAAI from time to time with copies, properly certified or authenticated, of all amendments of or supplements to the foregoing. Furthermore, the Trust will provide Stephens and BAAI with any other documents that Stephens and BAAI may reasonably request and will notify Stephens and BAAI as soon as possible of any matter materially affecting either Stephens' or BAAI's performance of its services under this Agreement. 3. Duties as Co-Administrator. Subject to the supervision and direction of the Board of Trustees of the Trust, Stephens, as Co-Administrator, will assist in supervising various aspects of the Trust's administrative operations and undertakes to perform the following specific services from and after the effective date of this Agreement: (a) Maintaining office facilities for the Trust (which may be in the offices of Stephens or a corporate affiliate); (b) Furnishing clerical services, internal executive and administrative services and stationery and office supplies in connection with the foregoing; (c) Assist in furnishing statistical and research data and data processing services in connection with the foregoing; (d) Furnishing corporate secretarial services, including assisting in the coordination of the preparation and distribution of materials for Board of Trustees meetings; (e) Providing the services of certain persons who may be appointed as officers of the Trust by the Trust's Board of Trustees; (f) Assist in coordinating the provision of legal advice and counsel to the Trust with respect to regulatory matters, including monitoring regulatory and legislative developments which may affect the Trust and assisting in the strategic response to such developments, counseling and assisting the Trust in routine regulatory examinations or investigations of the Trust, and working closely with outside counsel to the Trust in connection with any litigation in which the Trust is involved; (g) Assist in coordinating the preparation of reports to the Trust's shareholders of record and the SEC including, but not necessarily limited to, annual reports and semi-annual reports to shareholders and on Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; (h) Coordinating with the Trust regarding the jurisdictions in which the Shares shall be registered or qualified for sale and, in connection therewith, being responsible for the registration or qualification and the maintenance of such registration or qualification of Shares for sale under the securities laws of any state. Payment of share registration fees and any fees for qualifying or continuing the qualification of the Trust or any Fund as a dealer or broker shall be made or reimbursed by the Trust or that Fund, respectively; 2 (i) Assisting in the preparation and filing on a timely basis of various reports, registration statements and post-effective amendments thereto, and other documents required by federal, state and other applicable laws and regulations, other than those filed or required to be filed by BAAI or the Funds' sub-advisers, transfer agent, sub-transfer agent or custodian; (j) Performing certain compliance procedures for the Trust which will include, among other matters, monitoring compliance with personal trading guidelines by the Trust's Board of Trustees; and (k) Generally assisting in all aspects of the Trust's operations. In performing all services under this Agreement, Stephens shall (i) act in conformity with: the Trust's Declaration of Trust, the 1940 Act and the rules thereunder, and other applicable laws and regulations, as the same may be amended from time to time, and the Trust's Registration Statement, as such Registration Statement may be amended from time to time; (ii) consult and coordinate with the Trust, as necessary and appropriate; and (iii) advise and report to the Trust, as necessary or appropriate, with respect to any compliance matters that come to its attention. In performing its services under this Agreement, Stephens shall cooperate and coordinate with BAAI as necessary and appropriate and shall provide such information as is reasonably necessary or appropriate for BAAI to perform its responsibilities to the Trust. 4. Duties as Co-Administrator. Subject to the supervision and direction of the Board of Trustees of the Trust, BAAI, as Co-Administrator, will assist in supervising various aspects of the Trust's administrative operations and undertakes to perform the following specific services, from and after the effective date of this Agreement: (a) Providing accounting and bookkeeping services (including the maintenance for the periods prescribed by Rule 31a-2 under the 1940 Act of such accounts, books and records of the Trust as may be required by Section 31(a) of the 1940 Act and the rules thereunder). BAAI further agrees that all such records which it maintains for the Trust are the property of the Trust and further agrees to surrender promptly to the Trust any of such records upon the Trust's request; (b) Valuing each Fund's assets and calculating the net asset value and the net income of the shares of each Fund in accordance with the Trust's current prospectus(es), applicable pricing procedures and votes of the Trust's Board of Trustees, provided, that in performing such services, BAAI shall obtain security market quotes from independent pricing services, or if such quotes are unavailable, obtain such prices from the Funds' sub-advisers; (c) Accumulating information for reports to the Trust's shareholders of record and the SEC including, but not necessarily limited to, annual reports and semi-annual reports to shareholders and on Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; 3 (d) Preparing and filing on a timely basis the Trust's tax returns and other tax filings; (e) Monitoring the development and implementation of certain compliance procedures for the Trust including, but not limited to, monitoring (i) each Fund's status as a regulated investment company under Sub-Chapter M of the Internal Revenue Code of 1986, as amended, including performing, on a monthly basis and based upon information provided by the Fund's sub-advisers, the 90% gross income and asset diversification tests derived from such Sub-Chapter; and (ii) compliance by each Fund with its investment objective, policies and restrictions, and applicable laws and regulations; (f) Preparing and furnishing to the Trust monthly broker security transaction summaries and monthly security transaction listings and (at the Trust's request) performance information (including yield and total return information) calculated in accordance with applicable U.S. securities laws and reporting to external databases such information as may reasonably be requested; (g) Assisting the Trust and its agents in their accumulation and preparation of materials for the Board of Trustees' meetings and for regulatory examinations and inspections of the Trust, to the extent such materials relate to the services being performed for the Trust by BAAI; and (h) Coordinate the provisions of services to the Trust by other service providers to the Trust, including the transfer agent, sub-transfer agent and custodian. In performing all services under this Agreement, BAAI shall (i) act in conformity with the Trust's Declaration of Trust, the 1940 Act and the rules thereunder, and other applicable laws and regulations, as the same may be amended from time to time, and the Trust's Registration Statement, as such Registration Statement may be amended from time to time; (ii) consult and coordinate with the Trust, as necessary and appropriate; and (iii) advise and report to the Trust, as necessary or appropriate, with respect to any compliance matters that come to its attention. In connection with its duties under this Paragraph 4, it is understood and agreed that BAAI may, at its own expense, enter into sub-administration agreements with other service providers and the Fund(s), provided that each such service provider agrees with BAAI and the Fund(s) to comply with all relevant provisions of the 1940 Act and applicable rules and regulations thereunder. In addition, upon notice to the Board of Trustees of the Trust, the parties agree that BAAI may from time to time assume some or all of Stephens' duties set forth in Paragraph 3 above. In performing its responsibilities under this Agreement, BAAI shall cooperate and coordinate with Stephens as necessary and appropriate and shall provide such information within its possession or control as is reasonably necessary or appropriate to Stephens to enable it to perform its responsibilities to the Trust. 4 5. Compensation. ----------------- (a) Stephens shall bear all expenses in connection with the performance of its services under this Agreement, except those enumerated in Paragraph 5(a)(2) below. (1) Stephens will from time to time employ or associate with such person or persons as Stephens may believe to be particularly suited to assist it in performing services under this Agreement. Such person or persons may be officers and employees of both Stephens and the Trust. The compensation of such person or persons shall be paid by Stephens and no obligation shall be incurred on behalf of the Trust or BAAI in such respect. (2) Stephens shall not be required to pay any of the following expenses incurred by the Trust: investment advisory expenses; costs of printing and mailing stock certificates, prospectuses, reports and notices; interest on borrowed money; brokerage fees and commissions; taxes and fees payable to federal, state and other governmental agencies; fees of Trustees of the Trust who are not affiliated with Stephens; outside auditing expenses; outside legal expenses; fees of any other service provider to the Trust; or other expenses not specified in this Section 5(a) which may be properly payable by the Trust and which are approved by the Trust's President or Treasurer. (3) The Trust will compensate Stephens for its services rendered pursuant to this Agreement in accordance with Schedule A. In addition, the Trust shall reimburse Stephens for certain reasonable out-of-pocket distributions made in connection with fulfilling its obligations under the Agreement. The items eligible for reimbursement are set forth on Schedule A. (b) BAAI shall bear all expenses in connection with the performance of its services under this Agreement, except those enumerated in 5(b)(2) below. (1) BAAI will from time to time employ or associate with such person or persons as BAAI may believe to be particularly suited to assist it in performing services under this Agreement. Such person or persons may be officers and employees of both BAAI and the Trust. The compensation of such person or persons shall be paid by BAAI and no obligation shall be incurred on behalf of the Trust or Stephens in such respect. (2) BAAI shall not be required to pay any of the following expenses incurred by the Trust: investment advisory expenses; costs of printing and mailing stock certificates, prospectuses, reports and notices; interest on borrowed money; brokerage fees and commissions; taxes and fees payable to federal, state and other governmental agencies; fees of Trustees of the Trust who are not affiliated with BAAI; outside auditing expenses; outside legal expenses; fees of independent pricing services utilized by BAAI to value each Fund's assets; fees of any other service provider to the Trust (other than a sub-administrator engaged pursuant to Paragraph 4); or other expenses not specified in this Section 5(b) which may be properly payable by the Trust and which are approved by the Trust's President or Treasurer. 5 (3) The Trust will compensate BAAI for its services rendered pursuant to this Agreement in accordance with Schedule A. In addition, the Trust shall reimburse BAAI for certain reasonable out-of pocket distributions made in connection with fulfilling its obligations under the Agreement. The items eligible for reimbursement are set forth on Schedule A. 6. Limitation of Liability; Indemnification. --------------------------------------------- (a) Stephens shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with the performance of its obligations and duties under this Agreement, except a loss resulting from Stephens' willful misfeasance, bad faith or negligence in the performance of such obligations and duties, or by reason of its reckless disregard thereof. (b) BAAI shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with the performance of its obligations and duties under this Agreement, except a loss resulting from BAAI's willful misfeasance, bad faith or negligence in the performance of such obligations and duties, or by reason of its reckless disregard thereof. (c) The Trust, on behalf of each Fund, will indemnify Stephens and/or BAAI against and hold each harmless from any and all losses, claims, damages, liabilities or expenses (including reasonable counsel fees and expenses) resulting from any claim, demand, action or suit relating to the particular Fund and not resulting from the willful misfeasance, bad faith or negligence of Stephens and/or BAAI in the performance of such obligations and duties or by reason of their reckless disregard thereof. Stephens and/or BAAI will not confess any claim or settle or make any compromise in any instance in which the Trust will be asked to provide indemnification, except with the Trust's prior written consent. Any amounts payable by the Trust under this Section 6(c) shall be satisfied only against the assets of the Fund involved in the claim, demand, action or suit and not against the assets of any other investment portfolio of the Trust. 7. Effective Date; Termination of Agreement. ----------------------------------------- (a) This Agreement shall become effective on the date of its execution. This Agreement shall remain in full force and effect with respect to such Fund(s) unless terminated pursuant to the provisions of Section 7(b). (b) This Agreement may be terminated at any time without payment of any penalty, upon 60 days' written notice, by vote of the Board of Trustees of the Trust, by Stephens or by BAAI. Stephens and BAAI will each cooperate with and assist the Trust, its agents and any successor administrator or administrators in the substitution/conversion process. (c) Sections 6 and 9 shall survive this Agreement's termination. 6 8. Amendments. No provision of this Agreement may be changed, discharged or terminated orally, but only by an instrument in writing signed by the party against which enforcement of the change, discharge or termination is sought. 9. Confidentiality. All books, records, information and data pertaining to the business of the Trust, its prior, present or potential shareholders and BAAI's customers that are exchanged or received pursuant to the performance of Stephens' and/or BAAI's duties under this Agreement shall remain confidential and shall not be disclosed to any other person, except as specifically authorized by the Trust or as may be required by law, and shall not be used for any purpose other than performance of Stephens' and BAAI's responsibilities and duties hereunder. 10. Service to Other Companies or Accounts. The Trust acknowledges that both Stephens and BAAI now act, will continue to act and may act in the future as investment adviser to fiduciary and other managed accounts, and as investment adviser, investment sub-adviser and/or administrator to other investment companies or series of investment companies, and the Trust has no objection to either Stephens or BAAI so acting. The Trust further acknowledges that the persons employed by both Stephens and BAAI to assist in the performance of their duties under this Agreement may not devote their full time to such service and nothing contained in this Agreement shall be deemed to limit or restrict the right of Stephens or BAAI or any affiliate of either to engage in and devote time and attention to other businesses or to render services of whatever kind or nature. 11. Miscellaneous. ------------------ (a) Any notice or other instrument authorized or required by this Agreement to be given in writing to the Trust, Stephens or BAAI shall be sufficiently given if addressed to that party and received by it at its office set forth below or at such other place as it may from time to time designate in writing. To the Trust: Nations Funds Trust 111 Center Street, Suite 3000 Little Rock, Arkansas 72201 Attention: Secretary To Stephens: Stephens Inc. 111 Center Street, Suite 3000 Little Rock, Arkansas 72201 Attention: Richard H. Blank, Jr. 7 To BAAI: Banc of America Advisors, Inc. One Bank of America Plaza 33rd Floor Charlotte, NC 28255 Attention: Edward D. Bedard (b) This Agreement shall extend to and shall be binding upon the parties hereto and their respective successors and assigns; provided, however, that this Agreement shall not be assignable without the written consent of the other parties. (c) This Agreement shall be construed in accordance with the laws of the State of Delaware. (d) This Agreement may be executed in any number of counterparts each of which shall be deemed to be an original and which collectively shall be deemed to constitute only one instrument. (e) The captions of this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. (f) This Agreement constitutes the entire agreement between the parties hereto with respect to the matters described herein. 8 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed and delivered by their duly authorized officers as of the date first written above. STEPHENS INC. By: /s/ Richard H. Blank, Jr. ---------------------------- Richard H. Blank, Jr. Senior Vice President BANC OF AMERICA ADVISORS, INC. By: /s/ Edward D. Bedard ---------------------------- Edward D. Bedard Senior Vice President and Chief Operating Officer NATIONS FUNDS TRUST By: /s/ Carolyn Wyse ---------------------------- Carolyn Wyse Assistant Secretary 9 SCHEDULE I 1. Nations High Yield Bond Fund 2. Nations Kansas Municipal Income Fund 3. Nations Marsico 21st Century Fund 4. Nations Marsico International Opportunities Fund 5. Nations MidCap Index Fund 6. Nations Financial Services Fund 7. Nations Classic Value Fund 8. Nations Global Value Fund 7. Nations Asset Allocation Fund 8. Nations Government Securities Fund 9. Nations Marsico Focused Equities Fund 10. Nations Marsico Growth & Income Fund 11. Nations LifeGoal Growth Portfolio 12. Nations LifeGoal Balanced Growth Portfolio 13. Nations LifeGoal Income and Growth Portfolio Approved: December 9, 1999 Last Amended: June 8, 2001 I-1 IN WITNESS WHEREOF, the parties hereto have caused this amended Schedule I to be executed by their officers designated below as of the 8th day of June, 2001. STEPHENS INC. By: /s/ Richard H. Blank, Jr. ---------------------------- Richard H. Blank, Jr. Senior Vice President BANC OF AMERICA ADVISORS, LLC, (Formerly Banc of America Advisors, Inc.) By: /s/ Edward D. Bedard --------------------------- Edward D. Bedard Senior Vice President and Chief Operating Officer NATIONS FUNDS TRUST on behalf of the Funds By: /s/ Carolyn Wyse --------------------------- Carolyn Wyse Assistant Secretary I-2 SCHEDULE A For services rendered pursuant to this Agreement, the Trust will pay Stephens and BAAI, in the aggregate, an administration fee, computed daily and payable monthly, based on annual rate of each Fund's daily net assets as follows: 1. Money Market Funds: 0.10% 2. Fixed Income Funds (except Nations High Yield Bond 0.22% Fund): 3. Nations High Yield Bond Fund: 0.18% 4. International Funds (except Nations Marsico 0.22% International Opportunities Fund): 5. Nations Marsico International Opportunities Fund: 0.12% 6. Domestic Equity Funds (except Nations Marsico 21st 0.23% Century Fund, Nations Marsico Focused Equities Fund and Nations Marsico Growth & Income Fund): 7. Nations Marsico 21st Century Fund: 0.13% 8. Nations Marsico Focused Equities Fund and 0.13% Nations Marsico Growth & Income Fund: It is understood and agreed among the parties that the aggregate administration fee payable hereunder shall be divided by and between Stephens and BAAI, as they may agree from time to time. In addition to the asset-based fee set forth above, the Trust shall reimburse Stephens, BAAI and any sub-administrator engaged pursuant to Paragraph 4 for certain reasonable out-of-pocket expenses incurred by them in connection with the performance of their respective duties hereunder. Reimbursable out-of-pocket expenses shall include the following: reasonable costs associated with postage (including overnight services), telephone, telecommunications (including facsimiles), duplicating, pricing services, and forms and supplies. A-1 EX-99.23(H)(2) 10 ex99-23h2_87612.txt SUB-ADMINISTRATION SUB-ADMINISTRATION AGREEMENT NATIONS FUNDS TRUST This SUB-ADMINISTRATION AGREEMENT (the "Agreement") is made as of February 14, 2000 by and among THE BANK OF NEW YORK ("BNY"), BANC OF AMERICA ADVISORS, INC. ("BAAI") and NATIONS FUNDS TRUST (the "Trust"). WHEREAS, the Trust is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); WHEREAS, BAAI serves as the Co-Administrator for the investment portfolios of the Trust pursuant to a separate Co-Administration Agreement; and WHEREAS, BAAI desires to retain BNY to render certain sub-administrative services to the Trust and to BAAI, as Co-Administrator of the Trust, and BNY is willing to render such services. NOW, THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed among the parties hereto as follows: 1. Appointment and Duties as Sub-Administrator. ------------------------------------------- (a) BAAI hereby appoints BNY to act as Sub-Administrator of the Trust and to render sub-administrative services for each portfolio of the Trust listed on Schedule I (individually, a "Fund" and collectively, the "Funds") and BNY hereby accepts such appointment and agrees to render the services and duties set forth in Schedule II as it may be amended from time to time, for the compensation and on the terms herein provided. Each new investment portfolio established in the future by the Trust or BAAI will become a "Fund" for all purposes hereunder when BNY receives a revised Schedule I from BAAI or the Trust that includes such new portfolio. (b) Subject to the other provisions of this Section 1, in performing all services under this Agreement, BNY shall (i) act in conformity with the Trust's Declaration of Trust, the 1940 Act and the rules thereunder, including but not limited to Rules 31a-1 to 31a-3, and other applicable laws and regulations, as the same may be amended from time to time, and the Trust's Registration Statement (defined below) as such Registration Statement may be amended from time to time; (ii) consult and coordinate with BAAI and the Trust, as necessary and appropriate; and (iii) advise and report to BAAI and the Trust, as necessary or appropriate, with respect to any compliance matters that come to its attention. In performing all services under this Agreement BNY shall meet the minimum quality of service standards set forth on Schedule III. (c) The Trust has furnished BNY and BAAI with copies properly certified or authenticated of each of the following: (i) the Trust's Declaration of Trust or other organizational document and all amendments thereto (the "Declaration"); (ii) votes of the Trust's 1 Board of Trustees or other governing body (the "Board") authorizing the execution, delivery and performance of this Agreement by the Trust; (iii) the Trust's Registration Statement on Form N-1A (the "Registration Statement") under the Securities Act of 1933, as amended, and under the 1940 Act (File Nos. 333-89661 and 881-09645), as filed with the Securities and Exchange Commission (the "SEC") relating to the Funds' shares of beneficial interest (the "Shares"); (iv) the Funds' current prospectus(es); (v) the Funds' current statement(s) of additional information; and (v) the pricing procedures applicable to the calculation of the Funds' net asset values as approved by the Trust's Board (the "Pricing Procedures"). It is solely the Trust's responsibility to furnish BNY from time to time with copies, properly certified or authenticated, of all amendments of or supplements to the foregoing, and BNY will not be held to have knowledge of any such amendments or supplements until the same are actually received by BNY. Furthermore, the Trust will provide BNY with any other documents that BNY and BAAI may reasonably request and will notify BNY and BAAI as soon as possible of any matter materially affecting either BNY's or BAAI's performance of its services under this Agreement. (d) Subject to the direction and approval of the Trust's Board and appropriate officers and the provisions of this Agreement, BNY shall provide to each Fund the administrative services set forth on Schedule II attached hereto. In performing such services hereunder, BNY shall provide, at its expense, office space, facilities, equipment and personnel. BNY shall not provide any services relating to the management, investment advisory or sub-advisory functions of any Fund, distribution of shares of any Fund, maintenance of any Fund's financial records (except as otherwise agreed by the parties) or any services normally performed by the Funds' counsel or independent accountants. Upon receipt of the Trust's prior written consent, BNY may delegate any of its duties and obligations hereunder to any delegee or agent whenever and on such terms and conditions as it deems necessary or appropriate. Unless expressly agreed in writing, BNY shall not be relieved of liability or responsibility for the performance of any duties or obligations delegated to a delegee or agent, provided that BNY shall have no liability for duties or obligations that are delegated to a delegee or agent at the instruction of the Trust or BAAI. The Trust and BAAI shall cause their respective officers, and shall use reasonable efforts to cause the Trust's or BAAI's legal counsel, independent accountants, and transfer agent to cooperate with BNY and to provide BNY, upon BNY's reasonable written request, such information, documents and advice relating to such Fund as is within the possession or knowledge of such persons, in order to enable BNY to perform its duties hereunder. Such cooperation or provision of information, documents or advice shall be at no cost to BNY, provided BNY's request is reasonable and BAAI shall have been notified of the request. In connection with its duties hereunder, BNY shall be entitled to reasonably rely upon any documents relating to a Fund provided to BNY by any of the aforementioned persons. BNY may apply to the Trust or BAAI for written instructions with respect to any matter arising in connection with BNY's performance hereunder. If, after a reasonable period of time, BNY receives no response to any such application, BNY may then notify the Trust or BAAI of reasonable action that BNY shall take if written instructions are not received within a stated period of time after such notice, and then BNY shall not be liable for taking such reasonable action as if written instructions had been provided. BNY is entitled to reasonably rely and act in accordance with written instructions believed to have been given by authorized persons and shall incur no costs for such reasonable reliance. BNY shall have no duties or responsibilities 2 whatsoever except such duties and responsibilities as are specifically set forth in this Agreement and Schedule II hereto, and no covenant or obligation shall be implied against BNY in connection with this Agreement. (e) The Trust and BAAI, for itself and not for the others, hereby represents and warrants to BNY, which representations and warranties shall be deemed to be continuing, that: (i) it is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder; (ii) this Agreement has been duly authorized, executed and delivered by it in accordance with all requisite action and constitutes a valid and legally binding obligation, enforceable in accordance with its terms; (iii) it is conducting its business substantially in compliance with all applicable laws and regulations, both state and federal, and has obtained all regulatory licenses, approvals and consents necessary to carry on its business as now conducted; (iv) there is no statute, regulation, rule, order or judgment binding on it and no provision of its Declaration, nor of any mortgage, indenture, credit agreement or other contract binding on it or affecting its property which would prohibit its execution or performance of this Agreement; and (v) the Trust and BAAI will use reasonable efforts to promptly notify BNY of any errors or omissions contained in any reports, calculations, valuations and other items of information, provided that any failure by the Trust or BAAI to detect any such errors or omissions shall not relieve BNY of any resulting liability therefrom. To the extent that BAAI has actual knowledge of any such error or omission and fails to use reasonable efforts to promptly notify BNY, BNY shall be relieved of any liability that BNY may have mitigated had BAAI provided notice of such error or omission to BNY. (f) BNY hereby represents and warrants to the Trust and BAAI, which representations and warranties shall be deemed to be continuing, that: (i) it is duly organized and existing under the laws of the jurisdiction of its organization, with full power to carry on its business as now conducted, to enter into this Agreement and to perform its obligations hereunder; (ii) this Agreement has been duly authorized, executed and delivered by it in accordance with all requisite action and constitutes a valid and legally binding obligation, enforceable in accordance with its terms; and (iii) it is conducting its business substantially in compliance with all applicable laws and regulations, both state and federal, and has obtained all regulatory licenses, approvals and consents necessary to carry on its business as now conducted; there is no statute, regulation, rule, order or judgment binding on it and no provision of its Charter, nor of any mortgage, indenture, credit agreement or other contract binding on it or affecting its property which would prohibit its execution or performance of this Agreement. 2. Compensation. For the services to be rendered, the facilities to be furnished and the compensation and other expenses to be borne by BNY, as provided for in this Agreement, BNY shall be entitled to receive a monthly fee from BAAI and reimbursement for out-of-pocket expenses as set forth in Schedule IV to this Agreement. It is understood that BAAI shall be responsible for BNY's monthly fee for its services hereunder, and BNY agrees that it shall have no claim against the Trust or the Funds with respect to compensation under this Agreement. 3. Recordkeeping. BNY shall, as agent for the Trust, and subject to the direction and approval of the Trust's Board and the provisions of this Agreement, maintain and keep current 3 the books, accounts and other documents, if any, pursuant to the services and duties provided by BNY as set forth in Schedule II of this Agreement, and preserve any such books, accounts and other documents in accordance with the applicable provisions of Rule 31a-2 of the 1940 Act. Such books, accounts and other documents shall be made available upon reasonable request for inspection by officers, employees and auditors of the Trust and BAAI during BNY's normal business hours. All records maintained and preserved by BNY pursuant to this Agreement which the Trust is required to maintain and preserve in accordance with Rule 31a-2 of the 1940 Act shall be and remain the property of the Trust and shall be surrendered to the Trust promptly upon request in the form in which such records have been maintained and preserved. Upon reasonable request of the Trust, BNY shall provide in data files or hard copy, whichever the Trust shall reasonably elect, any records included in any such delivery which are maintained by BNY on a computer disc, or are similarly maintained, and the Trust shall reimburse BNY for its expenses of providing such hard copy. 4. Standard of Care; Indemnification. --------------------------------- (a) BNY shall at all times act in good faith and agrees to use its best efforts to fulfill its obligations under this Agreement, but assumes no responsibility for loss or damage to the Trust unless such loss or damage is caused by BNY's own negligence, bad faith or willful misconduct or that of its directors, officers or employees. BNY shall be responsible hereunder for all direct damages resulting from its own negligence, bad faith or willful misconduct, provided however that it shall not be responsible for lost profits or lost business arising under or in connection with this Agreement. It is understood and agreed that for purposes of this Section 4(a), "direct damages" shall include, but shall not be limited to, all legal costs, penalties, reimbursement for excess distribution and redemption payments, repurchasing costs for servicing agents and reimbursement to the Funds for net asset value breaks (as calculated under the Pricing Procedures). (b) The Trust, on behalf of each Fund, will indemnify BNY against and hold it harmless from any and all losses, claims, damages, liabilities or expenses (including reasonable counsel fees and expenses of a defense against any claim, demand, action or suit), relating to the particular Fund and arising from any one or more of the following: (i) errors in records or instructions, explanations, information, specifications or documentation of any kind, as the case may be, supplied to BNY by any person described in Section 1 hereof or by any third party described in Section 5; (ii) action or inaction taken or omitted to be taken by BNY pursuant to written or oral instructions described in this Agreement (or otherwise without bad faith, negligence or willful misconduct); (iii) any action taken or omitted to be taken by BNY in good faith in accordance with the advice or opinion of counsel for a Fund, the Trust, BAAI (obtained in accordance with the procedures set forth in this Agreement) or its own counsel; (iv) any improper use by the Fund, the Trust, BAAI or their respective agents, of any valuations or computations supplied by BNY pursuant to this Agreement; (v) the method of valuation of the securities and the method of computing a Fund's net asset value or any other amount computed by BNY hereunder, provided BNY has followed the Pricing Procedures; and (vi) any valuation of securities, net asset value or other amount provided by a Fund or BAAI. BNY will not confess any claim or settle or make any compromise in any instance in which the Trust will be asked to provide indemnification, except with the Trust's prior written consent. Any amounts payable by 4 the Trust under this Section 4(b) shall be satisfied only against the assets of the Fund involved in the claim, demand, action or suit and not against the assets of any other investment portfolio of the Trust. 5. Fund Accounting Services. ------------------------ (a) BNY, in performing the services required of it under the terms of this Agreement, shall be entitled to rely fully on the accuracy and validity of any and all instructions, explanations, information, specifications and documentation furnished to it by a Fund and shall have no duty or obligation to review the accuracy, validity or propriety of such instructions, explanations, information, specifications or documentation, including, without limitation, evaluations of securities; the amounts or formula for calculating the amounts and times of accrual of Fund's liabilities and expenses; the amounts receivable and the amounts payable on the sale or purchase of securities; and amounts receivable or amounts payable for the sale or redemption of Fund shares effected by or on behalf of the Fund. In the event BNY's computations hereunder rely, in whole or in part, upon information, including, without limitation, bid, offer or market values of securities or other assets, or accruals of interest or earnings thereon, from a pricing or similar service utilized, or subscribed to, by BNY which BNY in its judgment deems reliable, or any other third party pricing source designated by the Trust, BNY shall not be responsible for, under any duty to inquire into, or deemed to make any assurances with respect to, the accuracy or completeness of such information. BNY shall not be required to inquire into any valuation of securities or other assets by the Fund or any third party described in this Section, even though BNY in performing services similar to the services provided pursuant to this Agreement for others may receive different valuations of the same or different securities of the same issuers. (b) Subject to the provisions of this Agreement and the direction and approval of the Trust's Board, BNY shall perform the computations described in Schedule II at such times and dates and in the manner specified or described in the then-current prospectus(es) of a Fund. To the extent valuation of securities or a computation specified or described in a Fund's Pricing Procedures or then-current effective prospectus(es) is at any time inconsistent with any applicable laws or regulations, the Trust or BAAI shall immediately so notify BNY in writing and thereafter shall furnish BNY at all appropriate times with the values of such securities and such Fund's net asset value or other amounts otherwise to be calculated by BNY, or, subject to the prior approval of BNY, instruct BNY in writing to value securities and make such computations in a manner which the Trust or BAAI then represents in writing to be consistent with all applicable laws and regulations. The Trust or BAAI may also from time to time, subject to the prior approval of BNY, instruct BNY in writing to make computations other than as specified in this Section of this Agreement. By giving such instruction, the Trust or BAAI shall be deemed to have represented that such instruction is consistent with all applicable laws and regulations and the then-current effective prospectus(es) of the particular Fund. The Trust or BAAI shall have sole responsibility for determining the method of valuation of securities and the method of computations, and all computations, valuation of securities and the method of computing each Fund's net asset value shall be subject to approval by the Trust and BAAI. BNY shall not be liable for relying on any price provided by any pricing service believed by BNY to be reliable, and the Trust or BAAI shall furnish values when the same are not available from a 5 pricing service utilized by BNY, with such furnishing to constitute an instruction to BNY to rely on the provided values. (c) BNY shall be responsible for determining and properly reflecting in the computations made by it under this Agreement: (i) the taxable nature of any distribution or amount received or deemed received by, or payable to, a Fund; (ii) the taxable nature or effect on a Fund or its shareholders of any corporate actions, class actions, tax reclaims, tax refunds, or similar events; (iii) the taxable nature or taxable amount of any distribution or dividend paid, payable or deemed paid, by a Fund to its shareholders; (iv) the effect under any federal, state, or foreign income tax laws of a Fund making or not making any distribution or dividend payment, or any election with respect thereto; or (v) any tax accounting; provided, however, that if BNY is not certain of the taxable nature, amount or effect of any such item, it may seek instructions regarding the proper treatment of such item from the Trust or BAAI in accordance with theprocedures set forth in Section 1(e), above, and shall have no liability for acting in reliance on such instructions. 6. Termination of Agreement. ------------------------ (a) This Agreement shall become effective as of the date first set forth above and shall remain in full force and effect unless terminated pursuant to the provisions of Section 6(b). (b) This Agreement may be terminated at any time without payment of any penalty, upon 60 days' written notice to BNY, by BAAI or by vote of the Board of the Trust, or upon 180 days' written notice to BAAI and the Trust, by BNY. Upon any such termination, BNY will cooperate with and assist the Trust, BAAI, their agents and any successor administrator(s) or sub-administrator(s) in the substitution/conversion process. In connection with any termination of this Agreement, unless BNY is in breach of this Agreement, the Funds and BAAI agree to pay BNY any compensation and reimbursement for out-of-pocket expenses as may then be due and payable, as well as agreed-upon out-of-pocket expenses incurred in connection with a termination. If BNY is in breach of this Agreement, the Funds and BAAI may offset any compensation or reimbursement amounts owed to BNY by the amount of damages, costs and expenses incurred as a result of BNY's breach, including costs, expenses and reasonable incremental fees for a period not to exceed one year incurred in connection with a conversion by the Trust and BAAI to a successor service provider. In the event of a dispute as to the amount of such damages, the Funds and BAAI agree to escrow the set-off amount. (c) Sections 4 and 8 shall survive this Agreement's termination. 7. Amendments. Except as expressly provided in the first paragraph of Section 1, no provision of this Agreement may be amended or modified orally, but only by an instrument in writing signed by the party against which enforcement of the amendment or modification is sought. 8. Confidentiality. All books, records, information and data pertaining to the business of the Trust, or its prior, present or potential shareholders that are exchanged or received in connection with the performance of BNY's duties under this Agreement shall remain 6 confidential and shall not be disclosed to any other person, except as specifically authorized by the Trust or as may berequired by law, and shall not be used for any purpose other than performance of its responsibilities and duties hereunder, and except that BNY retains the right to disclose matters subject to confidentiality to its examiners, regulators, internal or external auditors, its accountants, its internal and external counsel, and to any other entity whenever it is advised by its internal or external counsel that it is reasonably likely that BNY would be liable for afailure to do so. BNY will endeavor to provide written notice to the Trust and BAAI at least five business days prior to any disclosures pursuant to this Section 8, but, provided it shall have provided as much notice as is reasonablypracticable under the circumstances, BNY shall have no liability for any failure to do so. 9. Service to Other Companies. The Trust and BAAI acknowledge that BNY now provides, will continue to provide and may in the future provide administrative or other services to other investment companies or series of investment companies, and the Trust and BAAI have no objection to BNY so doing. The Trust and BAAI further acknowledge that the persons employed by BNY to assist in the performance of BNY's duties under this Agreement may not devote their full time to such service and nothing contained in this Agreement shall be deemed to limit or restrict the right of BNY or any affiliate of BNY to engage in and devote time and attention to other businesses or to render services of whatever kind or nature. 10. Miscellaneous. ------------- (a) This Agreement shall be construed in accordance with the laws of the State of New York, without regard to conflict of laws principles thereof. Each Fund, the Trust and BAAI hereby consent to the jurisdiction of a state or federal court situated in New York City, New York in connection with any dispute arising hereunder. To the extent that in any such jurisdiction any of the aforementioned persons may now or hereafter be entitled to claim, for itself or its assets, immunity from suit, execution, attachment (before or after judgment) or other legal process, each irrevocably agrees not to claim, and it hereby waives, such immunity. (b) In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations shall not in any way be affected or impaired thereby, and if any provision is inapplicable to any person or circumstances, it shall nevertheless remain applicable to all other persons and circumstances. (c) Each and every right granted to BNY, the Trust or BAAI hereunder or under any other document delivered hereunder or in connection herewith, or allowed it by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of BNY, the Trust or BAAI to exercise, and no delay in exercising, any right will operate as a waiver thereof, nor will any single or partial exercise by BNY, the Trust or BAAI of any right preclude any other or future exercise thereof or the exercise of any other right. (d) BNY shall not be responsible for delays or errors that occur by reason of circumstances beyond its reasonable control in the performance of its duties under this Agreement, provided that reasonable back-up and disaster recovery systems are in place, 7 including, without limitation, labor difficulties, mechanical breakdowns, computer breakdowns or malfunctions (hardware or software), flood or catastrophe, acts of God, failures of transportation, communication or power supply, or other similar circumstances. Nor shall BNY be responsible for delays or failures to supply the information or services specified in this Agreement where such delays or failures are caused by the failure of any person(s) other than BNY to supply any instructions, explanations, information, specifications or documentation deemed necessary by BNY in the performance of its duties under this Agreement. (e) Any notice or other instrument authorized or required by this Agreement to be given in writing to the Trust, BNY and/or BAAI shall be sufficiently given if addressed to that party and received by it at its office set forth below or at such other place as it may from time to time designate in writing. To the Trust: Nations Funds Trust 111 Center Street Little Rock, Arkansas 72201 Attention: Richard H. Blank, Jr. To BAAI: Banc of America Advisors, Inc. One Bank of America Plaza 101 South Tryon Street, NC1-002-33-31 Charlotte, NC 28255-0001 Attention: Edward D. Bedard To BNY: The Bank of New York 90 Washington Street 22nd Floor New York, NY 10286 Attention: Stephen E. Grunston (f) This Agreement shall extend to and shall be binding upon the parties hereto and their respective successors and assigns; provided, however, that this Agreement may not be assigned by BNY, nor may BNY delegate responsibility for the performance of any of its duties hereunder, without the written consent of the other parties hereto. (g) This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and which collectively shall be deemed to constitute only one instrument. 8 (h) The captions of this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. (i) This Agreement constitutes the entire agreement between the parties hereto with respect to the provision by BNY of sub-administrative services and the receipt of fees therefor, and supersedes all prior arrangements or understandings, written or oral, with respect to the provision by BNY of such services and the receipt of fees therefor. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed and delivered by their duly authorized officers as of the date first written above. THE BANK OF NEW YORK By: /s/ Stephen E. Grunston ----------------------- Stephen E. Grunston Vice President BANC OF AMERICA ADVISORS, INC. By: /s/ Edward D. Bedard -------------------- Edward D. Bedard Senior Vice President and Chief Operating Officer NATIONS FUNDS TRUST By: /s/ James E. Banks, Jr. ----------------------- James E. Banks, Jr. Assistant Secretary 9 SCHEDULE I 1. Nations High Yield Bond Fund 2. Nations Kansas Municipal Income Fund 3. Nations MidCap Index Fund 4. Nations Marsico 21st Century Fund 5. Nations Marsico International Opportunities Fund 6. Nations Financial Services Fund 7. Nations Classic Value Fund 8. Nations Global Value Fund 9. Nations Asset Allocation Fund 10. Nations Government Securities Fund 11. Nations Marsico Focused Equities Fund 12. Nations Marsico Growth & Income Fund 13. Nations LifeGoal Growth Portfolio 14. Nations LifeGoal Balanced Growth Portfolio 15. Nations LifeGoal Income and Growth Portfolio Approved: December 9, 1999 Last Amended: June 8, 2001 I-1 IN WITNESS WHEREOF, the parties hereto have caused this amended Schedule I to be executed by their officers designated below as of the 8th day of June, 2001. THE BANK OF NEW YORK By: /s/ Ira Rosner -------------- Ira Rosner Vice President NATIONS FUNDS TRUST on behalf of the Funds By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Secretary BANC OF AMERICA ADVISORS, LLC (formerly Banc of America Advisors, Inc.) By: /s/ Edward D. Bedard -------------------- Edward D. Bedard Senior Vice President and Chief Operating Officer I-2 SCHEDULE II FUND ADMINISTRATION SERVICES BNY shall perform the following sub-administrative services, in addition to any other services agreed to from time to time: o Monitor and document compliance by the Funds with their policies and restrictions as delineated in their prospectuses and statements of additional information, including any supplements or amendments thereto, and with the rules and regulations under the 1940 Act utilizing Charles River Development's compliance monitoring system or by such other means as the parties may agree. BAAI shall be responsible for communicating such policies and restrictions, including any changes thereto, to BNY by such means as the parties agree. o Provide income attribution summary schedules necessary for year-end tax reporting, including the attached examples. Provide a gross up for foreign taxes on a per share basis and the redesignation of income and capital gains on a per share basis. o Prepare federal, state, excise and local income tax returns for the Funds and file such returns upon the approval of the Funds' independent accountants; monitor, report on and prepare periodic worksheet and tax provision packages with respect to Sub-Chapter M qualifications; prepare and file all Form 1099s with respect to the Funds' Trustees; monitor compliance with Section 4982 of the Internal Revenue Code; calculate and maintain records pertaining to original issue discount and premium amortization as required; identify wash sales and all other book/tax differences, and report results to the Funds' independent accountants and Funds management; and such other duties relating to federal and/or state tax compliance as the parties may agree. BNY shall be responsible for providing all pertinent tax information to the Funds' independent accountants. o Prepare Return of Capital Statement of Position 93-2 adjustments. o Support BAAI in its preparation of the schedules and provide BAAI unaudited quarterly and semi-annual and audited annual financial statements and schedules of Fund investments by providing, without limitation, each Funds' schedule of investments and general ledger in electronic format and/or hard copy, as required, and such other information as may be necessary to complete such financial reports. o Prepare statistical reports for outside information services (referenced in Schedule V), and such other information services as the parties may agree, including the ICI expense survey. o Prepare calculations for capital gains pursuant to IRS rules in conjunction with BAAI and the Funds' independent accountant. o Attend Fund shareholder and Board of Trustees meetings as requested by BAAI, including making such presentations as are appropriate, and, with respect to the Fund administration II-1 services described herein, provide such periodic and special reports to the Trust and BAAI as the Trust and BAAI shall reasonably request. FUND ACCOUNTING SERVICES BNY shall provide all accounting and recordkeeping services necessary and appropriate for the business of the Funds, including but not limited to those set forth below. Required Records; Ledgers and Journals -------------------------------------- BNY shall keep current the following accounts and records relating to the business of the Funds, in such form as is required by the 1940 Act and the rules thereunder, and generally accepted accounting principles, to support all filings under applicable federal and state tax laws and regulations and as may be mutually agreed to among the Trust, BAAI and BNY, and shall make available to BAAI and/or the Trust upon request: 1. Cash Receipts Journal 2. Cash Disbursements Journal 3. Dividends Paid and Payable Schedule (book vs. tax basis) 4. Purchase and Sales Journals - Portfolio Securities 5. Realized/Unrealized Gain (Loss) Reports 6. Subscription and Redemption Journals 7. Security Ledgers - Transaction Report and Tax Lot Holdings Report 8. Broker Ledger - Commission Report 9. Daily Expense Accruals 10. Daily Interest Accruals 11. Daily Trial Balance 12. Portfolio Interest Receivable and Income Journal 13. Portfolio Dividend Receivable and Income Register 14. Listing of Portfolio Holdings - showing cost, market value and percentage of portfolio comprised of each security 15. Aged Receivables (dividends, interest, tax reclaiming) 16. Portfolio Turnover Rate 17. Cash reconciliations 18. Position reconciliations BNY will be responsible for maintaining, in accordance with Section 31 and the rules thereunder of the 1940 Act, all books and records so required and generated in the course of performing their duties under this agreement. Further, at a minimum, BNY shall maintain on-site the above referenced reports as of each month end for the most recent fiscal year-ended and the current fiscal year. II-2 Daily Accounting Services ------------------------- BNY shall perform the following services on each Business Day: 1. Calculate Net Asset Value (NAV), and Public Offering Price (POP) Per Share -------------------------------------------------------------------------- Pursuant to SEC formulas: ------------------------ o Update the valuation of security positions held by each Fund's portfolio in accordance with the Fund's Pricing Procedures and any other appropriate procedures established by the Board and BAAI as BAAI shall provide BNY in writing o When instructed by BAAI, enter manual prices supplied by broker and link to pricing procedures o Calculate each Fund's NAV/POP in accordance with the applicable Pricing Procedures approved by the Trust's Board of Trustees and prepare NAV proof sheet. Review components of change in NAV for reasonableness based on the tolerance levels as BAAI shall direct BNY in writing o Review variance reporting for price changes in individual securities using variance levels established by Fund and report to Fund portfolio managers and to BAAI o Review for ex-dividend items indicated by pricing sources; trace to general ledger for agreement o Communicate required pricing and yield information (NAV/POP), as appropriate, to BAAI, the Funds' transfer agent and sub-transfer agent and, electronically, to NASDAQ and to such other third parties as designated by the Funds with respect to its various distribution channels. In addition, provide Fund share activity to BAAI. 2. Dividend Rates/Yields/Dollar Weighted Average Maturity: ------------------------------------------------------- o Calculate, subject to the approval of BAAI, net investment income available for distribution daily as appropriate o Calculate daily dividend rate, and 1, 7, 30-day yields/SEC yields o Calculate dollar weighted average maturity 3. Determine and Report Cash Availability: -------------------------------------- o Receive daily cash and transaction statements from the Funds' custodian o Complete daily bank cash reconciliations (including documentation of any reconciling items) and notify the Funds' custodian o Report investable cash to BAAI and Fund sub-advisers 4. Daily Expense Accruals: ---------------------- o Accrue individual expenses on a daily basis based on Instructions provided by BAAI, except for those instances where such an adjustment would cause a full penny break in NAV, in which case such adjustment will be included in the calculation of NAV on the day received o If applicable, accrue daily amortization of organization expense as instructed by BAAI II-3 o If applicable, accrue daily Rule 12b-1 Plan expenses o Adjust expense accruals as instructed by BAAI and provide reports as requested by BAAI 5. Verify and Record All Daily Income Accruals for Debt Issues: ---------------------------------------------------------------- o Track income and provide year end tax schedules o Review and verify all interest and amortization reports o Periodic tie-out of receivables o Ensure security masters denote proper interest and amortization methods as per the fund set up sheets as instructed by BAAI 6. Monitor Securities: ------------------ o Review each Fund's portfolio holdings and current day's security trades for dividend activity o Interface with Funds' custodian for timely collection and postings of corporate actions, dividends and interest pre-payments 7. Enter All Security Trades: ------------------------------ o Review verification of trade and interest calculations o Verify settlement through custodian statements o Maintain security ledger transaction reporting o Maintain tax lot holdings o Determine realized gains or losses on security trades o Provide broker commission information 8. Enter All Fund Share Transactions: --------------------------------- o Periodically reconcile dividend payable amounts with the Funds' transfer agent o Process activity identified on transfer agent reports o Verify settlement through custodian statements o Reconcile to transfer agency report balances o Process and track capital stock gain/loss activity 9. Prepare Daily Trial Balance: --------------------------- o Post manual entries to general ledger o Post custodian bank activity o Require automated settled transactions between custody and activity records (prepare, clear and post) o Post shareholder and security transactions o Post and verify income and expense accruals and resolve differences o Prepare general ledger o Post corporate action activity II-4 10. Review and Reconcile Custodian Statements: ----------------------------------------- o Verify all posted interest, dividends, expenses, and shareholder and security payments/receipts, etc. when requested o Post all cash settlement activity to trial balance o Reconcile to ending cash balance accounts o Report to BAAI the status of past due items and failed trades with the custodian o Reconcile cash exception Income items, tax reclaims and past due income items with custody area 11. Preparation of Accounting Reports: --------------------------------- o Price Variance Report o Trial Balance o Portfolio Valuation o NAV Calculation Report o Cash Availability o Change in NAV o Non-standard entries o Stale Price Report o Other such reports as may be reasonably requested by BAAI Monthly/Quarterly Services -------------------------- BNY shall provide the following services on a monthly or quarterly basis, within such timeframe as may be mutually agreed upon by BNY, the Trust and BAAI: 1. Submission of Monthly Accounting Reports as mutually agreed upon 2. Reconcile Asset Listing to Custodian Asset Listing 3. Provide Monthly Analysis and Reconciliation of Trial Balance Accounts 4. Prepare Documentation Supporting the Preparation of: o SEC yield reporting o Income by state reporting o Standard Industry Code Valuation Report (please provide BAAI's industry code classifications/is there a standard for all Funds) o Alternative Minimum Tax Income segregation schedule II-5 5. Provide Upon Request Broker Commission and Net Trade Reports Annual (and Semi-Annual) Accounting Services -------------------------------------------- BNY shall provide the following services on an annual and semi-annual basis: 1. Supply auditors InvestOne reports supporting securities and shareholder transactions, income and expense accruals, etc. during the year in accordance with standard audit assistance requirements 2. Provide BAAI with information to assist BAAI in the preparation of NSAR filings Other Core Services ------------------- BNY shall provide the following services: o Accrete discounts and amortize premiums to put and call events as directed by BAAI and in a manner acceptable under generally accepted accounting principles o Process principal repayments on mortgage backed securities o Update variable securities with current rates o Process corporate action events through a primary vender feed, and monitor results via Reuters, Bloomberg, or other available sources as the parties may agree o Perform automated portfolio pricing with a second vendor as requested by BAAI o Produce documents and respond to inquiries during account and SEC examinations Money Market Funds: Prepare daily mark to market reports and analysis in compliance with Rule 2a-7 including: o Calculating the daily portfolio weighted average maturity o Report portfolio diversification based on trade/security information provided by BAAI by: Country, State, Tier, Liquidity, Asset Backed Securities, Industry, Letter of Credit o Listing percentage of portfolio maturing in specified intervals (i.e., number of days) o Providing issuer and guarantor diversification exception reporting International Funds: BNY shall provide the following services: o Report in base and local currency II-6 o Processing of tax liability on foreign income subject to approval of BAAI o Daily variance analysis performed on FX rates for security position held o Produce automated bifurcation reporting in compliance with IRC Section 988 o Mark to market security receivables and payables on a daily basis o Determine portfolio exposure by country and currency In addition to the above, BNY will provide additional support as agreed upon from time to time (i.e., financial statement production). II-7 Federal Obligation Percentage The following is federal obligation information on the Nations Funds portfolio earnings credited to your account in 1997. This information is provided to enable you to calculate your state tax liability if you live in a state which does not tax income from U.S. government obligations. We recommend that you consult your tax adviser if you have questions regarding the requirements for reporting this information as the requirements vary from state to state. - ---------------------------------------------------------------------------------------------------------------------- Direct and Non- FUND Government Qualifying Total Agency Income(2) Obligations(1) - ---------------------------------------------------------------------------------------------------------------------- Nations Balanced Assets Fund 3.30% 96.70% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Capital Growth Fund 0.00% 100.00% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Cash Reserves 1.26% 98.74% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Disciplined Equity Fund 0.00% 100.00% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Diversified Income Fund 28.86% 71.14% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Emerging Growth Fund 0.00% 100.00% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Equity Income Fund 2.36% 97.64% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Equity Index Fund 0.09% 99.91% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Global Government Income Fund 9.21% 90.79% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Government Money Market Fund 99.78% 0.22% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Government Reserves 31.19% 68.81% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Government Securities Fund 35.09% 64.91% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations International Growth Fund 0.00% 100.00% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations LifeGoal Balanced Growth Portfolio 12.65% 87.35% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations LifeGoal Growth Portfolio 0.10% 99.90% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations LifeGoal Income and Growth Portfolio 16.36% 83.64% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Managed Index Fund 0.33% 99.67% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Managed SmallCap Index Fund 0.00% 100.00% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Managed SmallCap Value Index Fund 0.00% 100.00% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Managed Value Index Fund 0.00% 100.00% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Pacific Growth Fund 1.73% 98.27% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Prime Fund 5.52% 94.48% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Short-Intermediate Government Fund 66.12% 33.88% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Short-Term Income Fund 10.64% 89.36% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Small Company Growth Fund 0.16% 99.84% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Strategic Fixed Income Fund 20.21% 79.79% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Treasury Fund 21.25% 78.75% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Treasury Reserves 17.46% 82.45% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations U.S. Government Bond Fund 90.51% 9.49% 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Value Fund 0.00% 100.00% 100.00% - ----------------------------------------------------------------------------------------------------------------------
(1) "Direct Obligations" include U.S. Treasury bills, notes, and bonds. "Government Agency" covers those non-mortgage related obligations issued by federal agencies including but not limited to, the Student Loan Marketing Association (SLMA), the Federal Farm Credit Bank, the Federal Deposit Insurance Corporation (FDIC), and the Federal Financing Bank. These obligations are backed by the full faith and credit of the U.S. government. II-8 (2) "Non-Qualifying Income" includes earnings derived from repurchase agreements, money market instruments such as agency-issued commercial paper, other regulated investment companies, corporate obligations, and obligations issued by the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA), and the Federal Home Loan Mortgage Corp. (FHLMC). Capital Gains Information For Residents Of South Carolina For each of the Funds, the amount of capital gains distribution which is from assets held two or more years can be determined by multiplying each capital gain distribution from your year-end statement by the appropriate percentages: - --------------------------------------------- --------------------------------- -------------------------------------- FUND May 30, 1997 Distribution November 7, 1997 Distribution ------------------------- ----------------------------- - ---------------------------------------------------------------------------------------------------------------------- Nations Balanced Assets Fund 5.80% 17.51% - ---------------------------------------------------------------------------------------------------------------------- Nations Capital Growth Fund 46.05% 40.53% - ---------------------------------------------------------------------------------------------------------------------- Nations Disciplined Equity Fund 0.00% 22.75% - ---------------------------------------------------------------------------------------------------------------------- Nations Emerging Growth Fund 33.38% 21.24% - ---------------------------------------------------------------------------------------------------------------------- Nations Equity Income Fund 37.09% 51.39% - ---------------------------------------------------------------------------------------------------------------------- Nations Equity Index Fund 8.97% 13.84% - ---------------------------------------------------------------------------------------------------------------------- Nations Georgia Intermediate Municipal Bond - 99.04% Fund - ---------------------------------------------------------------------------------------------------------------------- Nations Global Government Income Fund 0.00% - - ---------------------------------------------------------------------------------------------------------------------- Nations Intermediate Municipal Bond Fund - 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations International Equity Fund - 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations International Growth Fund - 100.00% - ---------------------------------------------------------------------------------------------------------------------- Nations Managed Index Fund 0.00% - - ---------------------------------------------------------------------------------------------------------------------- Nations Municipal Income Fund - 98.42% - ---------------------------------------------------------------------------------------------------------------------- Nations Small Company Growth Fund - 6.12% - ---------------------------------------------------------------------------------------------------------------------- Nations South Carolina Intermediate - 79.38% Municipal Bond Fund - ---------------------------------------------------------------------------------------------------------------------- Nations South Carolina Municipal Bond Fund 93.25% - - ---------------------------------------------------------------------------------------------------------------------- Nations U.S. Government Bond Fund - 46.40% - ---------------------------------------------------------------------------------------------------------------------- Nations Value Fund 61.85% 66.01% - ----------------------------------------------------------------------------------------------------------------------
II-9 Percentage Of Municipal Income By State and Territory Many states do not tax income derived from investments in their own state obligations or in investments subject to agreements between their state and other states. The following chart shows the percentage of income excluding capital gains in the various Nations Funds portfolios derived from investments in municipal obligations. This percentage indicates the amount that may be tax-exempt in your state. Nations Nations Short- Nations Nations Nations Tax- Term Intermediate Municipal Municipal STATE Exempt Municipal Municipal Bond Income Reserves Fund Income Fund Fund Fund - ----------------------------------------------------------------------------------------------------------------------- Alabama 2.50% 0.00% 1.00% 2.93% 3.73% - ----------------------------------------------------------------------------------------------------------------------- Alaska 1.18% 4.04% 2.17% 3.38% 0.45% - ----------------------------------------------------------------------------------------------------------------------- Arizona 5.09% 3.42% 3.11% 1.74% 1.22% - ----------------------------------------------------------------------------------------------------------------------- Arkansas 0.17% 0.00% 0.65% 0.99% 0.23% - ----------------------------------------------------------------------------------------------------------------------- California 2.07% 0.00% 0.70% 2.63% 4.83% - ----------------------------------------------------------------------------------------------------------------------- Colorado 3.59% 0.00% 2.11% 1.15% 3.70% - ----------------------------------------------------------------------------------------------------------------------- Connecticut 0.03% 0.00% 1.24% 1.30% 0.00% - ----------------------------------------------------------------------------------------------------------------------- Delaware 2.61% 0.00% 0.02% 0.00% 1.46% - ----------------------------------------------------------------------------------------------------------------------- District of Columbia 1.04% 1.64% 0.89% 1.34% 1.69% - ----------------------------------------------------------------------------------------------------------------------- Florida 7.25% 1.08% 6.75% 7.84% 4.89% - ----------------------------------------------------------------------------------------------------------------------- Georgia 6.06% 2.74% 4.02% 7.64% 8.30% - ----------------------------------------------------------------------------------------------------------------------- Guam 0.00% 3.70% 0.33% 0.52% 0.00% - ----------------------------------------------------------------------------------------------------------------------- Hawaii 0.42% 0.81% 2.17% 1.50% 0.00% - ----------------------------------------------------------------------------------------------------------------------- Idaho 0.25% 0.00% 0.00% 0.00% 0.00% - ----------------------------------------------------------------------------------------------------------------------- Illinois 14.19% 5.49% 8.18% 5.01% 9.66% - ----------------------------------------------------------------------------------------------------------------------- Indiana 2.84% 1.69% 0.94% 3.44% 1.54% - ----------------------------------------------------------------------------------------------------------------------- Iowa 0.25% 0.88% 0.70% 0.00% 0.00% - ----------------------------------------------------------------------------------------------------------------------- Kansas 2.42% 0.42% 0.65% 1.53% 0.00% - ----------------------------------------------------------------------------------------------------------------------- Kentucky 3.80% 0.00% 0.04% 0.22% 2.53% - ----------------------------------------------------------------------------------------------------------------------- Louisiana 2.33% 0.41% 0.07% 0.00% 2.39% - ----------------------------------------------------------------------------------------------------------------------- Maine 0.37% 0.00% 0.61% 0.08% 0.00% - ----------------------------------------------------------------------------------------------------------------------- Maryland 0.80% 1.76% 3.10% 0.00% 0.55% - ----------------------------------------------------------------------------------------------------------------------- Massachusetts 0.12% 2.40% 3.02% 3.85% 0.00% - ----------------------------------------------------------------------------------------------------------------------- Michigan 2.34% 7.12% 1.82% 1.99% 2.99% - ----------------------------------------------------------------------------------------------------------------------- Minnesota 0.86% 0.43% 1.11% 0.14% 0.31% - ----------------------------------------------------------------------------------------------------------------------- Mississippi 0.80% 0.00% 2.11% 1.05% 0.32% - ----------------------------------------------------------------------------------------------------------------------- Missouri 7.88% 0.49% 2.60% 2.02% 1.69% - ----------------------------------------------------------------------------------------------------------------------- Montana 0.56% 0.00% 0.00% 0.00% 0.64% - ----------------------------------------------------------------------------------------------------------------------- Nebraska 0.22% 0.00% 0.22% 0.10% 0.21% - ----------------------------------------------------------------------------------------------------------------------- Nevada 0.00% 3.39% 2.61% 1.74% 0.00% - ----------------------------------------------------------------------------------------------------------------------- New Hampshire 0.00% 0.00% 0.00% 0.00% 0.00% - ----------------------------------------------------------------------------------------------------------------------- New Jersey 0.32% 1.18% 2.76% 0.82% 0.00% - ----------------------------------------------------------------------------------------------------------------------- New Mexico 0.55% 3.04% 0.92% 0.38% 1.82% - ----------------------------------------------------------------------------------------------------------------------- New York 0.22% 3.45% 2.59% 4.28% 0.00% - -----------------------------------------------------------------------------------------------------------------------
II-10 Nations Nations Short- Nations Nations Nations Tax- Term Intermediate Municipal Municipal STATE Exempt Municipal Municipal Bond Income Reserves Fund Income Fund Fund Fund - ----------------------------------------------------------------------------------------------------------------------- North Carolina 2.48% 1.16% 2.47% 1.58% 0.42% - ----------------------------------------------------------------------------------------------------------------------- North Dakota 0.00% 0.25% 0.00% 0.00% 0.26% - ----------------------------------------------------------------------------------------------------------------------- Ohio 1.40% 0.15% 0.63% 1.54% 5.85% - ----------------------------------------------------------------------------------------------------------------------- Oklahoma 0.38% 0.42% 0.66% 0.00% 0.11% - ----------------------------------------------------------------------------------------------------------------------- Oregon 1.31% 0.00% 0.80% 1.18% 0.72% - ----------------------------------------------------------------------------------------------------------------------- Pennsylvania 3.17% 4.66% 2.81% 4.39% 2.43% - ----------------------------------------------------------------------------------------------------------------------- Puerto Rico 0.00% 1.07% 0.27% 0.09% 0.00% - ----------------------------------------------------------------------------------------------------------------------- Rhode Island 0.21% 0.00% 0.39% 0.59% 0.00% - ----------------------------------------------------------------------------------------------------------------------- South Carolina 1.94% 2.13% 1.82% 2.79% 4.19% - ----------------------------------------------------------------------------------------------------------------------- South Dakota 0.00% 0.77% 0.00% 0.00% 0.46% - ----------------------------------------------------------------------------------------------------------------------- Tennessee 1.40% 4.86% 1.55% 2.77% 6.35% - ----------------------------------------------------------------------------------------------------------------------- Texas 5.07% 15.58% 11.44% 10.38% 9.72% - ----------------------------------------------------------------------------------------------------------------------- Utah 1.63% 0.00% 0.13% 2.01% 1.70% - ----------------------------------------------------------------------------------------------------------------------- Vermont 0.00% 0.00% 0.00% 0.00% 0.00% - ----------------------------------------------------------------------------------------------------------------------- Virginia 1.22% 2.51% 6.51% 1.48% 4.04% - ----------------------------------------------------------------------------------------------------------------------- Washington 2.17% 11.60% 7.18% 9.47% 1.15% - ----------------------------------------------------------------------------------------------------------------------- West Virginia 1.86% 0.00% 0.22% 0.57% 1.46% - ----------------------------------------------------------------------------------------------------------------------- Wisconsin 2.11% 2.67% 2.24% 0.41% 3.07% - ----------------------------------------------------------------------------------------------------------------------- Wyoming 0.01% 0.00% 0.00% 0.47% 0.85% - -----------------------------------------------------------------------------------------------------------------------
State Specific Tax-Exempt Funds For residents of the following states, a portion of income (excluding capital gains) derived from Nations Funds state-specific municipal bond funds for the year ended December 31, 1997 is exempt from regular federal and state income taxes. For certain investors, a portion of income may be subject to the federal Alternative Minimum Tax. State Exempt Federal Exempt FUND Percentage Percentage - ------------------------------------------------------------------------------------------------------------- Nations Florida Intermediate Municipal Bond Fund 98.26% 100.00% - ------------------------------------------------------------------------------------------------------------- Nations Florida Municipal Bond Fund 97.24% 99.71% - ------------------------------------------------------------------------------------------------------------- Nations Georgia Intermediate Municipal Bond Fund 98.93% 99.79% - ------------------------------------------------------------------------------------------------------------- Nations Georgia Municipal Bond Fund 97.35% 99.13% - ------------------------------------------------------------------------------------------------------------- Nations Maryland Intermediate Municipal Bond Fund 95.80% 100.00% - ------------------------------------------------------------------------------------------------------------- Nations Maryland Municipal Bond Fund 93.44% 99.48% - ------------------------------------------------------------------------------------------------------------- Nations North Carolina Intermediate Municipal Bond Fund 95.53% 99.87% - -------------------------------------------------------------------------------------------------------------
II-11 Nations North Carolina Municipal Bond Fund 97.69% 99.53% - ------------------------------------------------------------------------------------------------------------- Nations South Carolina Intermediate Municipal Bond Fund 98.72% 99.95% - ------------------------------------------------------------------------------------------------------------- Nations South Carolina Municipal Bond Fund 93.76% 99.44% - ------------------------------------------------------------------------------------------------------------- Nations Tennessee Intermediate Municipal Bond Fund 97.91% 99.89% - ------------------------------------------------------------------------------------------------------------- Nations Tennessee Municipal Bond Fund 97.47% 100.00% - ------------------------------------------------------------------------------------------------------------- Nations Texas Intermediate Municipal Bond Fund 81.38% 99.99% - ------------------------------------------------------------------------------------------------------------- Nations Texas Municipal Bond Fund 83.51% 99.39% - ------------------------------------------------------------------------------------------------------------- Nations Virginia Intermediate Municipal Bond Fund 97.87% 99.94% - ------------------------------------------------------------------------------------------------------------- Nations Virginia Municipal Bond Fund 95.42% 99.73% - -------------------------------------------------------------------------------------------------------------
Alternative Minimum Tax This information is to be used to calculate your federal Alternative Minimum Tax liability, if applicable. Multiply the percentage below by the Fund distribution (excluding capital gains) to give you the distributions to be added to your Alternative Minimum Taxable income. FUND Percentage - ------------------------------------------------------------------------------------------------------------- Nations Florida Intermediate Municipal Bond Fund 5.94% - ------------------------------------------------------------------------------------------------------------- Nations Florida Municipal Bond Fund 17.79% - ------------------------------------------------------------------------------------------------------------- Nations Georgia Intermediate Municipal Bond Fund 6.50% - ------------------------------------------------------------------------------------------------------------- Nations Georgia Municipal Bond Fund 19.17% - ------------------------------------------------------------------------------------------------------------- Nations Intermediate Municipal Bond Fund 6.28% - ------------------------------------------------------------------------------------------------------------- Nations Maryland Intermediate Municipal Bond Fund 4.17% - ------------------------------------------------------------------------------------------------------------- Nations Maryland Municipal Bond Fund 10.55% - ------------------------------------------------------------------------------------------------------------- Nations Municipal Income Fund 12.44% - ------------------------------------------------------------------------------------------------------------- Nations Municipal Reserves 9.79% - ------------------------------------------------------------------------------------------------------------- Nations North Carolina Intermediate Municipal Bond Fund 4.23% - ------------------------------------------------------------------------------------------------------------- Nations North Carolina Municipal Bond Fund 14.86% - ------------------------------------------------------------------------------------------------------------- Nations Short-Term Municipal Income Fund 9.96% - ------------------------------------------------------------------------------------------------------------- Nations South Carolina Intermediate Municipal Bond Fund 6.22% - ------------------------------------------------------------------------------------------------------------- Nations South Carolina Municipal Bond Fund 15.57% - ------------------------------------------------------------------------------------------------------------- Nations Tax-Exempt Fund 16.64% - ------------------------------------------------------------------------------------------------------------- Nations Tennessee Intermediate Municipal Bond Fund 9.53% - ------------------------------------------------------------------------------------------------------------- Nations Tennessee Municipal Bond Fund 16.04% - ------------------------------------------------------------------------------------------------------------- Nations Texas Intermediate Municipal Bond Fund 4.09% - ------------------------------------------------------------------------------------------------------------- Nations Texas Municipal Bond Fund 16.83% - ------------------------------------------------------------------------------------------------------------- Nations Virginia Intermediate Municipal Bond Fund 6.83% - ------------------------------------------------------------------------------------------------------------- Nations Virginia Municipal Bond Fund 14.66% - -------------------------------------------------------------------------------------------------------------
II-12 Corporate Qualifying Dividends The following information is provided to enable shareholders to calculate the amount of dividends paid by the Fund which qualify for the corporate dividend received deduction. Domestic & Domestic Foreign FUND Corporations Corporations - ------------------------------------------------------------------------------------------------------------- Nations Balanced Assets Fund 6.48% 6.82% - ------------------------------------------------------------------------------------------------------------- Nations Capital Growth Fund 32.82% 34.22% - ------------------------------------------------------------------------------------------------------------- Nations Disciplined Equity Fund 18.88% 19.50% - ------------------------------------------------------------------------------------------------------------- Nations Emerging Growth Fund 19.87% 19.95% - ------------------------------------------------------------------------------------------------------------- Nations Emerging Markets Fund 0.00% 100.00% - ------------------------------------------------------------------------------------------------------------- Nations Equity Income Fund 30.13% 30.70% - ------------------------------------------------------------------------------------------------------------- Nations Equity Index Fund 50.88% 52.15% - ------------------------------------------------------------------------------------------------------------- Nations International Equity Fund 0.00% 100.00% - ------------------------------------------------------------------------------------------------------------- Nations International Growth Fund 0.00% 100.00% - ------------------------------------------------------------------------------------------------------------- Nations Managed Index Fund 84.38% 85.49% - ------------------------------------------------------------------------------------------------------------- Nations Managed SmallCap Index Fund 22.43% 22.46% - ------------------------------------------------------------------------------------------------------------- Nations Managed SmallCap Value Index Fund 75.88% 75.88% - ------------------------------------------------------------------------------------------------------------- Nations Managed Value Index Fund 75.78% 75.78% - ------------------------------------------------------------------------------------------------------------- Nations Pacific Growth Fund 0.00% 100.00% - ------------------------------------------------------------------------------------------------------------- Nations Value Fund 44.32% 45.23% - -------------------------------------------------------------------------------------------------------------
Florida Intangibles Tax Percentage(3) Exempt FUND Percentage Equity Nations Balanced Assets Fund 19.37% - ------------------------------------------------------------------------------------------------------------- Nations Capital Growth Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Nations Disciplined Equity Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Nations Emerging Growth Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Nations Emerging Markets Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Nations Equity Income Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Nations Equity Index Fund 0.11% - ------------------------------------------------------------------------------------------------------------- Nations International Equity Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Nations International Growth Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Nations LifeGoal Growth Portfolio 0.00% - ------------------------------------------------------------------------------------------------------------- Nations LifeGoal Balanced Growth Portfolio 0.00% - ------------------------------------------------------------------------------------------------------------- Nations LifeGoal Income and Growth Portfolio 0.00% - ------------------------------------------------------------------------------------------------------------- Nations Managed Index Fund 0.13% - -------------------------------------------------------------------------------------------------------------
II-13 Exempt FUND Percentage - ------------------------------------------------------------------------------------------------------------- Nations Managed SmallCap Index Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Nations Managed SmallCap Value Index Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Nations Managed Value Index Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Nations Pacific Growth Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Nations Value Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Fixed Income Nations Diversified Income Fund 39.79% - ------------------------------------------------------------------------------------------------------------- Nations Global Government Income Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Nations Government Securities Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Nations Short-Intermediate Government Fund 63.44% - ------------------------------------------------------------------------------------------------------------- Nations Short-Term Income Fund 8.01% - ------------------------------------------------------------------------------------------------------------- Nations Strategic Fixed Income Fund 8.28% - ------------------------------------------------------------------------------------------------------------- Nations U.S. Government Bond Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Money Market Nations Cash Reserves 0.46% - ------------------------------------------------------------------------------------------------------------- Nations Government Money Market Fund 100.00% - ------------------------------------------------------------------------------------------------------------- Nations Government Reserves 24.61% - ------------------------------------------------------------------------------------------------------------- Nations Prime Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Nations Treasury Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Nations Treasury Reserves 12.56% - ------------------------------------------------------------------------------------------------------------- Municipal Nations Florida Intermediate Municipal Bond Fund 100.00% - ------------------------------------------------------------------------------------------------------------- Nations Florida Municipal Bond Fund 100.00% - ------------------------------------------------------------------------------------------------------------- Nations Georgia Intermediate Municipal Bond Fund 0.72% - ------------------------------------------------------------------------------------------------------------- Nations Georgia Municipal Bond Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Nations Intermediate Municipal Bond Fund 0.18% - ------------------------------------------------------------------------------------------------------------- Nations Maryland Intermediate Municipal Bond Fund 1.30% - ------------------------------------------------------------------------------------------------------------- Nations Maryland Municipal Bond Fund 9.92% - ------------------------------------------------------------------------------------------------------------- Nations Municipal Income Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Nations North Carolina Intermediate Municipal Bond Fund 0.93% - ------------------------------------------------------------------------------------------------------------- Nations North Carolina Municipal Bond Fund 2.06% - ------------------------------------------------------------------------------------------------------------- Nations Short-Term Municipal Income Fund 2.44% - ------------------------------------------------------------------------------------------------------------- Nations South Carolina Intermediate Municipal Bond Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Nations South Carolina Municipal Bond Fund 5.29% - ------------------------------------------------------------------------------------------------------------- Nations Tax-Exempt Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Nations Municipal Reserves 0.00% - -------------------------------------------------------------------------------------------------------------
II-14 Exempt FUND Percentage - ------------------------------------------------------------------------------------------------------------- Nations Tennessee Intermediate Municipal Bond Fund 4.25% - ------------------------------------------------------------------------------------------------------------- Nations Tennessee Municipal Bond Fund 7.81% - ------------------------------------------------------------------------------------------------------------- Nations Texas Intermediate Municipal Bond Fund 0.26% - ------------------------------------------------------------------------------------------------------------- Nations Texas Municipal Bond Fund 3.06% - ------------------------------------------------------------------------------------------------------------- Nations Virginia Intermediate Municipal Bond Fund 0.00% - ------------------------------------------------------------------------------------------------------------- Nations Virginia Municipal Bond Fund 0.00% - -------------------------------------------------------------------------------------------------------------
(3) If any portion of a fund's shares is subject to the Florida Intangibles Tax, then only U.S. government obligations will retain their tax-exempt status. Obligations issued by Florida would lose their exempt status and be subject to the intangibles tax. Additional Information: As a shareholder of Nations International Equity Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and or Nations Global Government Income Fund who received dividends, you are entitled to receive your choice of either a foreign tax credit or an itemized deduction for foreign taxes paid by the Fund. Your portion of the foreign taxes paid by the Fund in 1997 is reported in Box 3 of your Form 1099-DIV. To take an itemized deduction for your share of the foreign taxes paid by the Fund, include the amount in Box 3 of Form 1099-DIV on Schedule A, Line 8 of your Form 1040. The TaxPayer Relief Act of 1997 has modified the flow-through status of Foreign Tax Credits ("FTCs"). As a result, a percentage of FTC might not be eligible for credit. In order to assist you in determining the amount of Foreign Tax Paid which is not eligible for a credit, multiply the percentage listed in Column A below, by the Foreign Tax Paid ("FTP") amount reported on Form 1099-DIV, box 3. For each fund, deduct this amount from the FTP (box 3) and report the total resulting amounts in Form 1040, Line 43. To compute the allowable credit, individual shareholders must complete IRS Form 1116 and attach it to their Form 1040. Corporate shareholders should complete Form 1118. The chart below should be used to prepare either of these Forms. Although it will generally be more advantageous to claim a credit for the foreign taxes paid, the ability to claim a credit depends on your individual tax situation. We suggest that you consult your tax adviser to determine your best course of action. II-15 Fund (A) Amount Not Eligible For (B) Foreign Source Foreign Tax Credit Income Factor Nations Emerging Markets Fund 0.00% .38792129 Nations International Equity Fund 0.00% .51953104 Nations Pacific Growth Fund 0.00% .48509903
Foreign Tax Factor (C) and Foreign Income Factor (D) - ------------------------------------------------------------------------------------------------------------- Nations Nations Emerging Nations Pacific International Equity Markets Fund Growth Fund Country Fund C D C D C D Argentina 0.00% 0.42% 0.00% 5.08% 0.00% 0.00% Australia 2.83% 5.71% 0.00% 0.00% 22.12% 10.08% Belgium 2.22% 1.65% 0.00% 0.00% 0.00% 0.00% Brazil 1.05% 3.15% 21.05% 28.62% 0.00% 0.00% Egypt 0.00% 0.00% 0.00% 1.40% 0.00% 0.00% Switzerland 4.80% 4.68% 0.00% 0.00% 0.00% 0.00% Chile 1.68% 1.38% 15.27% 7.20% 0.00% 0.00% Germany 4.00% 4.46% 0.00% 0.00% 0.00% 0.00% Spain 3.46% 2.60% 0.00% 0.00% 0.00% 0.00% France 10.81% 8.22% 0.00% 0.00% 0.00% 0.00% Great Britain 33.23% 26.80% 2.78% 1.05% 0.00% 0.00% Greece 0.00% 0.00% 12.75% 3.69% 0.00% 0.00% Hungary 0.00% 0.00% 0.00% 0.52% 0.00% 0.00% Hong Kong 0.00% 9.85% 0.00% 8.65% 0.00% 65.32% Indonesia 0.06% 0.39% 6.10% 4.01% 11.61% 5.07% Israel 0.00% 0.00% 0.48% 0.64% 0.00% 0.00% India 0.00% 0.19% 0.11% 2.33% 0.00% 0.00% Italy 2.44% 1.82% 0.00% 0.00% 0.00% 0.00% Japan 12.01% 8.95% 0.00% 0.00% 0.00% 0.00% Korea 0.90% 1.10% 0.93% 1.55% 11.09% 4.59% Malaysia 2.25% 0.84% 20.78% 5.18% 35.89% 8.45% Mexico 0.00% 4.81% 0.00% 8.74% 0.00% 0.00% Netherlands 9.91% 7.29% 0.00% 0.00% 0.00% 0.00% Norway 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Peru 0.00% 0.38% 0.00% 3.50% 0.00% 0.00% Philippines 0.04% 0.03% 3.24% 0.97% 1.60% 0.44% Portugal 0.48% 0.48% 5.91% 3.94% 0.00% 0.00% Russia 0.00% 0.00% 0.00% 0.28% 0.00% 0.00% Sweden 3.45% 2.57% 0.00% 0.00% 0.00% 0.00% Singapore 3.84% 1.62% 0.00% 0.00% 16.17% 5.02% Thailand 0.54% 0.61% 0.99% 0.74% 1.52% 1.03% Taiwan 0.00% 0.00% 0.00% 1.11% 0.00% 0.00% South Africa 0.00% 0.00% 9.61% 10.80% 0.00% 0.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
II-16 Instructions For Calculating Foreign Tax and Foreign Source Income by Country: 1. To calculate your foreign tax by country, multiply the total foreign taxes (Form 1099-DIV, Box 3) by the applicable Foreign Tax Factor percentage (Column C) indicated in the chart to the left. 2. To calculate the total foreign source income, multiply the amount in Box 1b on Form 1099-DIV by the appropriate factor in column B. 3. To calculate the total foreign source income by country, multiply the total foreign source income determined in step 2 by the applicable Foreign Income Factor percentage (Column D) presented in the chart to the left. II-17 SCHEDULE III SERVICE LEVEL PERFORMANCE STANDARDS - ---------------------------------------------------------------------------------------------------------------------------- SERVICE STANDARD - ---------------------------------------------------------------------------------------------------------------------------- 1. Daily Cash Availability |_| 100% accuracy and delivery by 9:00 a.m. EST for Money Market Funds and 9:30 a.m. EST for all others |_| Compensation for univested cash at Nations Cash Reserves' Mill rate - ---------------------------------------------------------------------------------------------------------------------------- 2. Calculation of daily NAVs |_| 100% accuracy by 5:00 p.m. EST including pricing, expense accruals, cash activity, manual entries, S/H activity. Delivery by 5:45 p.m. EST - ---------------------------------------------------------------------------------------------------------------------------- 3. Review of daily NAVs |_| 100% review by 5:30 p.m. EST |_| Review of NAV components for reasonableness including analysis of the change in the NAV and the change in mill rates. |_| Review of price variance report |_| Review of manual proof - ---------------------------------------------------------------------------------------------------------------------------- 4. NASDAQ Reporting |_| 100% accuracy and communication by 5:45 p.m. EST - ---------------------------------------------------------------------------------------------------------------------------- 5. Daily Pricing and Rate Report (DPRR) |_| 100% accuracy in nightly transmission of DPRRs |_| Money Market Funds-5:30 p.m. EST |_| All other Funds-6:00 p.m. EST - ---------------------------------------------------------------------------------------------------------------------------- 6. FundStation Report (SubM) |_| 100% accuracy and nightly transmission by 7:00 p.m. EST - ---------------------------------------------------------------------------------------------------------------------------- 7. Processing of trade tickets |_| 100% accuracy and processed by T+1 if received by the following cut-off times: |_| All Funds (except International) - 10:00 am (T+1) |_| International - 12:00 p.m. (T+1) |_| Same day settlements - 1:30 p.m. - ----------------------------------------------------------------------------------------------------------------------------
III-1 - ---------------------------------------------------------------------------------------------------------------------------- SERVICE STANDARD - ---------------------------------------------------------------------------------------------------------------------------- 8. Problem Resolution (general) |_| NAV impact analysis within 1 day |_| Clear and timely communication of 100% of issues |_| Ongoing Tracking - ---------------------------------------------------------------------------------------------------------------------------- 9. Cash reconciliations |_| Performed daily and sent daily to BAAI (Money Market Funds) and sent weekly to BAAI (all other funds) |_| Issues communicated to BAAI same day |_| Outstanding items addressed within 1 business day - ---------------------------------------------------------------------------------------------------------------------------- 10. Position Reconciliations |_| Performed daily and sent weekly to BAAI |_| Issues communicated to BAAI same day |_| Open issues addressed within 2 business days - ---------------------------------------------------------------------------------------------------------------------------- 11. Tax reporting |_| Federal, state, tax returns |_| Tax provision package prepared within time parameters as set by BAAI/Independent tax |_| Tax provision packages including Sub-M and excise personnel (PWC) tax amounts/distributions |_| Estimates of tax requirements prepared as required |_| Identification of all book/tax differences by BAAI for proper tax planning |_| Capital gain estimate preparations - ---------------------------------------------------------------------------------------------------------------------------- 12. Statistical Reports |_| Filed within the time parameters as set forth by each statistical service - ---------------------------------------------------------------------------------------------------------------------------- 13. Expense accruals/payments |_| Payments made on the business day written instructions from an authorized signator received |_| Expense accruals made with 100% accuracy based upon written instructions from BAAI - ---------------------------------------------------------------------------------------------------------------------------- 14. Management Reports |_| Provided to BAAI within 10 business days of month end - ----------------------------------------------------------------------------------------------------------------------------
III-2 - ---------------------------------------------------------------------------------------------------------------------------- SERVICE STANDARD - ---------------------------------------------------------------------------------------------------------------------------- 15. Year end tax reports |_| Provided to BAAI within the time frame agreed to - ---------------------------------------------------------------------------------------------------------------------------- 16. Annual/Semi-Annual Reports |_| Provide Trial Balance within 5 business days after annual/semi-annual period |_| Provide additional financial statement support as agreed to - ---------------------------------------------------------------------------------------------------------------------------- 17. Daily Reports |_| To be provided on the following day |_| Provide detailed portfolio valuation |_| Trial Balance - ---------------------------------------------------------------------------------------------------------------------------- 18. Daily Cash Sweep |_| 100% accuracy and communication by 2:00 p.m. EST |_| AIM |_| Nuveen - ---------------------------------------------------------------------------------------------------------------------------- 19. Post Dividends / Corporate Actions |_| 100% accuracy and posted on effective date - ---------------------------------------------------------------------------------------------------------------------------- 20. Monthly Reconciliations |_| Complete reconciliations within 10 business days - ---------------------------------------------------------------------------------------------------------------------------- 21. Reporting to Sub-Advisors |_| Provide nightly and other periodic reporting to Nations Funds Sub-Advisors - ---------------------------------------------------------------------------------------------------------------------------- 22. Compliance |_| Provide compliance reports as requested by BAAI - ----------------------------------------------------------------------------------------------------------------------------
III-3 SCHEDULE IV (Attached) IV-1 PORTFOLIO PRICING, FUND ACCOUNTING AND SUB-FUND ADMINISTRATION FEE SCHEDULE FOR NATIONSBANC MANAGED PORTFOLIOS Effective 12/1/98 Money Market Funds - ------------------ 1 1/4 basis point per annum on the first $3 billion of each portfolio's average net assets; 1 basis point on the next $3 billion; 1/2 of one basis point on the next $4 billion; 1/4 of one basis point on the excess. Domestic Equity - --------------- 6 basis points per annum on the first $1 billion of each portfolio's average net assets; 4 basis points on the next $500 million; 2 basis points on the next $500 million; 1 basis point on the excess. Domestic Fixed Income - --------------------- 5 basis points per annum on the first $1 billion of each portfolio's average net assets. 3 basis points on the next $500 million. 1 1/2 basis point on the next $500 million. 1/2 of one basis point on the excess. International Funds - ------------------- 7 basis points per annum on the first $1 billion of each portfolio's average net assets; 5 basis points on the next $500 million; 3 basis points on the next $500 million; 1 basis point on the excess. IV-2 PORTFOLIO PRICING, FUND ACCOUNTING AND SUB-FUND ADMINISTRATION FEE SCHEDULE FOR NATIONSBANC MANAGED PORTFOLIOS Effective 12/1/98 Multiple Class Charges - ---------------------- $500 per month, per portfolio, for each additional class in excess of nine (9) classes. System Development/Usage/Spectra Report Writer - ---------------------------------------------- There will be no charges for developing systems interfaces with the Bank or for on-going usage of any Bank systems related to fund accounting or administration services. Accounting Out-of-Pocket Expenses - --------------------------------- The cost of prices for securities exclusively held by Nations obtained from third party pricing vendors will be in addition to the above fees. Administration Out-of-Pocket Expenses - ------------------------------------- These expenses are billed as they are incurred at cost. Out-of-pocket expenses traditionally include, but are not limited to, cost associated with attendance at Board Presentations, printing of shareholders reports, express mail charges, etc. Billing Cycle - ------------- The above fees will be billed on a monthly basis. NationsBanc Advisors, Inc. The Bank of New York Approved by: Approved by: /s/ Ira Rosner --------------- Name: Name: Ira Rosner ---------- Title: Title: Vice President -------------- Date: Date: May 7, 1999 ----------- IV-3 NationsBanc Managed Portfolios - ------------------------------ Fund Accounting and Sub Administration Fee Schedule - --------------------------------------------------- When Aggregate Assets Exceed $100 billion - ----------------------------------------- Fund Type Basis Points - --------- ------------ Money Market - ------------ First $2 billion 0.000100 Next $1 billion 0.000075 On excess (>$3.0 billion) 0.000025 Domestic Equity - --------------- First $500 million 0.000550 Next $500 million 0.000450 Next $500 million 0.000250 Next $500 million 0.000150 On excess (>$2.0 billion) 0.000050 Domestic Fixed Income - --------------------- First $500 million 0.000450 Next $500 million 0.000350 Next $250 million 0.000225 Next $250 million 0.000100 On excess (>$1.5 billion) 0.000050 International - ------------- First $500 million 0.00060 Next $500 million 0.00050 Next $250 million 0.00040 Next $250 million 0.00030 On excess (>$1.5 billion) 0.00005 IV-4 PORTFOLIO PRICING, FUND ACCOUNTING AND SUB-FUND ADMINISTRATION FEE SCHEDULE FOR NATIONSBANC MANAGED PORTFOLIOS (Multi Managers) Multi-Managers - -------------- $22,000 per annum for each multi-manager going to a single feeder. These fees will be in addition to the following fee schedule now in effect. For each new multi-manager account with assets less than $20 million, we will waive our fees for the first three months. Money Market Funds - ------------------ 1 1/4 basis point per annum on the first $3 billion of each portfolio's average net assets; 1 basis point on the next $3 billion; 1/2 of one basis point on the next $4 billion; 1/4 of one basis point on the excess. Domestic Equity - --------------- 6 basis points per annum on the first $1 billion of each portfolio's average net assets; 4 basis points on the next $500 million; 2 basis points on the next $500 million; 1 basis point on the excess. Domestic Fixed Income - --------------------- 5 basis points per annum on the first $1 billion of each portfolio's average net assets. 3 basis points on the next $500 million. 1 1/2 basis point on the next $500 million. 1/2 of one basis point on the excess. International Funds - ------------------- 7 basis points per annum on the first $1 billion of each portfolio's average net assets; 5 basis points on the next $500 million; 3 basis points on the next $500 million; 1 basis point on the excess. IV-5 PORTFOLIO PRICING, FUND ACCOUNTING AND SUB-FUND ADMINISTRATION FEE SCHEDULE FOR NATIONSBANC MANAGED PORTFOLIOS (Multi Managers) Multiple Class Charges - ---------------------- $500 per month, per portfolio, for each additional class in excess of nine (9) classes. System Development/Usage/Spectra Report Writer - ---------------------------------------------- There will be no charges for developing systems interfaces with the Bank or for on-going usage of any Bank systems related to fund accounting or administration services. Accounting Out-of-Pocket Expenses - --------------------------------- The cost of prices for securities exclusively held by Nations obtained from third party pricing vendors will be in addition to the above fees. Administration Out-of-Pocket Expenses - ------------------------------------- These expenses are billed as they are incurred at cost. Out-of-pocket expenses traditionally include, but are not limited to, cost associated with attendance at Board Presentations, printing shareholders reports, express mail charges, etc. Billing Cycle - ------------- The above fees will be billed on a monthly basis. NationsBanc Advisors, Inc. The Bank of New York Approved by: Approved by: /s/ Ira Rosner --------------- Name: Name: Ira Rosner ---------- Title: Title: Vice President -------------- Date: Date: May 7, 1999 ----------- IV-6 PORTFOLIO PRICING, FUND ACCOUNTING AND FUND ADMINISTRATION FEE SCHEDULE FOR BANC OF AMERICA ADVISORS, INC. Nations Financial Services Fund Domestic Equity Funds --------------------- 5 1/2 basis points per annum on the first $500 million of the portfolio's average net assets; 4 1/2 basis points on the next $500 million; 2 1/2 basis points on the next $500 million; 1 1/2 basis points on the next $500 million; 1/2 of one basis point on the excess. System Development/Usage/Spectra Report Writer ---------------------------------------------- There will be no charges for developing systems interfaces with us or for on-going usage of any Bank systems related to fund accounting or administration services. Accounting Out-of-Pocket Expenses --------------------------------- The cost of prices for securities exclusively held by the each fund obtained from third party pricing vendors will be in addition to the above fees. Administration Out-of-Pocket Expenses ------------------------------------- These expenses are billed as they are incurred at cost. Out-of-pocket expenses traditionally include, but are not limited to, cost associated with attendance at Board Presentations, printing shareholders reports, express mail charges, etc. Billing Cycle ------------- The above fees will be billed on a monthly basis. IV-7 PORTFOLIO PRICING, FUND ACCOUNTING AND FUND ADMINISTRATION FEE SCHEDULE FOR BANC OF AMERICA ADVISORS, INC. Nations Global Value Fund International Funds ------------------- 6 basis points per annum on the first $500 million of the portfolio's average net assets; 5 basis points on the next $500 million; 4 basis points on the next $250 million; 3 basis points on the next $250 million; 1/2 of one basis point on the excess. System Development/Usage/Spectra Report Writer ---------------------------------------------- There will be no charges for developing systems interfaces with us or for on-going usage of any Bank systems related to fund accounting or administration services. Accounting Out-of-Pocket Expenses --------------------------------- The cost of prices for securities exclusively held by the each fund obtained from third party pricing vendors will be in addition to the above fees. Administration Out-of-Pocket Expenses ------------------------------------- These expenses are billed as they are incurred at cost. Out-of-pocket expenses traditionally include, but are not limited to, cost associated with attendance at Board Presentations, printing shareholders reports, express mail charges, etc. Billing Cycle ------------- The above fees will be billed on a monthly basis. IV-8 PORTFOLIO PRICING, FUND ACCOUNTING AND FUND ADMINISTRATION FEE SCHEDULE FOR BANC OF AMERICA ADVISORS, INC. Nations Classic Value Fund Domestic Equity --------------- 5 1/2 basis points per annum on the first $500 million of the portfolio's average net assets; 4 1/2 basis points on the next $500 million; 2 1/2 basis points on the next $500 million; 1 1/2 basis points on the next $500 million 1/2 of one basis point on the excess. System Development/Usage/Spectra Report Writer - ---------------------------------------------- There will be no charges for developing systems interfaces with us or for on-going usage of any Bank systems related to fund accounting or administration services. Accounting Out-of-Pocket Expenses --------------------------------- The cost of prices for securities exclusively held by the each fund obtained from third party pricing vendors will be in addition to the above fees. Administration Out-of-Pocket Expenses ------------------------------------- These expenses are billed as they are incurred at cost. Out-of-pocket expenses traditionally include, but are not limited to, cost associated with attendance at Board Presentations, printing shareholders reports, express mail charges, etc. Billing Cycle ------------- The above fees will be billed on a monthly basis. IV-9 SCHEDULE V All Database Companies Quarterly List ---------------------- -------------- AMG Data Services Lipper Barron's Morningstar Bloomberg CDA Wiesenberger CDA Wiesenberger Investment Company Institute Commerce Clearing House (CCH) S&P Micropal Forbes Institute for Economic Research Institute for Economic Research Value Line Interactive Data Services Media General Financial Services Investment Company Institute LCG Associates LCG Associates Closed End Fund Digest (Closed End Only) Lipper Lipper - International (Closed End Only) Media General Moody's Investors Service Morningstar S&P Micropal Strategic Insights Value Line V-1 EX-99.23(H)(3) 11 ex99-23h3_87612.txt SHAREHOLDER INV. B NATIONS FUNDS TRUST SHAREHOLDER SERVICING PLAN ("PLAN") INVESTOR B SHARES Section 1. Each of the proper officers of Nations Funds Trust (the "Trust") is authorized to execute and deliver, in the name and on behalf of the Trust, written agreements based substantially on the form attached hereto as Appendix A or any other form duly approved by the Trust's Board of Trustees ("Agreements") with broker/dealers, banks and other financial institutions that are dealers of record or holders of record or which have a servicing relationship ("Servicing Agents") with the beneficial owners of Investor B Shares in any of the Trust's Funds (collectively, "Shares") provided that any material modifications of services listed in the Agreement shall be presented for approval or ratification by the Trustees at the next regularly scheduled Board Meeting. Pursuant to such Agreements, Servicing Agents shall provide shareholder support services as set forth therein to their clients who beneficially own Shares of the portfolios listed on Exhibit I (the "Funds") in consideration of a fee, computed monthly in the manner set forth in the applicable Fund's then current prospectus, at an annual rate of up to 0.25% of the average daily net asset value of the Shares beneficially owned by or attributable to such clients. Affiliates of the Trust's distributor, administrator, co-administrator and adviser are eligible to become Servicing Agents and to receive fees under this Plan. All expenses incurred by a Fund in connection with the Agreements and the implementation of this Plan shall be borne either by the holders of the Shares of the particular Fund involved. If more than one Fund is involved and these expenses are not directly attributable to Shares of a particular Fund, then the expenses may be allocated between or among the Shares of the Funds in a fair and equitable manner. Section 2. The Trust's administrator and/or co-administrator shall monitor the arrangements pertaining to the Trust's Agreements with Servicing Agents. The Trust's administrator and co-administrator shall not, however, be obligated by this Plan to recommend, and the Trust shall not be obligated to execute, any Agreement with any qualifying Servicing Agents. Section 3. So long as this Plan is in effect, the Trust's distributor shall provide to the Trust's Board of Trustees, and the Trustees shall review, at least quarterly, a written report of the amounts expended pursuant to this Plan and the purposes for which such expenditures were made. Section 4. Unless sooner terminated, this Plan shall continue in effect for a period of one year from its date of execution and shall continue thereafter for successive annual periods, provided that such continuance is specifically approved by a majority of the Board of Trustees, including a majority of the Trustees who are not "interested persons," as defined in the Investment Company Act of 1940, of the Trust and have no direct or indirect financial interest in the operation of this Plan or in any Agreement related to this Plan (the "Disinterested Trustees") cast in person at a meeting called for the purpose of voting on this Plan. Section 5. This Plan may be amended at any time with respect to any Fund by the Trust's Board of Trustees, provided that any material amendment of the terms of this Plan (including a material increase of the fee payable hereunder) shall become effective only upon the approvals set forth in Section 4. Section 6. This Plan is terminable at any time with respect to any Fund by vote of a majority of the Disinterested Trustees. Section 7. While this Plan is in effect, the selection and nomination of the Disinterested Trustees shall be committed to the discretion of such Disinterested Trustees. Section 8. The Trust will preserve copies of this Plan, Agreements, and any written reports regarding this Plan presented to the Board of Trustees for a period of not less than six years. EXHIBIT I NATIONS FUNDS TRUST 1. Nations High Yield Bond Fund 2. Nations Kansas Municipal Income Fund 3. Nations Marsico 21st Century Fund 4. Nations Marsico International Opportunities Fund 5. Nations Financial Services Fund 6. Nations Classic Value Fund 7. Nations Global Value Fund 8. Nations Asset Allocation Fund 9. Nations Government Securities Fund 10. Nations Marsico Focused Equities Fund 11. Nations Marsico Growth & Income Fund 12. Nations LifeGoal Growth Portfolio 13. Nations LifeGoal Balanced Growth Portfolio 14. Nations LifeGoal Income and Growth Portfolio Approved: December 9, 1999 Last Amended: June 8, 2001 EX-99.23(H)(4) 12 ex99-23h4_87612.txt SHAREHOLDER INV. C NATIONS FUNDS TRUST SHAREHOLDER SERVICING PLAN ("PLAN") INVESTOR C SHARES Section 1. Each of the proper officers of Nations Funds Trust (the "Trust") is authorized to execute and deliver, in the name and on behalf of the Trust, written agreements based substantially on the form attached hereto as Appendix A or any other form duly approved by the Trust's Board of Trustees ("Agreements") with broker/dealers, banks and other financial institutions that are dealers of record or holders of record or which have a servicing relationship ("Servicing Agents") with the beneficial owners of Investor C Shares in any of the Trust's Funds (collectively, "Shares") provided that any material modifications of services listed in the Agreement shall be presented for approval or ratification by the Trustees at the next regularly scheduled Board Meeting. Pursuant to such Agreements, Servicing Agents shall provide shareholder support services as set forth therein to their clients who beneficially own Shares of the portfolios listed on Exhibit I (the "Funds") in consideration of a fee, computed monthly in the manner set forth in the applicable Fund's then current prospectus, at an annual rate of up to 0.25% of the average daily net asset value of the Shares beneficially owned by or attributable to such clients. Affiliates of the Trust's distributor, administrator, co-administrator and adviser are eligible to become Servicing Agents and to receive fees under this Plan. All expenses incurred by a Fund in connection with the Agreements and the implementation of this Plan shall be borne either by the holders of the Shares of the particular Fund involved. If more than one Fund is involved and these expenses are not directly attributable to Shares of a particular Fund, then the expenses may be allocated between or among the Shares of the Funds in a fair and equitable manner. Section 2. The Trust's administrator and/or co-administrator shall monitor the arrangements pertaining to the Trust's Agreements with Servicing Agents. The Trust's administrator and co-administrator shall not, however, be obligated by this Plan to recommend, and the Trust shall not be obligated to execute, any Agreement with any qualifying Servicing Agents. Section 3. So long as this Plan is in effect, the Trust's distributor shall provide to the Trust's Board of Trustees, and the Trustees shall review, at least quarterly, a written report of the amounts expended pursuant to this Plan and the purposes for which such expenditures were made. Section 4. Unless sooner terminated, this Plan shall continue in effect for a period of one year from its date of execution and shall continue thereafter for successive annual periods, provided that such continuance is specifically approved by a majority of the Board of Trustees, including a majority of the Trustees who are not "interested persons," as defined in the Investment Company Act of 1940, of the Trust and have no direct or indirect financial interest in the operation of this Plan or in any Agreement related to this Plan (the "Disinterested Trustees") cast in person at a meeting called for the purpose of voting on this Plan. Section 5. This Plan may be amended at any time with respect to any Fund by the Trust's Board of Trustees, provided that any material amendment of the terms of this Plan (including a material increase of the fee payable hereunder) shall become effective only upon the approvals set forth in Section 4. Section 6. This Plan is terminable at any time with respect to any Fund by vote of a majority of the Disinterested Trustees. Section 7. While this Plan is in effect, the selection and nomination of the Disinterested Trustees shall be committed to the discretion of such Disinterested Trustees. Section 8. The Trust will preserve copies of this Plan, Agreements, and any written reports regarding this Plan presented to the Board of Trustees for a period of not less than six years. EXHIBIT I NATIONS FUNDS TRUST 1. Nations High Yield Bond Fund 2. Nations Kansas Municipal Income Fund 3. Nations Marsico 21st Century Fund 4. Nations Marsico International Opportunities Fund 5. Nations Financial Services Fund 6. Nations Classic Value Fund 7. Nations Global Value Fund 8. Nations Asset Allocation Fund 9. Nations Government Securities Fund 10. Nations Marsico Focused Equities Fund 11. Nations Marsico Growth & Income Fund 12. Nations LifeGoal Growth Portfolio 13. Nations LifeGoal Balanced Growth Portfolio 14. Nations LifeGoal Income and Growth Portfolio Approved: December 9, 1999 Last Amended: June 8, 2001 EX-99.23(H)(5) 13 ex99-23h5_87612.txt TRANSFER AGENCY TRANSFER AGENCY AND SERVICES AGREEMENT (With Facilities Management Arrangement) THIS AGREEMENT, dated as of this first day of June, 1995 between NATIONS FUND, INC., a Maryland corporation, NATIONS FUND TRUST, a Massachusetts business trust, THE CAPITOL MUTUAL FUNDS, a Massachusetts business trust, NATIONS FUND PORTFOLIOS, INC., a Maryland corporation, and each other investment company which may become a party hereto pursuant to the terms of this Agreement (individually a "Fund", and collectively, the "Funds"), each with its principal place of business at 111 Center Street, Little Rock, Arkansas 72201 and additional offices at 101 South Tryon Street, Charlotte, North Carolina 28255, and THE SHAREHOLDER SERVICES GROUP, INC. (the "Transfer Agent"), a Massachusetts corporation with principal offices at One Exchange Place, 53 State Street, Boston, Massachusetts 02109. WITNESSETH WHEREAS, each Fund desires to appoint the Transfer Agent as its transfer agent, dividend disbursing agent and agent in connection with certain other activities and the Transfer Agent desires to accept such appointment; WHEREAS, each Fund may authorize the issuance of Shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets ("Portfolio"); WHEREAS, each Fund and each Portfolio of a Fund subject to this Agreement, including any investment company or Portfolio as may be added to this Agreement pursuant to Section 17, shall be identified in the attached Schedule G; and WHEREAS, the Transfer Agent and NationsBank, N.A. (Carolinas) ("NationsBank") have entered into a Facilities Management Agreement ("Facilities Agreement") dated June 1, 1995 pursuant to which the Transfer Agent has established a servicing and processing center to provide transfer agent services on behalf of the Funds in Charlotte, North Carolina (the "Charlotte Facility"). NOW THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth, the Funds and the Transfer Agent agree as follows: Article 1 Definitions 1.1 Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings: (a) "Articles of Incorporation" shall mean the Articles of Incorporation, Declaration of Trust, or other similar organizational document as the case may be, of a Fund as the same may be amended from time to time. (b) "Authorized Person" of a Fund shall be deemed to include (i) any authorized officer of the Fund; (ii) the members of the Joint Operations Board (as hereinafter defined); or (iii) any person, whether or not such person is an officer or employee of the Fund, duly authorized to give Oral Instructions or Written Instructions on behalf of the Fund as indicated in writing to the Transfer Agent from time to time. (c) "Board of Directors" of a Fund shall mean the Board of Directors or Board of Trustees of the Fund, as the case may be. (d) "Commission" shall mean the Securities and Exchange Commission. (e) "Custodian" of a Fund refers to any custodian or subcustodian of securities and other property which the Fund may from time to time deposit, or cause to be deposited or held under the name or account of such a custodian pursuant to a Custodian Agreement. (f) "Joint Operations Board" shall mean the joint board comprised of one senior representative from the Transfer Agent, one individual designated by the Funds jointly to represent their respective interests and the most senior Transfer Agent manager of the Charlotte Facility. (g) "1940 Act" shall mean the Investment Company Act of 1940 and the rules and regulations promulgated thereunder, all as amended from time to time. (h) "Oral Instructions" shall mean instructions, other than Written Instructions, actually received by the Transfer Agent from a person reasonably believed by the Transfer Agent to be an Authorized Person; (i) "Prospectus" of a Fund shall mean collectively the most recently dated Fund Prospectuses and Statements of Additional Information, including any supplements thereto, if any, with respect to each Portfolio of the Fund which have become effective under the Securities Act of 1933 and the 1940 Act. (j) "Shares" of a Fund refers collectively to such shares of capital stock or beneficial interest, as the case may be, or class thereof, of the Fund as may be issued from time to time. (k) "Shareholder" shall mean a record owner of Shares. (l) "Written Instructions" shall mean a written communication signed by a person reasonably believed by the Transfer Agent to be an Authorized Person and actually received by the Transfer Agent. Written Instructions shall include manually executed originals and authorized electronic transmissions, including telefacsimile of a manually executed original or other process. 2 Article 2 Appointment of the Transfer Agent 2.1 Each Fund hereby appoints and constitutes the Transfer Agent as transfer agent and dividend disbursing agent for Shares of the Fund and the Transfer Agent hereby accepts such appointments and agrees to perform the duties hereinafter set forth. Article 3 Duties of the Transfer Agent 3.1 The Transfer Agent shall be responsible for: (a) Administering and performing the customary services of a transfer agent; agent in connection with dividend and distribution functions; and agent in connection with shareholder account and administrative functions in connection with the issuance, transfer and redemption or repurchase (including coordination with the Custodian) of Shares, as more fully described in the written schedule of Duties of the Transfer Agent annexed hereto as Schedule A and incorporated herein, and in accordance with the terms of each Fund's Prospectus, applicable law and the procedures established from time to time between the Transfer Agent and the Funds. (b) Recording the issuance of Shares and maintaining pursuant to Commission Rule 17Ad-10(e) a record of the total number of Shares which are authorized, based upon data provided to it by each Fund, and issued and outstanding. The Transfer Agent shall provide each Fund on a regular basis with the total number of Shares which are authorized and issued and outstanding and shall have no obligation, when recording the issuance of Shares, to monitor the issuance of such Shares or to take cognizance of any laws relating to the legality or validity of the issue or sale of such Shares, which functions shall be the sole responsibility of the Fund. (c) Notwithstanding any of the foregoing provisions of this Agreement, the Transfer Agent shall be under no duty or obligation to inquire into, and shall not be liable for: (i) the legality of the issuance or sale of any Shares or the sufficiency of the amount to be received therefor; (ii) the legality of the redemption of any Shares, or the propriety of the amount to be paid therefor; (iii) the legality of the declaration of any dividend by the Board of Directors, or the legality of the issuance of any Shares in payment of any dividend; or (iv) the legality of any recapitalization or readjustment of the Shares. 3.2 In addition, each Fund shall verify the establishment of shares or share transactions for each State prior to activation on the Transfer Agent's system and thereafter monitor the daily activity of shares for each State based upon daily transactions recorded by the Transfer Agent and transmitted to the Fund or its designated agent. The responsibility of the Transfer Agent for a Fund's blue sky State registration status is solely limited to the initial establishment of shares or share transactions subject to blue sky compliance by the Fund and the reporting of such transactions to the Fund as provided above. 3 3.3 In addition to the duties set forth herein, the Transfer Agent shall perform such other duties and functions, and shall be paid such amounts therefor, as may from time to time be agreed upon in writing between the Funds and the Transfer Agent. Article 4 Duties of the Joint Operations Board 4.1 The Joint Operations Board will be responsible for the following with respect to the services to be performed by the Transfer Agent under this Agreement (the "Services"): (a) General oversight of the provision of Services by the Transfer Agent, including, but not limited to, the creation and quarterly review of quality standards governing the Services pursuant to Article 5 hereof, the establishment of strategic and/or operational goals with respect to the Services to be provided at the Charlotte Facility, and addressing such issues and concerns that may arise from time to time amongst the Funds and the Transfer Agent under this Agreement. (b) Review and approval of, from a technical feasibility standpoint, imaging and other new technologies proposed to be used by the Transfer Agent in performing the Services at the Charlotte facility. (c) Review and approval of the Charlotte Facility budget and expense statements, including those costs for which compensation is sought by the Transfer Agent pursuant to Article 8 hereof. (d) Review of those costs incurred by the Transfer Agent, other than in connection with the Charlotte Facility, for which compensation is sought by the Transfer Agent pursuant to Article 8 hereof. 4.2 With respect to matters described in Section 4.1 above, the decision of the Funds' representative on the Joint Operations Board shall control. 4.3 On a monthly basis, the Transfer Agent shall provide to the Joint Operations Board a statement of the internal and external costs incurred by the Transfer Agent in connection with the provision of Services for which the Transfer Agent will seek reimbursement under Article 8 hereof. Article 5 Quality Standards 5.1 The quality of service provided by the Transfer Agent hereunder shall be maintained at or above the levels set forth in Schedule B hereto. Such quality standards shall govern the Services provided by the Transfer Agent until a new set of quality standards is established pursuant to Section 5.2 hereof. 5.2 As soon as practicable after the first ninety (90) days of operation of the Charlotte Facility, the Joint Operations Board shall establish a new set of quality standards reasonably acceptable to the Funds and the Transfer Agent. 4 5.3 The Joint Operations Board shall review and update, if necessary, the quality standards on a semi-annual basis. 5.4 If, at any time during the term of this Agreement, 20% or more of the then-current quality standards (e.g., 2 or more out of 10 standards) are not met by the Transfer Agent during any month (as evidenced by monthly reports), the Funds shall promptly notify the Transfer Agent in writing of such failure and the details relating to such failure. If, any of the failed quality standards are not met by the Transfer Agent during the three month period commencing thirty (30) days after the Transfer Agent receives such notice, the Funds shall have the right to terminate this Agreement on thirty (30) days notice. 5.5 Notwithstanding the foregoing, the Funds shall not have the right to terminate this Agreement based on the failure by the Transfer Agent to have satisfied a quality standard if such failure was caused directly by the negative vote of the Funds' representative on the Joint Operations Board with respect to a commercially reasonable funding request of the Transfer Agent for the Charlotte Facility. Article 6 Recordkeeping and Other Information 6.1 The Transfer Agent shall create and maintain all records required of it pursuant to its duties hereunder and as set forth in Schedule A in accordance with all applicable laws, rules and regulations, including records required by Section 31(a) of the 1940 Act. All records shall be available during regular business hours for inspection and use by the Funds. Where applicable, such records shall be maintained by the Transfer Agent for the periods and in the places required by Rule 31a-2 under the 1940 Act. 6.2 To the extent required by Section 31 of the 1940 Act, the Transfer Agent agrees that all such records prepared or maintained by the Transfer Agent relating to the Services are the property of the relevant Fund and will be preserved, maintained and made available in accordance with such section, and will be surrendered promptly to such Fund on and in accordance with the Fund's request. 6.3 In case of any requests or demands for the inspection of Shareholder records of a Fund, the Transfer Agent will endeavor to notify the Fund of such request and secure Written Instructions as to the handling of such request. The Transfer Agent reserves the right, upon prior notice to the Fund, to exhibit the Shareholder records to any person whenever it is advised by its counsel that it may be held liable for the failure to comply with such request. 6.4 Upon reasonable notice by a Fund, the Transfer Agent shall make available during regular business hours such of its facilities and premises employed in connection with the performance of its duties under this Agreement for reasonable visitation by the Fund, or any person retained by the Fund as may be necessary for the Fund to evaluate the quality of the Services performed by the Transfer Agent pursuant hereto. 5 Article 7 Fund Instructions 7.1 The Transfer Agent will have no liability when acting for a Fund in accordance with Written or Oral Instructions believed to have been executed or orally communicated by an Authorized Person of the Fund and will not be held to have any notice of any change of authority of any person until receipt of a Written Instruction thereof from the Fund. The Transfer Agent will also have no liability when processing Share certificates for a Fund which it reasonably believes to bear the proper manual or facsimile signatures of the officers of the Fund and the proper countersignature of the Transfer Agent. 7.2 The Transfer Agent may request Written Instructions from a Fund and may seek advice from legal counsel for the Fund with prior notice to the Fund, or its own legal counsel, with respect to any matter arising in connection with this Agreement, and it shall not be liable for any action taken or not taken or suffered by it in good faith in accordance with such Written Instructions or in accordance with the opinion of counsel for the Fund or for the Transfer Agent. Written Instructions requested by the Transfer Agent will be provided by the Fund within a reasonable period of time. 7.3 The Transfer Agent, its officers, agents or employees, shall accept Oral Instructions or Written Instructions given to them with respect to a Fund by any person representing or acting on behalf of the Fund only if said representative is an Authorized Person of the Fund. The Funds agree that all Oral Instructions shall be followed within one business day by confirming Written Instructions, and that the Funds' failure to so confirm shall not impair in any respect the Transfer Agent's right to reply on Oral Instructions. Article 8 Compensation 8.1 The Funds shall reimburse the Transfer Agent for all the Transfer Agent's "Costs" incurred in connection with the provision of Services as set forth in the written Schedule of Costs annexed hereto as Schedule C and incorporated herein and in addition the Funds shall compensate the Transfer Agent for the following amounts (the "Margin"); (a) During the first 36 months of the Initial Term (as defined below), an amount equal to 15% of such Costs during each month. (b) During the last 24 months of the Initial Term and during each Renewal Term (as defined below), an amount equal to 12.5% of such Costs during each month. 8.2 Notwithstanding the foregoing, the charges incurred by the Transfer Agent under the Facilities Agreement with NationsBank and such other expenses set forth in the written schedule of Non-Margin Expenses annexed hereto as Schedule D shall not be included as Costs in connection with the calculation of the Margin amounts set forth in Subsections 8.1(a) and (b). 6 8.3 In addition to the Costs and Margin described above, the Fund shall reimburse the Transfer Agent, and will be billed separately for, those out-of-pocket expenses incurred by the Transfer Agent in the performance of its duties hereunder as specified in the written schedule of out-of-pocket expenses annexed hereto as Schedule E and incorporated herein. 8.4 The Funds agree to pay all fees and out-of-pocket expenses within thirty (30) days following the receipt of the respective invoice. The Funds shall not be obligated to pay amounts that are reasonably in dispute until such dispute is resolved. Article 9 Documents 9.1 In connection with the appointment of the Transfer Agent, each Fund shall, on or before the date this Agreement goes into effect, but in any case within a reasonable period of time for the Transfer Agent to prepare to perform its duties hereunder, deliver or cause to be delivered to the Transfer Agent the documents set forth in the written schedule of Fund Documents annexed hereto as Schedule F. Article 10 Transfer Agent System 10.1 The Transfer Agent shall retain title to and ownership of any and all data bases, computer programs, screen formats, report formats, interactive design techniques, derivative works, inventions, discoveries, patentable or copyrightable matters, concepts, expertise, patents, copyrights, trade secrets, and other related legal rights utilized by the Transfer Agent in connection with the services provided by the Transfer Agent to the Fund herein (the "Transfer Agent System"). 10.2 The Transfer Agent hereby grants to each Fund a limited license to the Transfer Agent System for the sole and limited purpose of having the Transfer Agent provide the services contemplated hereunder and nothing contained in this Agreement shall be construed or interpreted otherwise and such license shall immediately terminate upon the termination of this Agreement. 10.3 The Transfer Agent agrees to provide the Funds with full access to the Transfer Agent System and all enhancements thereto to the same extent that such is made available to other Transfer Agent clients. 10.4 In the event the Funds desire the Transfer Agent to develop any enhancements for the Transfer Agent System, the parties shall agree on the staffing requirements which will be subject to the approval of the Joint Operations Board. 10.5 In the event the Funds request an enhancement to the Transfer Agent System which is estimated to require 5,000 programming hours or more ("Enhancement Project") and the Funds agree to assume the cost of such Enhancement Project, the Funds and the Transfer Agent shall agree in writing on any restrictions imposed on the Transfer Agent with respect to the use of such enhancement prior to commencement of the Enhancement Project. 7 10.6 Each Fund reserves the right to review and examine "imaging" and significant other technological developments to be implemented with the Transfer Agent System from a technical feasibility standpoint. Article 11 Representations and Warranties of the Transfer Agent 11.1 The Transfer Agent represents and warrants to each Fund that: (a) It is a corporation duly organized and existing and in good standing under the laws of the Commonwealth of Massachusetts; (b) It is empowered under applicable laws and by its Articles of Incorporation and By-Laws to enter into and perform this Agreement; (c) All requisite corporate proceedings have been taken to authorize it to enter into this Agreement; (d) It is duly registered with the appropriate regulatory agencies as a transfer agent and such registration will remain in effect for the duration of this Agreement; (e) It has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. Article 12 Representations and Warranties of the Funds 12.1 Each Fund represents and warrants to the Transfer Agent that: (a) It is duly organized and existing and in good standing under the laws of the jurisdiction in which it is organized; (b) It is empowered under applicable laws and by its Articles of Incorporation and By-Laws to enter into this Agreement; (c) All corporate proceedings required by said Articles of Incorporation, By-Laws and applicable laws have been taken to authorize it to enter into this Agreement; (d) A registration statement under the Securities Act of 1933, as amended, is currently effective and will remain effective, and all appropriate state securities law filings have been made and will continue to be made, with respect to all Shares of the Fund being offered for sale; (e) All outstanding Shares are validly issued, fully paid and non-assessable and that, when Shares are hereafter issued in accordance with the terms of the Fund's Articles of Incorporation and its Prospectus, such Shares shall be validly issued, fully paid and non-assessable. 8 Article 13 Indemnification 13.1 The Transfer Agent shall not be responsible for and each Fund shall indemnify and hold the Transfer Agent harmless from and against any and all claims, costs, expenses (including reasonable attorneys' fees), losses, damages, charges, payments and liabilities of any sort or kind which may be asserted against the Transfer Agent or for which the Transfer Agent may be held to be liable (a "Claim") arising out of or attributable to any of the following: (a) Any actions of the Transfer Agent required to be taken pursuant to this Agreement for the Fund unless such Claim resulted from a negligent act or failure to act or bad faith by the Transfer Agent in the performance of its duties hereunder. (b) The Transfer Agent's reasonable reliance on, or reasonable use of information, data, records and documents (including but not limited to magnetic tapes, computer printouts, hard copies and microfilm copies) received by the Transfer Agent from the Fund, or any authorized third party acting on behalf of the Fund, including but not limited to the prior transfer agent for the Fund, in the performance of the Transfer Agent's duties and obligations hereunder. (c) The reliance on, or the implementation of, any Written or Oral Instructions or any other instructions or requests of the Fund which are deemed to be provided by an Authorized Person of the Fund. (d) The offer or sales of Shares by the Fund in violation of any requirement under the securities laws or regulations of any state that such Shares be registered in such state or in violation of any stop order or other determination or ruling by any state with respect to the offer or sale of such Shares in such state. (e) The Fund's refusal or failure to comply with the terms of this Agreement, or any Claim which arises out of the Fund's negligence or misconduct or the breach of any representation or warranty of the Fund made herein. 13.2 In any case in which a Fund may be asked to indemnify or hold the Transfer Agent harmless, the Transfer Agent will notify the Fund promptly after identifying any situation which it believes presents or appears likely to present a claim for indemnification against the Fund although the failure to do so shall not prevent recovery by the Transfer Agent, unless the Fund is actually prejudiced thereby, and the Transfer Agent shall keep the Fund advised with respect to all developments concerning such situation. The Fund shall have the option to defend the Transfer Agent against any Claim which may be the subject of this indemnification, and, in the event that the Fund so elects, such defense shall be conducted by counsel chosen by the Fund and satisfactory to the Transfer Agent, and thereupon the Fund shall take over complete defense of the Claim and the Transfer Agent shall sustain no further legal or other expenses in respect of such Claim. The Transfer Agent will not confess any Claim or make any compromise in 9 any case in which the Fund will be asked to provide indemnification, except with the Fund's prior written consent. The obligations of the parties hereto under this Article shall survive the termination of this Agreement, so long as the Transfer Agent and the Fund act in good faith and are not negligent in their actions. Article 14 Standard of Care 14.1 The Transfer Agent shall at all times act in good faith and agrees to use its best efforts within commercially reasonable limits to ensure the accuracy of all services performed under this Agreement, but assumes no responsibility for loss or damage to the Funds unless said errors are caused by the Transfer Agent's own negligence, bad faith or willful misconduct or that of its employees. Article 15 Consequential Damages 15.1 In no event and under no circumstances shall either a Fund or the Transfer Agent be liable to another party for consequential or indirect loss of profits, reputation or business or any other special damages under any provision of this Agreement or for any act or failure to act hereunder. Article 16 Term and Termination 16.1 This Agreement shall be effective on the date first written above and shall continue for a period of sixty (60) months (the "Initial Term"), unless earlier terminated pursuant to the terms of this Agreement. Thereafter, this Agreement shall automatically be renewed for successive terms of twenty-four (24) months ("Renewal Terms") each, unless terminated pursuant to this Agreement. 16.2 The Funds or the Transfer Agent may terminate this Agreement at the end of the Initial Term or at the end of any subsequent Renewal Term upon not less than nine (9) months prior written notice to the other parties. 16.3 Upon a minimum of nine (9) months prior written notice from the Boards of Directors of the Funds, the Funds may terminate this Agreement at the end of the thirty-sixth (36th) or forty-eighth (48th) month of the Initial Term. 16.4 The Funds shall have the right to terminate this Agreement immediately upon the insolvency or bankruptcy of the Transfer Agent or the appointment of a receiver for the Transfer Agent, or with respect to any of its assets, or any change in the financial condition of the Transfer Agent which impedes the ability of the Transfer Agent to perform any of its obligations hereunder which is not cured by the Transfer Agent within thirty (30) days of such occurrence. The Funds shall have the right to seek to renegotiate this Agreement and, if such negotiations are not successful within a reasonable period of time, not to exceed ninety (90) days, to terminate this Agreement upon the transfer of ownership of a controlling interest in the Transfer Agent by or to any person other than a person who was an affiliate of the Transfer Agent or its parent company immediately before the transfer. 10 16.5 In the event that the total number of combined Shareholder accounts for the Funds and any other open-end investment companies affiliated with the Funds by reason of having a common investment adviser exceeds three times the 1994 Shareholder account base of 130,000 due to merger or acquisition activity involving the investment adviser or any affiliates of the adviser, the Funds shall have the right to terminate this Agreement upon nine (9) months prior written notice to the Transfer Agent. As used in this Article 16, "affiliates of the adviser" shall mean (i) a direct or indirect owner of 50% or more of the outstanding common stock of the adviser (a "parent") or (ii) any company or association whose outstanding common stock is at least 50% owned, directly or indirectly, by the adviser or by a parent. 16.6 In the event this Agreement is terminated by the Funds pursuant to Section 5.4, all expenses associated with the movement of records and materials to a successor transfer agent will be borne by the Transfer Agent. In the event of a termination pursuant to any other sections, all expenses associated with conversion will be borne by the Funds. The Transfer Agent shall cooperate with any such conversion to a successor transfer agent and shall use its best efforts to mitigate the costs associated with such transfer. 16.7 If a party hereto is guilty of a material failure to perform its duties and obligations hereunder (a "Defaulting Party") the other party (the "Non-Defaulting Party") may give written notice thereof to the Defaulting Party, and if such material breach shall not have been remedied within thirty (30) days after such written notice is given, then the Non-Defaulting Party may terminate this Agreement by giving thirty (30) days written notice of such termination to the Defaulting Party. If the Transfer Agent is the Non-Defaulting Party, its termination of this Agreement shall not constitute a waiver of any other rights or remedies of the Transfer Agent with respect to services performed prior to such termination or rights of the Transfer Agent to be reimbursed for out-of-pocket expenses incurred prior to such termination. In all cases, termination by the Non-Defaulting Party shall not constitute a waiver by the Non-Defaulting Party of any other rights it might have under this Agreement or otherwise against the Defaulting Party. The Defaulting Party shall not be released from any liability with respect to such services performed prior to such termination. 16.8 In the event of termination of this Agreement by the Funds pursuant to Sections 16.3 or 16.5: (a) Prior to the effective date of the termination, the Funds shall reimburse the Transfer Agent for all unamortized costs incurred by the Transfer Agent in establishing the Charlotte Facility. (b) Prior to the effective date of the termination, the Funds shall assume any and all obligations that the Transfer Agent may have to third parties arising out of or in connection with the Transfer Agent's operations at the Charlotte Facility and that the Transfer Agent is not able to terminate prior to the effective date of the termination of this Agreement. 11 (c) Prior to the effective date of the termination, the Funds shall pay the Transfer Agent an amount equal to 80% of the cumulative Margin (as defined in Section 8.1) paid by the Funds to the Transfer Agent for the twelve months preceding the notice of termination, unless the Funds' investment adviser or any affiliate of the adviser has acquired an entity providing comparable transfer agency services to those provided under this Agreement. (d) The Funds shall reimburse the Transfer Agent for all reasonable expenses (other than accrued vacation, sick or other leave) incurred by the Transfer Agent in connection with the termination of the Transfer Agent's employees located at the Charlotte Facility, or, at the option of the Funds, the transfer of such employees to another entity providing services to the Funds. The Transfer Agent shall be obligated to seek to minimize any such expenses to the extent commercially practicable. (e) The Transfer Agent shall transfer to the Funds all physical assets located at the Charlotte Facility. Article 17 Additional Portfolios and Funds 17.1 In the event that a Fund establishes one or more Portfolios in addition to those identified initially on Schedule G, with respect to which the Fund desires to have the Transfer Agent render services as transfer agent under the terms hereof, the Fund shall so notify the Transfer Agent in writing, and if the Transfer Agent agrees in writing to provide such services (such agreement not to be withheld unreasonably), Schedule G shall be amended to include such additional Portfolios. 17.2 Subsequent to the effective date of this Agreement, one or more registered investment companies (a "New Fund") for which NationsBank or any of its affiliates acts as investment adviser may become a party to this Agreement upon execution of a written adoption agreement by such New Fund pursuant to which such New Fund agrees to be bound by the terms of this Agreement (an "Adoption Agreement"). Following the execution of an Adoption Agreement by a New Fund, such New Fund shall be deemed a Fund for all purposes of this Agreement and shall have all the rights, obligations and duties of a Fund under this Agreement. Article 18 Confidentiality 18.1 In connection with the services provided by the Transfer Agent hereunder, certain confidential and proprietary information regarding the Transfer Agent and the Fund may be disclosed to the other. In connection therewith, the parties agree as follows: (a) "Confidential Information" shall mean: (i) any data or information that is competitively sensitive material, and not generally known to the public, including, but not limited to, information about product plans, marketing strategies, finance, operations, customer relationships, customer profiles, 12 sales estimates, business plans, and internal performance results relating to the past, present or future business activities of the Transfer Agent or the Fund, their respective parent corporation, their respective subsidiaries and affiliated companies and the customers, clients and suppliers of any of the foregoing; (ii) any scientific or technical information, design, process, procedure, formula, or improvement that is commercially valuable and secret in the sense that its confidentiality affords the Transfer Agent or the Fund a competitive advantage over its competitors; and (iii) all confidential or proprietary concepts, documentation, reports, data, specifications, computer software, source code, object code, flow charts, databases, inventions, know-how, show-how and trade secrets, whether or not patentable or copyrightable. (b) Confidential Information includes, without limitation, all documents, inventions, substances, engineering and laboratory notebooks, drawings, diagrams, specifications, bills of material, equipment, prototypes and models, and any other tangible manifestation of the foregoing which now exist or come into the control or possession of the party. 18.2 Except as expressly authorized by prior written consent of the disclosing party ("Discloser"), the party receiving Confidential Information ("Recipient") shall: (a) limit access to Discloser's Confidential Information to Recipient's employees and agent who have a need-to-know in connection with the subject matter thereof; (b) advise those employees and agents who have access to the Confidential Information of the proprietary nature thereof and of the obligations set forth in this Confidential Agreement; (c) take appropriate action by instruction or agreement with the employees and agents having access to Discloser's Confidential Information to fulfill Recipient's obligations under this Confidentiality Agreement; (d) safeguard all of Discloser's Confidential Information by using a reasonable degree of care, but not less than that degree of care used by Recipient in safeguarding its own similar confidential information or material; (e) use all of Discloser's Confidential Information solely for purposes for which the Confidential Information was conveyed; and (f) not disclose any of Discloser's Confidential Information, or information derived therefrom, to third parties. 13 18.3 Upon Discloser's request, Recipient shall surrender to Discloser all memoranda, notes, records, drawings, manuals, and other documents or materials (and all copies of same) relating to or containing Discloser's Confidential Information. When Recipient returns the materials, Recipient shall certify in writing that it has returned all materials containing or relating to the Confidential Information. 18.4 The obligations of confidentiality and restriction on use in this Article 18 shall not apply to any Confidential Information that Recipient proves: (a) Was in the public domain prior to the date of this Agreement or subsequently came into the public domain through no fault of Recipient; or (b) Was received by Recipient from a third party without Recipient's knowledge that the third party was not legally entitled to disclose such information; or (c) Was already in Recipient's possession prior to receipt from Discloser; or (d) Is required to be disclosed in a judicial or administrative proceeding after reasonable legal remedies for maintaining such information in confidence have been exhausted including, but not limited to, giving Discloser as much advance notice as practical of the possibility of disclosure to allow Discloser to take appropriate legal action to seek to prevent such disclosure; or (e) Is subsequently and independently developed by Recipient's employees, consultants or agents without reference to Confidential Information. 18.5 The Funds and the Transfer Agent agree that money damages would not be a sufficient remedy to an injured party for breach of this Article 18. Accordingly, in addition to all other remedies that a party may have, a party shall be entitled to specific performance and injunctive or other equitable relief against another party as a remedy for any breach of the obligations set forth in this Article 18. The parties agree to waive any requirement for a bond in connection with any such injunctive or other equitable relief. 18.6 The rights and obligations established by this Article 18 shall survive the termination of this Agreement. Article 19 Force Majeure 19.1 In the event a party is unable to perform its obligations under the terms of this Agreement because of acts of God or by reason of circumstances beyond its control, including war, national emergencies, strikes, labor difficulties, insurrection, riots or the failure or unavailability of transportation or communication services or power supplies, such party shall not be liable for damages incurred by any other party resulting from such failure to perform. The above in no way relieves the Transfer Agent or the Funds of responsibility for exercising all backup and contingency plans available and in effect at 14 such time and does not affect any other remedies that a party may have under this Agreement. Article 20 Amendments 20.1 This Agreement may only be amended or modified by a written instrument executed by all parties except that Schedule A may be amended in the manner set forth in Section 17.1. Article 21 Subcontracting 21.1 Each Fund agrees that the Transfer Agent, in its discretion, may after notification to the Funds, subcontract for certain of the services to be provided by the Transfer Agent under this Agreement or the Schedules hereto; provided that the appointment of any such subcontractor shall not relieve the Transfer Agent of its responsibilities hereunder. Article 22 Arbitration 22.1 Any claim or controversy arising out of or relating to this Agreement, or breach hereof, shall be settled by arbitration administered by the American Arbitration Association in Charlotte, North Carolina in accordance with its applicable rules, except that the Federal Rules of Evidence and the Federal Rules of Civil Procedure with respect to the discovery process shall apply. 22.2 The parties hereby agree that judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. 22.3 The parties acknowledge and agree that the performance of the obligations under this Agreement necessitates the use of instrumentalities of interstate commerce and, notwithstanding other general choice of law provisions in this Agreement, the parties agree that the Federal Arbitration Act shall govern and control with respect to the provisions of this Article 22. Article 23 Notice 23.1 Any notice or other instrument authorized or required by this Agreement to be given in writing to a party, shall be sufficiently given if addressed to that party and received by it at its office set forth below or at such other place as such party may from time to time designate in writing. To either of the Funds: [Name of Applicable Fund] 111 Center Street Little Rock, Arkansas 72201 Attention: Corporate Secretary 15 To the Transfer Agent: The Shareholder Services Group One Exchange Place 53 State Street Boston, Massachusetts 02109 Attention: President with a copy to: General Counsel (same address) Article 24 Successors 24.1 This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns, provided, however, that this Agreement shall not be assigned to any person other than a person controlling, controlled by or under common control with the assignor without the written consent of the other party, which consent shall not be unreasonably withheld. Article 25 Governing Law 25.1 This Agreement shall be governed exclusively by the laws of the Commonwealth of Massachusetts without reference to the choice of law provisions thereof. Subject to Article 22 hereof, each party hereto hereby (i) consents to the personal jurisdiction of the Commonwealth of Massachusetts courts over the parties hereto, hereby waiving any defense of lack of personal jurisdiction; and (ii) appoints the person to whom notices hereunder are to be sent as agent for service of process. Article 26 Counterparts 26.1 This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original; but such counterparts shall, together, constitute only one instrument. Article 27 Captions 27.1 The captions of this Agreement are included for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. Article 28 Use of Transfer Agent/Fund Name 28.1 The Funds shall not use the name of the Transfer Agent in any Prospectus, Statement of Additional Information, Shareholders' report, sales literature or other material relating to the Fund in a manner not approved prior thereto in writing by the Transfer Agent; provided, that the Transfer Agent need only receive notice of all reasonable uses of its name which merely refer in accurate terms to its appointment hereunder or which are required by any government agency or applicable law or rule. 16 28.2 The Transfer Agent shall not use the name of a Fund or material relating to a Fund on any documents or forms for other than internal use in a manner not approved prior thereto in writing by such Fund; provided, that the Fund need only receive notice of all reasonable uses of its name which merely refer in accurate terms to the appointment of the Transfer Agent as transfer agent for the Fund or which are required by any government agency or applicable law or rule. Article 29 Relationship of Parties 29.1 The parties agree that they are independent contractors and not partners or co-venturers and nothing contained herein shall be interpreted or construed otherwise. 29.2 The parties hereby acknowledge and agree that each Fund has entered into this Agreement independently on behalf of itself and its Portfolios which are now or may hereafter be identified on Schedule G. Notwithstanding anything to the contrary contained in this Agreement, (i) each Fund individually shall have the rights and obligations of a Fund as set forth in this Agreement, (ii) any action by a Fund in violation of this Agreement shall not affect the rights and obligations of any other Fund under this Agreement, and (iii) the Transfer agent, in seeking to enforce any provisions of this Agreement with respect to a Portfolio, shall look solely to the assets and revenues of such Portfolio and that in no event shall the Transfer Agent in seeking to enforce such obligation have recourse to the independent assets or revenues of any other Portfolio. Article 30 Entire Agreement; Severability 30.1 This Agreement and the Schedules attached hereto constitute the entire agreement of the parties hereto relating to the matters covered hereby and supersede any previous agreements. If any provision is held to be illegal, unenforceable or invalid for any reason, the remaining provisions shall not be affected or impaired thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers, as of the day and year first above written. NATIONS FUND, INC. By: /s/ Richard H. Blank, Jr. ------------------------------ Title: Secretary --------------------------- NATIONS FUND TRUST By: /s/ Richard H. Blank, Jr. ------------------------------ Title: Secretary --------------------------- 17 THE CAPITOL MUTUAL FUNDS By: /s/ Richard H. Blank, Jr. ------------------------------ Title: Secretary --------------------------- NATIONS FUND PORTFOLIOS, INC. By: /s/ Richard H. Blank, Jr. ------------------------------ Title: Secretary --------------------------- THE SHAREHOLDER SERVICES GROUP, INC. By: /s/ (Illegible) ------------------------------ Title: (Illegible) ------------------------------ 18 Schedule A DUTIES OF THE TRANSFER AGENT 1. Shareholder Information. The Transfer Agent shall maintain a record of the number of Shares held by each Shareholder of record which shall include full registration information, including, but not limited to, name, address and taxpayer identification number and which shall indicate whether such Shares are held in certificated or uncertificated form. 2. Shareholder Services. The Transfer Agent shall respond as appropriate to all inquiries and communications from Shareholders relating to Shareholder accounts with respect to its duties hereunder and as may be from time to time mutually agreed upon between the Transfer Agent and the Funds. 3. Share Certificates. (a) At the expense of the appropriate Fund, each Fund shall supply the Transfer Agent with adequate supply of blank share certificates to meet the Transfer Agent's requirements therefor. Such Share certificates shall be properly signed by facsimile. Each Fund agrees that, notwithstanding the death, resignation, or removal of any officer of the Fund whose signature appears on such certificates, the Transfer Agent or its agent may continue to countersign certificates which bear such signatures until otherwise directed by Written Instructions. (b) The Transfer Agent shall issue replacement Share certificates in lieu of certificates which have been lost, stolen or destroyed, upon receipt by the Transfer Agent of properly executed affidavits and lost certificate bonds, in form satisfactory to the Transfer Agent, with the appropriate Fund and the Transfer Agent as obligees under the bond. (c) The Transfer Agent shall also maintain a record of each certificate issued, the number of Shares represented thereby and the Shareholder of record. With respect to Shares held in open accounts or in uncertificated form (i.e., no certificate being issued with respect thereto) the Transfer Agent shall maintain comparable records of the Shareholders thereof, including their names, addresses and taxpayer identification number. The Transfer Agent shall further maintain a stop transfer record on lost and/or replaced certificates. 4. Mailing Communications to Shareholders; Proxy Materials. The Transfer Agent will address and mail to Shareholders of the Funds, all reports to Shareholders, dividend and distribution notices and proxy material for the Funds' meetings of Shareholders. In connection with meetings of Shareholders, the Transfer Agent will prepare Shareholder lists, mail and certify as to the mailing of proxy materials, process and tabulate returned proxy cards, report on proxies voted prior to meetings, act as inspector of election at meetings and certify Shares voted at meetings. 1 5. Sales of Shares (a) The Transfer Agent shall not be required to issue any Shares of a Fund where it has received a Written Instruction from the Fund or official notice from any appropriate authority that the sale of the Shares of the Fund has been suspended or discontinued. The existence of such Written Instructions or such official notice shall be conclusive evidence of the right of the Transfer Agent to rely on such Written Instructions or official notice. (b) In the event that any check or other order for the payment of money is returned unpaid for any reason, the Transfer Agent will endeavor to: (i) give prompt notice of such return to the Fund or its designee; (ii) place a stop transfer order against all Shares issued as a result of such check or order; and (iii) take such actions as the Transfer Agent may from time to time deem appropriate. 6. Transfer and Repurchase (a) The Transfer Agent shall process all requests to transfer or redeem Shares in accordance with the transfer or repurchase procedures set forth in the Funds' Prospectus. (b) The Transfer Agent will transfer or repurchase Shares upon receipt of Oral or Written Instructions or otherwise pursuant to the Prospectus and Share certificates, if any, properly endorsed for transfer or redemption, accompanied by such documents as the Transfer Agent reasonably may deem necessary. (c) The Transfer Agent reserves the right to refuse to transfer or repurchase Shares until it is satisfied that the endorsement on the instructions is valid and genuine. The Transfer Agent also reserves the right to refuse to transfer or repurchase Shares until it is satisfied that the requested transfer or repurchase is legally authorized, and it shall incur no liability for the refusal, in good faith, to make transfers or repurchases which the Transfer Agent, in its good judgment, deems improper or unauthorized, or until it is reasonably satisfied that there is no basis to any claims adverse to such transfer or repurchase. (d) When Shares are redeemed, the Transfer Agent shall, upon receipt of the instructions and documents in proper form, deliver to the Custodian and the appropriate Fund or its designee a notification setting forth the number of Shares to be redeemed. Such redeemed Shares shall be reflected on appropriate accounts maintained by the Transfer Agent reflecting outstanding Shares of the Fund and Shares attributed to individual accounts. (e) The Transfer Agent, upon receipt of the monies paid to it by the Custodian for the redemption of Shares, pay such monies as are received from the Custodian, all in accordance with the procedures described in the Written Instructions received by the Transfer Agent from the Funds. 2 (f) The Transfer Agent shall not process or effect any repurchase with respect to Shares of the Fund after receipt by the Transfer Agent or its agent of notification of the suspension of the determination of the net asset value of the Fund. 7. Dividends (a) Upon the declaration of each dividend and each capital gains distribution by the Board of Directors of a Fund with respect to Shares of the Fund, the Fund shall furnish or cause to be furnished to the Transfer Agent Written Instructions setting forth the date of the declaration of such dividend or distribution, the ex-dividend date, the date of payment thereof, the record date as of which Shareholders entitled to payment shall be determined, the amount payable per Share to the Shareholders of record as of that date, the total amount payable to the Transfer Agent on the payment date and whether such dividend or distribution is to be paid in Shares at net asset value. (b) On or before the payment date specified in such resolution of the Board of Directors, the Fund will pay to the Transfer Agent sufficient cash to make payment on such payment date to the Shareholders of record on the record date. (c) If, prior to the payment date, the Transfer Agent does not receive sufficient cash from the Fund to make total dividend and/or distribution payments to all Shareholders of the Fund of the record date, the Transfer Agent will, upon notifying the Fund, withhold payment to all Shareholders of record as of the record date until sufficient cash is provided to the Transfer Agent. 8. In addition to and neither in lieu nor in contravention of the services set forth above, the Transfer Agent shall: (i) perform all the customary services of a transfer agent, registrar, dividend disbursing agent and agent of the dividend reinvestment and cash purchase plan as described herein consistent with those requirements in effect as at the date of this Agreement. The detailed definition, frequency, limitations and associated costs (if any) set out in the attached fee schedule, include but are not limited to: maintaining all Shareholder accounts, preparing Shareholder meeting lists, mailing proxies, tabulating proxies, mailing Shareholder reports to current Shareholders, withholding taxes on U.S. resident and non-resident alien accounts where applicable, preparing and filing U.S. Treasury Department Forms 1099 and other appropriate forms required with respect to dividends and distributions by federal authorities for all Shareholders. 3 Schedule B Quality Standards (Effective October 2, 1995 as updated on September 25, 1995) For all funds, open-end and closed-end, serviced by TSSG, under the Transfer Agency and Services Agreement (with Facilities Management Arrangement) dated June 1, 1995, the following quality standards shall apply. This schedule shall replace the temporary quality standard Schedule B in the original agreement as referenced in Section 5.2. Financials: - ---------- Subscriptions 98% Redemptions 98% Exchanges 98% Non-Financials: - -------------- Maintenances 98% Transfers 98% Correspondence 98% Adjustments 98% Telephone Calls 98% New Accounts: - ------------ New Account Set-ups 98% Performance Standards Telephone Performance Standards Average speed of answer 20 seconds or less Calls abandoned 2% of calls that wait 20 second or more Service level* 80% Article 1 _______________________ *Represents the percentage of calls answered within 20 seconds. Schedule B [List of Initial Quality Standards based on 1994 quarterly senior management reports] Nations Fund Financial Transactions Subscriptions 98% Redemptions 98% Exchanges 98% Non-Financials Maintenance 98% Transfers 98% New Accounts 98% % = minimum acceptable levels Closed End Funds Financials 98% Subscriptions 98% Redemptions 98% Exchanges 98% Non-Financials Certificate Processing 98% Maintenance 98% Transfers 98% New Accounts 98% % = minimum acceptable levels Capitol Funds Financials Subscriptions 98% Redemptions 98% Exchanges 98% Non-Financials Maintenance 98% Transfers 98% 1 New Accounts 98% % = minimum acceptable levels 2 Schedule C Schedule of Costs 1. For purposes of this Agreement, "Costs" shall mean all internal and external costs incurred by the Transfer Agent in connection with and properly allocated to the Services provided under the Agreement, including, but not limited to, the costs involved with the operation of the Charlotte Facility, those costs reasonably incurred by the Transfer Agent to achieve the quality standards imposed on it under the terms of this Agreement and the Transfer Agent's overhead, depreciation and amortization costs, excepting out-of-pocket expenses and such other costs agreed to in writing by the Transfer Agent and the Funds. 2. The Funds shall have the right to audit, at their own expense, the books and records of the Transfer Agent with respect to the Costs for which the Transfer Agent seeks reimbursement under Article 8 on an annual basis, or more frequently if the Funds have a reasonable basis to dispute any cost for which the Transfer Agent seeks reimbursement. 3. The Transfer Agent shall use its best efforts to minimize the costs incurred by it in connection with the provisions of services under this Agreement to the extent such action is commercially reasonable and consistent with the quality standards imposed under this Agreement. Schedule D Non-Margin Expenses - - Facilities related expenses as incurred by the Transfer Agent under the Facilities Management Agreement between the Transfer Agent and NationsBank - - Out-of-Pocket expenses - - Sub-Transfer Agent Fees and Expenses - - Any other expenses agreed to in writing by the Transfer Agent and the Funds Schedule E OUT-OF-POCKET EXPENSES The Funds shall reimburse the Transfer Agent monthly for reasonable out-of-pocket expenses incurred in connection with the provision of Services under this Agreement, including, but not limited to the following items: - Microfiche/microfilm production - Magnetic media tapes and freight - Printing costs, including certificates, envelopes, checks and stationery - Postage (bulk, pre-sort, ZIP+4, barcoding, first class) direct pass through to the Funds - Due diligence mailings - Telephone and telecommunication costs, including all lease, maintenance and line costs (excluding such telephone and telecommunications costs provided by NationsBank pursuant to the Facilities Agreement) - Ad hoc reports - Proxy solicitations, mailings and tabulations - Daily & Distribution advice mailings (including all periodic statements) - Shipping, Certified and Overnight mail and insurance - Year-end form production and mailings - Terminals, communication lines, printers and other equipment and any expenses incurred in connection with such terminals and lines - Duplicating services - Courier services - Incoming and outgoing wire charges - Federal Reserve charges for check clearance - Overtime, as approved by the Funds - Temporary staff, as approved by the Funds - Travel and entertainment, as approved by the Funds - Record retention, retrieval and destruction costs, including, but not limited to exit fees charged by third party record keeping vendors - Third party audit reviews - All conversion costs: including System start up costs - Insurance - Such other miscellaneous expenses reasonably incurred by the Transfer Agent in performing its duties and responsibilities under this Agreement. - Systems Programming utilizing non-dedicated systems resources at $100 per hour The Funds agree that postage and mailing expenses will be paid on the day of or prior to mailing as agreed with the Transfer Agent. In addition, the Funds will promptly reimburse the Transfer Agent for any other unscheduled expenses incurred by the Transfer Agent whenever the Funds and the Transfer Agent mutually agree that such 1 expenses are not otherwise properly borne by the Transfer Agent as part of its duties and obligations under the Agreement. 2 Schedule F Fund Documents - - Certified copy of the Articles of Incorporation of the Fund, as amended - - Certified copy of the By-laws of the Fund, as amended - - Copy of the resolution of the Board of Directors authorizing the execution and delivery of this Agreement - - Specimens of the certificates for Shares of the Fund, if applicable, in the form approved by the Board of Directors of the Fund, with a certificate of the Secretary of the Fund as to such approval - - All account application forms and other documents relating to Shareholder accounts or to any plan, program or service offered by the Fund - - Certified list of Shareholders of the Fund with the name, address and taxpayer identification number of each Shareholder, and the number of Shares of the Fund held by each, certificate numbers and denominations (if any certificates have been issued), lists of any accounts against which stop transfer orders have been placed, together with the reasons therefore, and the number of Shares redeemed by the Fund. - - All notices issued by the Fund with respect to the Shares in accordance with and pursuant to the Articles of Incorporation or By-laws of the Fund or as required by law and shall perform such other specific duties as are set forth in the Articles of Incorporation including the giving of notice of any special or annual meetings of shareholders and any other notices required thereby. SCHEDULE G FUND PORTFOLIOS NATIONS FUND TRUST: 1. Nations Government Money Market Fund 2. Nations Tax Exempt Fund 3. Nations Value Fund 4. Nations Strategic Growth Fund 5. Nations Capital Growth Fund 6. Nations MidCap Growth Fund 7. Nations LargeCap Index Fund 8. Nations Managed Index Fund 9. Nations SmallCap Index Fund 10. Nations Aggressive Growth Fund 11. Nations Short-Intermediate Government Fund 12. Nations Short-Term Income Fund 13. Nations Strategic Income Fund 14. Nations Bond Fund 15. Nations Municipal Income Fund 16. Nations Short-Term Municipal Income Fund 17. Nations Intermediate Municipal Bond Fund 18. Nations Florida Intermediate Municipal Bond Fund 19. Nations Florida Municipal Bond Fund 20. Nations Georgia Intermediate Municipal Bond Fund 21. Nations Georgia Municipal Bond Fund 22. Nations Maryland Intermediate Municipal Bond Fund 23. Nations Maryland Municipal Bond Fund 24. Nations North Carolina Intermediate Municipal Bond Fund 25. Nations North Carolina Municipal Bond Fund 26. Nations South Carolina Intermediate Municipal Bond Fund 27. Nations South Carolina Municipal Bond Fund 28. Nations Tennessee Intermediate Municipal Bond Fund 29. Nations Tennessee Municipal Bond Fund 30. Nations Texas Intermediate Municipal Bond Fund 31. Nations Texas Municipal Bond Fund 32. Nations Virginia Intermediate Municipal Bond Fund 33. Nations Virginia Municipal Bond Fund NATIONS FUND, INC.: 1. Nations Prime Fund 2. Nations Treasury Fund 3. Nations Equity Income Fund 4. Nations Small Company Fund 1 NATIONS RESERVES: 1. Nations Government Reserves 2. Nations Municipal Reserves 3. Nations Cash Reserves 4. Nations Treasury Reserves 5. Nations Money Market Reserves 6. Nations California Tax-Exempt Reserves 7. Nations Convertible Securities Fund 8. Nations California Municipal Bond Fund 9. Nations Intermediate Bond Fund 10. Nations Blue Chip Fund 11. Nations International Equity Fund 12. Nations International Value Fund 13. Nations Emerging Markets Fund NATIONS SEPARATE ACCOUNT TRUST (FORMERLY NATIONS ANNUITY TRUST): 1. Nations Value Portfolio 2. Nations Marsico International Opportunities Portfolio 3. Nations Marsico 21st Century Portfolio 4. Nations Marsico Focused Equities Portfolio 5. Nations Marsico Growth & Income Portfolio 6. Nations Capital Growth Portfolio 7. Nations Small Company Portfolio 8. Nations Asset Allocation Portfolio 9. Nations High Yield Bond Portfolio 10. Nations International Value Portfolio 11. Nations MidCap Growth Portfolio NATIONS FUNDS TRUST: 1. Nations High Yield Bond Fund 2. Nations MidCap Index Fund 3. Nations Kansas Municipal Income Fund 4. Nations Marsico 21st Century Fund 5. Nations Marsico International Opportunities Fund 6. Nations Financial Services Fund 7. Nations Classic Value Fund 8. Nations Global Value Fund 9. Nations Asset Allocation Fund 10. Nations Government Securities Fund 11. Nations Marsico Focused Equities Fund 12. Nations Marsico Growth & Income Fund 13. Nations LifeGoal Growth Portfolio 14. Nations LifeGoal Balanced Growth Portfolio 15. Nations LifeGoal Income and Growth Portfolio 2 CLOSED END FUNDS: 1. Nations Balanced Target Maturity Fund 2. Nations Government Income Term Trust 2003, Inc. 3. Nations Government Income Term Trust 2004, Inc. Last Amended: June 8, 2001 3 IN WITNESS WHEREOF, the parties hereto have caused the amended Schedule G to be executed by their officers designated below as of the 8th day of June, 2001. PFPC Inc. (indirect successor to The Shareholder Services Group, Inc.) By: /s/ Mark Hoefel --------------- Mark Hoefel NATIONS FUND TRUST By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Secretary NATIONS FUND, INC. By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Secretary NATIONS RESERVES By: /s/ Richard H. Blank, Jr. --------------------------- Richard H. Blank, Jr. Secretary 4 NATIONS SEPARATE ACCOUNT TRUST (formerly Nations Annuity Trust) By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Secretary NATIONS FUNDS TRUST By: /s/ Richard H. Blank, Jr. ------------------------- Richard H. Blank, Jr. Secretary NATIONS BALANCED TARGET MATURITY FUND, INC. By: /s/ Robert B. Carroll --------------------- Robert B. Carroll Secretary NATIONS GOVERNMENT INCOME TERM TRUST 2003, INC. By: /s/ Robert B. Carroll --------------------- Robert B. Carroll Secretary 5 NATIONS GOVERNMENT INCOME TERM TRUST 2004, INC. By: /s/ Robert B. Carroll --------------------- Robert B. Carroll Secretary 6 EX-99.23(H)(8) 14 ex99-23h8_87612.txt SUB-TRANSFER SUB-TRANSFER AGENCY AND SERVICES AGREEMENT THIS AGREEMENT, dated as of this 11th day of September, 1995, is by and between THE SHAREHOLDER SERVICES GROUP, INC. ("TSSG", also referred to as the "Transfer Agent"), a Massachusetts corporation and principal offices at One Exchange Place, 53 State Street, Boston, Massachusetts 02109 and NATIONSBANK OF TEXAS, N.A. ("NationsBank"), organized under the laws of Texas and having its principal place of business at 1401 Elm Street, 11th Floor, Dallas, TX 75202. WITNESSETH WHEREAS, TSSG has been appointed transfer agent for those open-end registered investment companies identified on the attached Schedule A (individually the "Fund" and collectively the "Funds") pursuant to the terms of the Transfer Agency and Services Agreement (the "Transfer Agent Agreement(s)") with each such Fund; WHEREAS, the Funds are authorized to issue shares in separate series, with each such series representing interests in a separate portfolio of securities and other assets ("Portfolio"). Each such Portfolio shall also be identified on Schedule A; WHEREAS, each Portfolio is authorized to issue multiple classes of shares including Trust A Shares and, in many cases, Trust B Shares (the "Trust Shares"); and WHEREAS, the Funds have authorized TSSG to subcontract with and appoint NationsBank as its agent to perform certain administrative and ministerial duties and obligations that the Transfer Agent has to the Funds with respect to the Trust Shares and NationsBank desires to accept such appointment; NOW THEREFORE, in consideration of the mutual covenants and promises hereinafter set forth, TSSG and NationsBank agree as follows: Article 1 Definitions 1.1 Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings: (a) "Articles of Incorporation" shall mean the Articles of Incorporation, Declaration of Trust, or other similar organizational document as the case may be, of the Funds as the same may be amended from time to time; (b) "Authorized Person" shall be deemed to include (i) any authorized Officer of the Fund; or (ii) any person, whether or not such person is an Officer or employee of the Fund, duly authorized to give Oral Instructions or Written Instructions on behalf of the Fund as indicated in writing to the Transfer Agent from time to time; (c) "Board of Directors" shall mean the Board of Directors or Board of Trustees of the Fund, as the case may be; (d) "Commission" shall mean the Securities and Exchange Commission; (e) "Custodian" refers to any custodian or subcustodian of securities and other property which the Fund may from time to time deposit, or cause to be deposited or held under the name or account of such a custodian pursuant to a Custodian Agreement; (f) "1940 Act" shall mean the Investment Company Act of 1940, and the rules and regulations promulgated thereunder, all as amended from time to time; (g) "Oral Instructions" shall mean instructions, other than Written Instructions, actually received by NationsBank from a person reasonably believed by NationsBank to be an Authorized Person; (h) "Prospectus" shall mean the most recently dated Fund Prospectuses and Statements of Additional Information, including supplements thereto if any, which have become effective under the Securities Act of 1933 and the 1940 Act; (i) "Shares" refers collectively to such Trust Shares of the Portfolios as may be issued from time to time; (j) "Shareholder" shall mean a record owner of Shares; and (k) "Written Instructions" shall mean a written communication signed by a person reasonably believed by NationsBank to be an Authorized Person and actually received by the Transfer Agent. Written Instructions shall include manually executed originals and authorized electronic transmissions, including telefacsimile of a manually executed original or other process. Article 2 Appointment of NationsBank 2.1 TSSG hereby appoints NationsBank as its subcontractor and agent to perform certain administrative and ministerial duties on behalf of the Funds, and NationsBank hereby accepts such appointment and agrees to perform the duties hereinafter set forth. Article 3 Duties of NationsBank 3.1 NationsBank shall be responsible for administering and/or performing the customary services of a transfer agent; for performing the customary services of a service agent in connection with dividend and distribution functions; and for performing shareholder account and administrative agent functions in connection with the issuance, transfer and redemption or repurchase (including coordination with the Custodian) of Shares, as more fully described in the written Schedule of Duties of NationsBank annexed hereto as Schedule B and incorporated herein, and in accordance with the terms 2 of the Prospectus, applicable law and the procedures established from time to time between NationsBank and the Transfer Agent and/or the Funds. 3.2 Notwithstanding any of the foregoing provisions of this Agreement, NationsBank and the Transfer Agent shall be under no duty or obligation to inquire into, and shall not be liable for: (i) the legality of the issuance or sale of any Shares or the sufficiency of the amount to be received therefor; (ii) the legality of the redemption of any Shares, or the propriety of the amount to be paid therefor; (iii) the legality of the declaration of any dividend by the Board of Directors, or the legality of the issuance of any shares in payment of any dividend; or (iv) the legality of any recapitalization or readjustment of the Shares. It being understood that such shall be the responsibility of the Funds. 3.3 In addition, the Funds shall verify the establishment of transactions in Shares for each state on the system prior to activation and thereafter monitor the daily activity for each state. The responsibility of NationsBank for the Funds' blue sky state registration status is solely limited to the initial establishment of transactions in Shares subject to blue sky compliance by the Funds and the reporting of such transactions to the Funds as provided above. Article 4 Recordkeeping and Other Information 4.1 NationsBank shall create and maintain all records required of it pursuant to its duties hereunder and as set forth in Schedule B in accordance with all applicable laws, rules and regulations, including records required by Section 31(a) of the 1940 Act. All records shall be available during regular business hours for inspection and use by the Transfer Agent and the Funds. Where applicable, such records shall be maintained by NationsBank for the periods and in the places required by Rule 31a-2 under the 1940 Act. 4.2 To the extent required by Section 31 of the 1940 Act, NationsBank agrees that all such records prepared or maintained by NationsBank relating to the services to be performed by NationsBank hereunder are the property of the Funds and will be preserved, maintained and made available in accordance with such section, and will be surrendered promptly to the Funds on and in accordance with the Funds' request. 4.3 In case of any requests or demands for the inspection of Shareholder records of the Funds, NationsBank will endeavor to notify the applicable Fund of such request and secure Written Instructions as to the handling of such request. NationsBank reserves the right, however, to exhibit the Shareholder records to any person whenever it is advised by its counsel that it may be held liable for the failure to comply with such request. 4.4 Upon reasonable notice by the applicable Fund, NationsBank shall make available during regular business hours such of its facilities and premises employed in connection with the performance of its duties under this Agreement for reasonable visitation by such Fund, or any person retained by the Fund as may be necessary for the Fund to evaluate the quality of the services performed by NationsBank pursuant hereto. 3 Article 5 Fund Instructions 5.1 NationsBank will have no liability when acting upon Written or Oral Instructions believed to have been executed or orally communicated by an Authorized Person and will not be held to have any notice of any change of authority of any person until it receives Written Instruction thereof from the Fund. NationsBank will also have no liability when processing Share certificates which it reasonably believes to bear the proper manual or facsimile signatures of the Officers of the Fund and the proper countersignature of the Transfer Agent. 5.2 At any time, NationsBank may request Written Instructions from the Fund and may seek advice from legal counsel for the Funds, or its own legal counsel, with respect to any matter arising in connection with this Agreement, and it shall not be liable for any action taken or not taken or suffered by it in good faith in accordance with such Written Instructions or in accordance with the opinion of counsel for the Funds or for NationsBank. Written Instructions requested by NationsBank will be provided by the Fund within a reasonable period of time. 5.3 NationsBank, its Officers, agents or employees, shall accept Oral Instructions or Written Instructions given to them by any person representing or acting on behalf of a Fund only if said representative is an Authorized Person. The Fund agrees that all Oral Instructions shall be followed, within one business day, by confirming Written Instructions, and that the Fund's failure to so confirm shall not impair in any respect NationsBank's right to reply on Oral Instructions. Article 6 Compensation 6.1 Upon receipt of the appropriate payment from the Funds, the Transfer Agent will compensate NationsBank for the performance of its obligations hereunder in accordance with the fees set forth in the written Fee Schedule annexed hereto as Schedule C and incorporated herein. The Transfer Agent's responsibility under this Section 6.1 is conditioned upon receipt of such payment from the Funds. Article 7 Representations and Warranties of NationsBank 7.1 NationsBank represents and warrants to the Transfer Agent that: (a) it is a corporation duly organized and existing and in good standing under the laws of Texas; (b) it is empowered under applicable laws and by its Articles of Incorporation and By-Laws to enter into and perform this Agreement; (c) all requisite corporate proceedings have been taken to authorize it to enter into this Agreement; 4 (d) it is duly registered with its appropriate regulatory agency as a transfer agent and such registration will remain in effect for the duration of this Agreement; (e) it has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement. Article 8 Representations and Warranties of the Transfer Agent 8.1 The Transfer Agent represents and warrants to NationsBank that: (a) it is duly organized and existing and in good standing under the laws of the jurisdiction in which it is organized; (b) it is empowered under applicable laws and by its Articles of Incorporation and By-Laws and the Transfer Agent Agreement to enter into this Agreement; (c) all corporate proceedings required by said Articles of Incorporation, By-Laws and applicable laws have been taken to authorize it to enter into this Agreement. Article 9 Indemnification 9.1 To, and only to, the extent the Transfer Agent is indemnified by the Funds pursuant to the terms of the Transfer Agent Agreements, NationsBank shall not be responsible for and the Transfer Agent shall indemnify and hold NationsBank harmless from and against any and all claims, costs, expenses (including reasonable attorneys' fees), losses, damages, charges, payments and liabilities of any sort or kind which may be asserted against NationsBank or for which NationsBank may be held to be liable (a "Claim") arising out of or attributable to any of the following: (a) Any actions of NationsBank required to be taken pursuant to this Agreement unless such Claim resulted from a negligent act or omission to act or bad faith by NationsBank in the performance of its duties hereunder. (b) NationsBank's reasonable reliance on, or reasonable use of information, data, records and documents (including but not limited to magnetic tapes, computer printouts, hard copies and microfilm copies) received by NationsBank from the Funds, or any authorized third party acting on behalf of the Funds, including but not limited to the Transfer Agent or any prior transfer agent for the Funds, in the performance of NationsBank's duties and obligations hereunder. (c) The reliance on, or the implementation of, any Written or Oral Instructions or any other instructions or requests which are provided by an Authorized Person of the Fund. 5 (d) The offer or sale of shares by the Fund in violation of any requirement under the securities laws or regulations of any state that such Shares be registered in such state or in violation of any stop order or other determination or ruling by any state with the respect to the offer or sale of such Shares in such state. (e) The Transfer Agent's refusal or failure to comply with the terms of this Agreement, or any Claim which arises out of this Agreement, or any Claim which arises out of the Transfer Agent's negligence or misconduct or the breach of which any representation or warranty of the Transfer Agent made herein. 9.2 Notwithstanding the foregoing Section 9.1, the Transfer Agent shall be responsible for and indemnify and hold NationsBank harmless from and against any and all claims by third parties, including, costs, expenses (including reasonable attorneys' fees), losses, damages, charges, payments and liabilities of any sort or kind which may be asserted against NationsBank or for which NationsBank may be held to be liable arising out of or attributable to a negligent act or omission to act or bad faith by the Transfer Agent. 9.3 NationsBank shall indemnify and hold the Transfer Agent harmless from and against any and all claims, costs, expenses (including reasonable attorneys' fees), losses, damages, charges, payments and liabilities of any sort or kind which may be asserted against the Transfer Agent or for which the Transfer Agent may be held to be liable arising out of or attributable to any negligent act or failure to act or bad faith or willful misconduct on the part of NationsBank in connection with the performance of its duties under this Agreement. 9.4 In any case in which either party (the "Indemnifying Party") may be asked to indemnify or hold the other (the "Indemnified Party") harmless, the Indemnified Party will notify the Indemnifying Party promptly after identifying any situation which it believes presents or appears likely to present a claim for indemnification against the Indemnifying Party although the failure to do so shall not prevent recovery by the Indemnified Party and the Indemnified Party shall keep the Indemnifying Party advised with respect to all developments concerning such situation. The Indemnifying Party shall have the option to defend the Indemnified Party against any Claim which may be the subject of this indemnification, and, in the event that the Indemnifying Party so elects, such defense shall be conducted by counsel chosen by the Indemnifying Party and satisfactory to the Indemnified Party, and thereupon the Indemnifying Party shall take over complete defense of the Claim and the Indemnified Party shall sustain no further legal or other expenses in respect of such Claim. The Indemnified Party will not confess any Claim or make any compromise in any case in which the Indemnifying Party will be asked to provide indemnification, except with the Indemnifying Party's prior written consent. 9.5 The obligations of the parties hereto under this Article 9 shall survive the termination of this Agreement. 6 Article 10 Standard of Care 10.1 NationsBank shall at all times, act in good faith and agrees to use its best efforts within commercially reasonable limits to ensure the accuracy of all services performed under this Agreement, but assumes no responsibility for loss or damage to the Transfer Agent unless said errors are caused by NationsBank's own negligence, bad faith or willful misconduct or that of its employees. Article 11 Consequential Damages 11.1 In no event and under no circumstances shall either party to this Agreement be liable to the other party for consequential or indirect loss of profits, reputation or business or any other special damages under any provision of this Agreement or for any act or failure to act hereunder. Article 12 Term and Termination 12.1 This Agreement shall be effective on the date first written above and shall continue for a period of five (5) years (the "Initial Term"), unless earlier terminated pursuant to the terms of this Agreement. Thereafter, this Agreement shall automatically be renewed for successive terms of three (3) years ("Renewal Terms") each. 12.2 Either party may terminate this Agreement at the end of the Initial Term or any subsequent Renewal Term upon not less than ninety (90) days, or more than one-hundred eighty (180) days, prior written notice to the other party. 12.3 In the event a termination notice is given by the Transfer Agent, all expenses associated with movement of records and materials and conversion thereof to the Transfer Agent or to a successor subcontractor, will be borne by the Transfer Agent. 12.4 If a party hereto is guilty of a material failure to perform its duties and obligations hereunder (a "Defaulting Party") the other party (the "Non-Defaulting Party") may give written notice thereof to the Defaulting Party, and if such material breach shall not have been remedied within thirty (30) days after such written notice is given, then the Non-Defaulting Party may terminate this Agreement by giving thirty (30) days written notice of such termination to the Defaulting Party. If NationsBank is the Non-Defaulting Party, its termination of this Agreement shall not constitute a waiver of any other rights or remedies of NationsBank with respect to services performed prior to such termination of rights of NationsBank to be reimbursed for out-of-pocket expenses. In all cases, termination by the Non-Defaulting Party shall not constitute a waiver by the Non-Defaulting Party of any other rights it might have under this Agreement or otherwise against the Defaulting Party. 12.5 Notwithstanding any provision of this Article 12 to the contrary, this Agreement shall terminate simultaneously with any termination of the Transfer Agent Agreement. 7 Article 13 Confidentiality 13.1 In connection with the services provided by NationsBank hereunder, certain confidential and proprietary information regarding NationsBank and the Transfer Agent may be disclosed to the other. In connection therewith, the parties agree as follows: (a) Confidential Information disclosed under this Agreement shall mean: (i) any data or information that is competitively sensitive material, and not generally known to the public, including, but not limited to, information about product plans, marketing strategies, finance, operations, customer relationships, customer profiles, sales estimates, business plans, and internal performance results relating to the past, present or future business activities of NationsBank, the Transfer Agent or the Funds, their respective parent corporations, their respective subsidiaries and affiliated companies and the customers, clients and suppliers of any of the foregoing; (ii) any scientific or technical information, design, process, procedure, formula, or improvement that is commercially valuable and secret in the sense that its confidentiality affords NationsBank, the Transfer Agent or the Funds a competitive advantage over its competitors; and (iii) all confidential or proprietary concepts, documentation, reports, data, specifications, computer software, source code, object code, flow charts, databases, inventions, know-how, show-how and trade secrets, whether or not patentable or copyrightable. (b) Confidential Information also includes, without limitation, all documents, inventions, substances, engineering and laboratory notebooks, drawings, diagrams, specifications, bills of material, equipment, prototypes and models, and any other tangible manifestation of the foregoing which now exist or come into the control or possession of the party. 13.2 Except as expressly authorized by prior written consent of the disclosing party ("Discloser"), the party receiving Confidential Information ("Recipient") shall: (a) limit access to Discloser's Confidential Information to Recipient's employees who have a need-to-know in connection with the subject matter thereof; (b) advise those employees who have access to the Confidential Information of the proprietary nature thereof and of the obligations set forth in this Confidentiality Agreement; 8 (c) take appropriate action by instruction or agreement with the employees having access to Discloser's Confidential Information to fulfill Recipient's obligations under this Confidentiality Agreement; (d) safeguard all of Discloser's Confidential Information by using a reasonable degree of care, but not less than that degree of care used by Recipient in safeguarding its own similar information or material; (e) use all of Discloser's Confidential Information solely for purposes that it was intended; (f) not disclose any of Discloser's Confidential Information to third parties. 13.3 Upon Discloser's request, Recipient shall surrender to Discloser all memoranda, notes, records, drawings, manuals, records, and other documents or materials (and all copies of same) relating to or containing Discloser's Confidential Information. When Recipient returns the materials, Recipient shall certify in writing that it has returned all materials containing or relating to the Confidential Information. 13.4 The obligations of confidentiality and restriction on use in this Article 13 shall not apply to any Confidential Information that Recipient proves: (a) Was in the public domain prior to the date of this Agreement or subsequently came into the public domain through no fault of Recipient; (b) Was lawfully received by Recipient from a third party free of any obligation of confidence to the third party; (c) Was already in Recipient's possession prior to receipt from Discloser; (d) Is required to be disclosed in a judicial or administrative proceeding after all reasonable legal remedies for maintaining such information in confidence have been exhausted including, but not limited to, giving Discloser as much advance notice as practical of the possibility of disclosure to allow Discloser to stop such disclosure or obtain a protective order concerning such disclosure; or (e) Is subsequently and independently developed by Recipient's employees, consultants or agents without reference to Confidential Information. 13.5 NationsBank and the Transfer Agent agree that money damages would not be a sufficient remedy for breach of this Article 13. Accordingly, in addition to all other remedies that either party may have, a party shall be entitled to specific performance and injunctive or other equitable relief as a remedy for any breach of this Agreement. The parties agree to waive any requirement for a bond in connection with any such injunctive or other equitable relief. 9 Article 14 Force Majeure 14.1 In the event either party is unable to perform its obligations under the terms of this Agreement because of acts of God, strikes, labor difficulties, mechanical breakdowns, equipment or transmission failure or damage reasonably beyond its control, or other causes reasonably beyond its control, such party shall not be liable for damages to the other for any damages resulting from such failure to perform or otherwise from such causes. Article 15 Amendments 15.1 This Agreement may only be amended or modified by a written instrument executed by both parties. Article 16 Subcontracting 16.1 The Transfer Agent agrees that NationsBank may, in its discretion, subcontract for certain of the services described under this Agreement or the Schedules hereto; provided that the appointment of any such subcontractor shall not relieve NationsBank of its responsibilities hereunder. Article 17 Arbitration 17.1 Any Claim or controversy arising out of or relating to this Agreement, or breach hereof, shall be settled by arbitration administered by the American Arbitration Association in Boston, Massachusetts in accordance with its applicable rules, except that the Federal Rules of Evidence and the Federal Rules of Civil Procedure with respect to the discovery process shall apply. 17.2 The parties hereby agree that judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. 17.3 The parties acknowledge and agree that the performance of the obligations under this Agreement necessitates the use of instrumentalities of interstate commerce and, notwithstanding other general choice of law provisions in this Agreement, the parties agree that the Federal Arbitration Act shall govern and control with respect to the provisions of this Article 17. Article 18 Notice 18.1 Any notice or other instrument authorized or required by this Agreement to be given in writing to NationsBank or the Transfer Agent, shall be sufficiently given if addressed to that party and received by it at its office set forth below or at such other place as it may from time to time designate in writing. To the Transfer Agent: 10 The Shareholder Services Group, Inc. One Exchange Place 53 State Street Boston, Massachusetts 02109 Attention: President with a copy to TSSG's General Counsel To: NationsBank NationsBank NationsBank Plaza 101 S. Tryon Street, NC1-002-33-31 Charlotte, North Carolina 28255 Attention: Ted Johnson Article 19 Successors 19.1 This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns, provided, however, that this Agreement shall not be assigned to any person other than a person controlling, controlled by or under common control with the assignor without the written consent of the other party, which consent shall not be unreasonably withheld. Article 20 Governing Law 20.1 This Agreement shall be governed exclusively by the laws of the Commonwealth of Massachusetts without reference to the choice of law provisions thereof. Subject to Article 17, each party to this Agreement hereby (i) consents to the personal jurisdiction of the Commonwealth of Massachusetts courts over the parties hereto, hereby waiving any defense of lack of personal jurisdiction; and (ii) appoints the person to whom notices hereunder are to be sent as agent for service of process. Article 21 Counterparts 21.1 This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original; but such counterparts shall, together, constitute only one instrument. 11 Article 22 Captions 22.1 The captions included in this Agreement are for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect. Article 23 Relationship of Parties 23.1 The parties agree that they are independent contractors and not partners or co-venturers and nothing contained herein shall be interpreted or construed otherwise. Article 24 Entire Agreement; Severability 24.1 This Agreement and the Schedules attached hereto constitute the entire agreement of the parties hereto relating to the matters covered hereby and supersede any previous agreements. If any provision is held to be illegal, unenforceable or invalid for any reason, the remaining provisions shall not be affected or impaired thereby. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers, as of the day and year written above. THE SHAREHOLDER SERVICES GROUP, INC. By: /s/ Jack P. Kurt ---------------- Title: Executive Vice President and Chief Operating Officer NATIONSBANK OF TEXAS, N.A. By: /s/ Mark H. Williamson ---------------------- Title: Senior Vice President --------------------- 12 SCHEDULE A FUND PORTFOLIOS NATIONS FUND TRUST: 1. Nations Government Money Market Fund 2. Nations Tax Exempt Fund 3. Nations Value Fund 4. Nations Strategic Growth Fund 5. Nations Capital Growth Fund 6. Nations MidCap Growth Fund 7. Nations LargeCap Index Fund 8. Nations Managed Index Fund 9. Nations SmallCap Index Fund 10. Nations Aggressive Growth Fund 11. Nations Short-Intermediate Government Fund 12. Nations Short-Term Income Fund 13. Nations Strategic Income Fund 14. Nations Bond Fund 15. Nations Municipal Income Fund 16. Nations Short-Term Municipal Income Fund 17. Nations Intermediate Municipal Bond Fund 18. Nations Florida Intermediate Municipal Bond Fund 19. Nations Florida Municipal Bond Fund 20. Nations Georgia Intermediate Municipal Bond Fund 21. Nations Georgia Municipal Bond Fund 22. Nations Maryland Intermediate Municipal Bond Fund 23. Nations Maryland Municipal Bond Fund 24. Nations North Carolina Intermediate Municipal Bond Fund 25. Nations North Carolina Municipal Bond Fund 26. Nations South Carolina Intermediate Municipal Bond Fund 27. Nations South Carolina Municipal Bond Fund 28. Nations Tennessee Intermediate Municipal Bond Fund 29. Nations Tennessee Municipal Bond Fund 30. Nations Texas Intermediate Municipal Bond Fund 31. Nations Texas Municipal Bond Fund 32. Nations Virginia Intermediate Municipal Bond Fund 33. Nations Virginia Municipal Bond Fund NATIONS FUND INC. 1. Nations Prime Fund 2. Nations Treasury Fund 3. Nations Equity Income Fund 4. Nations Small Company Fund 13 NATIONS RESERVES: 1. Nations Convertible Securities Fund 2. Nations California Municipal Bond Fund 3. Nations Intermediate Bond Fund 4. Nations Blue Chip Fund 5. Nations International Equity Fund 6. Nations International Value Fund 7. Nations Emerging Markets Fund NATIONS FUNDS TRUST: 1. Nations High Yield Bond Fund 2. Nations MidCap Index Fund 3. Nations Kansas Municipal Income Fund 4. Nations Marsico 21st Century Fund 5. Nations Marsico International Opportunities Fund 6. Nations Financial Services Fund 7. Nations Classic Value Fund 8. Nations Global Value Fund 9. Nations Asset Allocation Fund 10. Nations Government Securities Fund 11. Nations Marsico Focused Equities Fund 12. Nations Marsico Growth & Income Fund 13. Nations LifeGoal Growth Portfolio 14. Nations LifeGoal Balanced Growth Portfolio 15. Nations LifeGoal Income and Growth Portfolio Last Amended: June 8, 2001 14 IN WITNESS WHEREOF, the parties hereto have caused the amended Schedule A to be executed by their officers designated below as of the 8th day of June, 2001. PFPC Inc. (indirect successor to The Shareholder Services Group, Inc.) By: /s/ Mark Hoefel --------------- Mark Hoefel BANK OF AMERICA, N.A. (indirect successor to NationsBank of Texas, N.A.) By: /s/ Edward D. Bedard -------------------- Edward D. Bedard Senior Vice President 15 Schedule B DUTIES OF NATIONSBANK 1. Shareholder Information. NationsBank shall maintain a record of the number of Shares held by each Shareholder of record which shall include name, address, and taxpayer identification number and which shall indicate whether such Shares are held in certificates or uncertificated form. 2. Shareholder Services. NationsBank shall respond as appropriate to all inquiries and communications from Shareholders relating to Shareholder accounts with respect to its duties hereunder and as may be from time to time mutually agreed upon between NationsBank and the Transfer Agent (or the Funds as the case maybe). 3. Share Certificates. (a) At the expense of the Funds, the Funds shall supply NationsBank with an adequate supply of blank share certificates to meet NationsBank's requirements therefor. Such Share certificates shall be properly signed by facsimile. Notwithstanding the death, resignation, or removal of any Officer of the Fund whose signature appears on such certificates, NationsBank or its agent may continue to countersign certificates which bear such signatures until otherwise directed by Written Instructions. (b) NationsBank shall issue replacement Share certificates in lieu of certificates which have been lost, stolen or destroyed, upon receipt by NationsBank of properly executed affidavits and lost certificate bonds, in form satisfactory to NationsBank, with the applicable Fund and NationsBank as obligees under the bond. (c) NationsBank shall also maintain a record of each certificate issued, the number of Shares represented thereby and the Shareholder of record. With respect to Shares held in open accounts or uncertificated form (i.e., no certificate being issued with respect thereto) the Transfer Agent shall maintain comparable records of the Shareholders thereof, including their names, addresses and taxpayer identification numbers. NationsBank shall further maintain a stop transfer record on lost and/or replaced certificates. 4. Mailing Communications to Shareholders; Proxy Materials. NationsBank will address and mail to Shareholders of the Funds, all reports to Shareholders, dividend and distribution notices and proxy material for the Funds' meetings of Shareholders. In connection with meetings of Shareholders, NationsBank will prepare Shareholder lists, mail and certify as to the mailing of proxy materials, process and tabulate returned proxy cards, report on proxies voted prior to meetings, act as inspector of election at meetings and certify Shares voted at meetings. 5. Sales of Shares. (a) NationsBank shall not be required to issue any Shares of the Funds where it has received a Written Instruction from the applicable Fund or official notice from any appropriate authority that the sale of the Shares of such Fund has been suspended or discontinued. The existence of such Written Instructions or such official notice shall be conclusive evidence of the right of NationsBank to rely on such Written Instructions or official notice. (b) In the event that any check or other order for the payment of money is returned unpaid for any reason, NationsBank will endeavor to: (i) give prompt notice of such return to the applicable Fund or its designee; (ii) place a stop transfer order against all Shares issued as a result of such check or order; and (iii) take such actions as NationsBank may from time to time deem appropriate. 6. Transfer and Repurchase. (a) NationsBank shall process all requests to transfer or redeem Shares in accordance with the transfer or repurchase procedures set forth in the applicable Fund's Prospectus. (b) NationsBank will transfer or repurchase Shares upon receipt of Oral or Written Instructions or otherwise pursuant to the Prospectus and Share certificates, if any, properly endorsed for transfer or redemption, accompanied by such documents as NationsBank reasonably may deem necessary. (c) NationsBank reserves the right to refuse to transfer or repurchase Shares until it is satisfied that the endorsement on the instructions is valid and genuine. NationsBank also reserves the right to refuse to transfer or repurchase Shares until it is satisfied that the requested transfer or repurchase is legally authorized, and it shall incur no liability for the refusal, in good faith, to make transfers or repurchases which NationsBank, in its reasonable judgment, deems improper or unauthorized, or until it is reasonably satisfied that there is no basis to any claims adverse to such transfer or repurchase. (d) When Shares are redeemed, NationsBank shall, upon receipt of the instructions and documents in proper form, deliver to the Custodian and the applicable Fund or its designee a notification setting forth the number of Shares to be redeemed. Such redeemed Shares shall be reflected on appropriate accounts maintained by NationsBank reflecting outstanding Shares of the applicable Fund and Shares attributed to individual accounts. (e) NationsBank shall, upon receipt of the monies paid to it by the Custodian for the redemption of Shares, pay such monies as are received from the Custodian, all in accordance with the procedures described in the Written Instructions received by NationsBank from the Funds. (f) NationsBank shall not process or effect any repurchase with respect to Shares of any Fund after receipt by NationsBank or its agent of notification of the suspension of the determination of the net asset value of such Fund. 2 7. Dividends. (a) Upon the declaration of each dividend and each capital gains distribution by the Board of Directors of the Funds with respect to Shares of the Funds, the Funds shall furnish or cause to be furnished to NationsBank Written Instructions setting forth the date of the declaration of such dividend or distribution, the ex-dividend date, the date of payment thereof, the record date as of which Shareholders entitled to payment shall be determined, the amount payable per Share to the Shareholders of record as of that date, the total amount payable to NationsBank on the payment date and whether such dividend or distribution is to be paid in Shares at net asset value. (b) On or before the payment date specified in such resolution of the Board of Directors, the applicable Fund will pay to NationsBank sufficient cash to make payment on such payment date to the Shareholders of record on the record date. (c) If, prior to the payment date, NationsBank does not receive sufficient cash from the applicable Fund to make total dividend and/or distribution payments to all Shareholders of record of such Fund as of the record date, NationsBank will, upon notifying such Fund, withhold payment to all Shareholders of record as of the record date until sufficient cash is provided to NationsBank. 8. Daily Activity. NationsBank will communicate via fax all "net" activity for the day to TSSG. TSSG shall update the transfer agent system and notify fund accounting of money movement based on such information. 9. In addition to and neither in lieu nor in contravention of the services set forth above, NationsBank shall: (i) perform all the customary services of a transfer agent, registrar, dividend disbursing agent and agent of the dividend reinvestment and cash purchase plan as described herein consistent with those requirements in effect as of the date of this Agreement. The detailed definition, frequency, limitations and associated costs (if any) set out in the attached fee schedule, include but are not limited to: maintaining all Shareholder accounts, preparing Shareholder meeting lists, mailing proxies, tabulating proxies, mailing Shareholder reports to current Shareholders, withholding taxes on U.S. resident and non-resident alien accounts where applicable, preparing and filing U.S. Treasury Department Forms 1099 and other appropriate forms required with respect to dividends and distributions by federal authorities for all Shareholders. 3 Schedule C Fee Schedule Upon receipt of the appropriate payment from the Funds, the Transfer Agent will compensate NationsBank for the performance of its obligations hereunder in accordance with a flat fee of $251,000 per year ($20,916.67 per month). EX-99.23(H)(11) 15 ex99-23h11_87612.txt FOREIGN CUSTODY AMENDED AND RESTATED FOREIGN CUSTODY MANAGER AGREEMENT AGREEMENT made as of July 2, 2001 among Nations Fund Trust, Nations Fund, Inc., Nations Reserves, Nations Separate Account Trust, Nations Master Investment Trust and Nations Funds Trust on behalf of their respective mutual funds identified on the Appendix hereto (each, a "Fund"; collectively, the "Funds") and The Bank of New York ("BNY"). W I T N E S S E T H: WHEREAS, each Fund has appointed BNY as a Foreign Custody Manager under a Foreign Custody Manager Agreement dated December 1, 1997 as amended as of August 6, 1998 (the "Prior Agreement"); WHEREAS, each Fund and BNY desire to amend and restate the Prior Agreement; WHEREAS, BNY desires to continue to serve as a Foreign Custody Manager and perform the duties set forth herein on the terms and condition contained herein; NOW THEREFORE, in consideration of the mutual promises hereinafter contained in this Agreement, each Fund and BNY hereby agrees as follows: ARTICLE I. DEFINITIONS Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings: 1. "Board" shall mean the board of directors or board of trustees, as the case may be, of the relevant Fund. 2. "Eligible Foreign Custodian" shall have the meaning provided in the Rule (as defined below). 3. "Monitoring System" shall mean a system established by BNY to fulfill the Responsibilities (as defined below) specified in clause (b) of Section 1 of Article III of this Agreement. 4. "Responsibilities" shall mean the responsibilities delegated to BNY as a Foreign Custody Manager with respect to each Specified Country (as defined below) and each Eligible Foreign Custodian selected by BNY, as such responsibilities are more fully described in Article III of this Agreement. 5. "Rule" shall mean Rule 17f-5 under the Investment Company Act of 1940, as amended on June 12, 2000. 6. "Specified Country" shall mean each country listed on Schedule I attached hereto, and each country, other than the United States, with respect to which an Authorized Person (as defined in one or more Custody Agreement(s) between the relevant Fund and BNY as custodian (each, a "Custody Agreement")) has given settlement instructions to BNY as custodian (the "Custodian") under the Custody Agreement. ARTICLE II. BNY AS A FOREIGN CUSTODY MANAGER 1. Each Fund, by authority of its Board, hereby delegates to BNY with respect to each Specified Country the Responsibilities. 2. BNY accepts the Board's delegation of Responsibilities with respect to each Specified Country and agrees in performing the Responsibilities as a Foreign Custody Manager to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of the Funds' Foreign Assets (as defined in the Rule) would exercise. 3. BNY shall provide to the Board at such times as the Board deems reasonable and appropriate based on the circumstances of the Fund's foreign custody arrangements written reports notifying the Board of the placement of assets of the Fund with a particular Eligible Foreign Custodian within a Specified Country and of any material change in the arrangements (including, but not limited to, the contract governing such arrangements) with respect to assets of the Fund with any such Eligible Foreign Custodian and such additional information regarding such matters as and when the Board may reasonably request and containing such detail as the parties shall agree. ARTICLE III. RESPONSIBILITIES 1. (a) Subject to the provisions of this Agreement, BNY shall with respect to each Specified Country select an Eligible Foreign Custodian. In connection therewith, BNY shall: (i) determine that Foreign Assets of each Fund held by such Eligible Foreign Custodian will be subject to reasonable care, based on the standards applicable to custodians in the relevant market in which such Eligible Foreign Custodian operates, after considering all factors relevant to the safekeeping of such Foreign Assets, including, without limitation, those contained in Section (c)(1) of the Rule; (ii) determine that each Fund's foreign custody arrangements with each Eligible Foreign Custodian are governed by a written contract with the Custodian which will provide reasonable care for the Fund's Foreign Assets based on the standards specified in paragraph (c)(1) of the Rule; and (iii) determine that each contract with an Eligible Foreign Custodian shall include the provisions specified in paragraph (c)(2)(i)(A) through (F) of the Rule or, alternatively, in 2 lieu of any or all of such (c)(2)(i)(A) through (F) provisions, such other provisions as BNY determines will provide, in their entirety, the same or a greater level of care and protection for the Foreign Assets of each Fund as such specified provisions in their entirety. (b) In addition, subject to the provisions of this Agreement, BNY shall with respect to each Eligible Foreign Custodian (i) monitor pursuant to the Monitoring System (x) the appropriateness of maintaining the Foreign Assets of the Funds with a particular Eligible Foreign Custodian pursuant to paragraph (c)(1) of the Rule and (y) performance of the contract governing such arrangement under paragraph (c)(2) of the Rule; and (ii) advise the appropriate Fund(s) whenever an arrangement (including any material change in the contract governing such arrangement) described in preceding clause (b)(i) no longer meets the requirements of the Rule. 2. For purposes of clause (b)(i) of preceding Section 1 of this Article, BNY's determination of appropriateness shall not include, nor be deemed to include, any evaluation of Country Risks associated with investment in a particular country. For purposes hereof, "Country Risks" shall mean systemic risks of holding, assets in a particular country including, but not limited to, (a) an Eligible Foreign Custodian's use of any depositories that act as or operate a system for the central handling of securities or equivalent book-entries, or a transnational system for the central handling of securities or any equivalent book-entries in their respective countries of incorporation; (b) such country's financial infrastructure, (c) such country's prevailing custody and settlement practices, (d) nationalization, expropriation or other governmental actions, (e) regulation of the banking or securities industry, (f) currency controls, restrictions, devaluations or fluctuations, and (g) market conditions which affect the orderly execution of securities transactions or affect the value of securities. ARTICLE IV. REPRESENTATIONS 1. Each Fund hereby represents that: (a) this Agreement has been duly authorized, executed and delivered by the Fund, constitutes a valid and legally binding obligation of the Fund enforceable in accordance with its terms, and no statute, regulation, rule, order, judgment or contract binding on the Fund prohibits the Fund's execution or performance of this Agreement; (b) this Agreement has been approved and ratified by the Board at a meeting duly called and at which a quorum was at all times present; and (c) the Board or its investment adviser or investment sub-adviser pursuant to delegated authority has considered the Country Risks associated with investment in each Specified Country and will have considered such risks prior to any settlement instructions being given to the Custodian with respect to any other Specified Country. 2. BNY hereby represents that: (a) BNY is duly organized and existing under the laws of the State of New York, with full power to carry on its businesses as now conducted, and to enter into this Agreement and to perform its obligations hereunder; (b) BNY is a U.S. Bank, as defined in Section (a)(7) of the Rule; (c) this Agreement has been 3 duly authorized, executed and delivered by BNY, constitutes a valid and legally binding obligation of BNY enforceable in accordance with its terms, and no statute, regulation, rule, order, judgment or contract binding on BNY prohibits BNY's execution or performance of this Agreement; and (d) BNY has established the Monitoring System. ARTICLE V. CONCERNING BNY 1. BNY shall not be liable for any costs, expenses, damages, liabilities or claims, including attorneys' and accountants' fees, sustained or incurred by, or asserted against, any Fund, except that BNY shall be liable for all such amounts to the extent the same arises out of the failure of BNY to exercise the care, prudence and diligence required by Section 2 of Article II hereof. In no event shall BNY be liable to any Fund, such Fund's Board, or any third party for special, indirect or consequential damages, or for lost profits or loss of business, arising in connection with this Agreement. 2. Each Fund shall indemnify BNY and hold it harmless from and against any and all costs, expenses, damages, liabilities or claims, including attorneys' and accountants' fees, sustained or incurred by, or asserted against, BNY by reason or as a result of any action or inaction, or arising out of BNY's performance hereunder, provided that the Fund shall not indemnify BNY to the extent any such costs, expenses, damages, liabilities or claims arises out of BNY's failure to exercise the reasonable care, prudence and diligence required by Section 2 of Article II hereof. 3. For its services hereunder, each Fund agrees to pay to BNY such compensation and out-of-pocket expenses as shall be mutually agreed in writing, it being understood that the parties have no present intention that BNY receive any compensation or out-of-pocket expenses under this Agreement. 4. BNY shall have only such duties as are expressly set forth herein. In no event shall BNY be liable for any Country Risks associated with investments in a particular country. ARTICLE VI. MISCELLANEOUS 1. This Agreement constitutes the entire agreement between each Fund and BNY with respect to the matters covered hereby, and no provision in the Custody Agreement between the Fund and the Custodian shall affect the duties and obligations of BNY hereunder, nor shall any provision in this Agreement affect the duties or obligations of the Custodian under the Custody Agreement. 2. Any notice or other instrument in writing, authorized or required by this Agreement to be given to BNY, shall be sufficiently given if received by it at its offices at 100 Church Street, 10th Floor, New York, New York 10286, or at such other place as BNY may from time to time designate in writing. 4 3. Any notice or other instrument in writing, authorized or required by this Agreement to be given to a Fund shall be sufficiently given if received by it at its offices at Richard H. Blank, Jr., Corporate Secretary, The Nations Funds, 111 Center Street, Suite 300, Little Rock, Arkansas 72201, with a copy to Edward D. Bedard, Bank of America Advisors, LLC, One Bank of America Plaza, 101 South Tryon Street, Charlotte, North Carolina 28255, or at such other place as the Fund may from time to time designate in writing. 4. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions shall not in any way be affected thereby. This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties. This Agreement shall extend to and shall be binding upon the parties hereto, and their respective successors and assigns; provided however, that this Agreement shall not be assignable by either party without the written consent of the other. 5. This Agreement shall be construed in accordance with the substantive laws of the State of New York, without regard to conflicts of laws principles thereof. Each Fund and BNY hereby consent to the jurisdiction of a state or federal court situated in New York City, New York in connection with any dispute arising hereunder. Each Fund hereby irrevocably waives, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to the laying of venue of any such proceeding brought in such a court and any claim that such proceeding brought in such a court has been brought in an inconvenient forum. Each Fund and BNY each hereby irrevocably waives any and all rights to trial by jury in any legal proceeding arising out of or relating to this Agreement. 6. The parties hereto agree that in performing hereunder, BNY is acting solely on behalf of the Funds and no contractual or service relationship shall be deemed to be established hereby between BNY and any other person. 7. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. 8. As to any Fund this Agreement shall terminate simultaneously with the termination of the Custody Agreement between such Fund and the Custodian, and may otherwise be terminated by either party giving to the other party a notice in writing specifying the date of such termination, which shall be not less than ninety (90) days after the date of such notice. 5 IN WITNESS WHEREOF, each Fund on behalf of its mutual funds identified on the Appendix hereto and BNY have caused this Agreement to be executed by their respective officers, thereunto duly authorized, as of the date first above written. NATIONS FUND TRUST By: /s/ A. Max Walker ------------------ A. Max Walker President and Chairman of the Board of Trustees NATIONS FUND, INC. By: /s/ A. Max Walker ------------------ A. Max Walker President and Chairman of the Board of Directors NATIONS RESERVES By: /s/ A. Max Walker ------------------ A. Max Walker President and Chairman of the Board of Trustees NATIONS SEPARATE ACCOUNT TRUST By: /s/ A. Max Walker ------------------ A. Max Walker President and Chairman of the Board of Trustees 6 NATIONS MASTER INVESTMENT TRUST By: /s/ A. Max Walker ------------------ A. Max Walker President and Chairman of the Board of Trustees NATIONS FUNDS TRUST By: /s/ A. Max Walker ------------------ A. Max Walker President and Chairman of the Board of Trustees THE BANK OF NEW YORK By: /s/ Ira Rosner --------------- Ira Rosner Vice President 7 APPENDIX NATIONS FUND TRUST: 1. Nations Government Money Market Fund 2. Nations Tax Exempt Fund 3. Nations Value Fund 4. Nations Strategic Growth Fund 5. Nations Capital Growth Fund 6. Nations MidCap Growth Fund 7. Nations LargeCap Index Fund 8. Nations Managed Index Fund 9. Nations SmallCap Index Fund 10. Nations Aggressive Growth Fund 11. Nations Short-Intermediate Government Fund 12. Nations Short-Term Income Fund 13. Nations Strategic Income Fund 14. Nations Bond Fund 15. Nations Municipal Income Fund 16. Nations Short-Term Municipal Income Fund 17. Nations Intermediate Municipal Bond Fund 18. Nations Florida Intermediate Municipal Bond Fund 19. Nations Florida Municipal Bond Fund 20. Nations Georgia Intermediate Municipal Bond Fund 21. Nations Georgia Municipal Bond Fund 22. Nations Maryland Intermediate Municipal Bond Fund 23. Nations Maryland Municipal Bond Fund 24. Nations North Carolina Intermediate Municipal Bond Fund 25. Nations North Carolina Municipal Bond Fund 26. Nations South Carolina Intermediate Municipal Bond Fund 27. Nations South Carolina Municipal Bond Fund 28. Nations Tennessee Intermediate Municipal Bond Fund 29. Nations Tennessee Municipal Bond Fund 30. Nations Texas Intermediate Municipal Bond Fund 31. Nations Texas Municipal Bond Fund 32. Nations Virginia Intermediate Municipal Bond Fund 33. Nations Virginia Municipal Bond Fund NATIONS FUND, INC. 1. Nations Prime Fund 2. Nations Treasury Fund 3. Nations Equity Income Fund 4. Nations Small Company Fund NATIONS RESERVES: 1. Nations Government Reserves 2. Nations Municipal Reserves 3. Nations Cash Reserves 4. Nations Treasury Reserves 5. Nations Money Market Reserves 6. Nations California Tax-Exempt Reserves 7. Nations International Equity Fund 8. Nations International Value Fund 9. Nations Emerging Markets Fund 10. Nations Convertible Securities Fund 11. Nations California Municipal Bond Fund 12. Nations Intermediate Bond Fund 13. Nations Blue Chip Fund NATIONS SEPARATE ACCOUNT TRUST (FORMERLY NATIONS ANNUITY TRUST): 1. Nations Value Portfolio 2. Nations Marsico International Opportunities Portfolio 3. Nations Marisco 21st Century Portfolio 4. Nations Marsico Focused Equities Portfolio 5. Nations Marsico Growth & Income Portfolio 6. Nations Capital Growth Portfolio 7. Nations Small Company Portfolio 8. Nations Asset Allocation Portfolio 9. Nations High Yield Bond Portfolio 10. Nations International Value Portfolio 11. Nations MidCap Growth Portfolio NATIONS MASTER INVESTMENT TRUST: 1. Nations Intermediate Bond Master Portfolio 2. Nations Blue Chip Master Portfolio 3. Nations International Equity Master Portfolio 4. Nations Marsico Focused Equities Master Portfolio 5. Nations Marsico Growth & Income Master Portfolio 6. Nations International Value Master Portfolio 7. Nations High Yield Bond Master Portfolio 8. Nations Marsico 21st Century Master Portfolio 9. Nations Marsico International Opportunities Master Portfolio 10. High Yield Portfolio 11. International Bond Portfolio NATIONS FUNDS TRUST: 1. Nations High Yield Bond Fund 2. Nations MidCap Index Fund 3. Nations Kansas Municipal Income Fund 4. Nations Marsico 21st Century Fund 5. Nations Marsico International Opportunities Fund 6. Nations Financial Services Fund 7. Nations Classic Value Fund 8. Nations Global Value Fund 9. Nations Asset Allocation Fund 10. Nations Government Securities Fund 11. Nations Marsico Focused Equities Fund 12. Nations Marsico Growth & Income Fund EX-99.23(I)(1) 16 ex99-23i1_87612.txt OPINION OF COUNCIL [MORRISON & FOERSTER LLP LETTERHEAD] July 31, 2001 Nations Funds Trust 111 Center Street Little Rock, Arkansas 72201 Re: Shares of Beneficial Interest of Nations Funds Trust Dear Ladies and Gentlemen: We refer to Post-Effective Amendment No. 11 and Amendment No. 12 to the Registration Statement on Form N-1A (SEC File Nos. 333-89661; 811-09645) (the "Registration Statement") of Nations Funds Trust (the "Trust") relating to the registration of an indefinite number of Shares of Beneficial Interest of the Trust's Funds (collectively, the "Shares"). We have been requested by the Trust to furnish this opinion as Exhibit 23i(1) to the Registration Statement. We have examined such records, documents, instruments, and certificates of public officials and of the Trust, made such inquiries of the Trust, and examined such questions of law as we have deemed necessary for the purpose of rendering the opinion set forth herein. We have examined documents relating to the organization of the Trust and the authorization for registration and sale of Shares of each of the Funds. We have assumed the genuineness of all signatures and the authenticity of all items submitted to us as originals and the conformity with originals of all items submitted to us as copies. Based upon and subject to the foregoing, we are of the opinion that: The issuance and sale of the Shares by the Trust have been duly and validly authorized by all appropriate action, and assuming delivery of the Shares by sale or in accord with the Funds' dividend reinvestment plan in accordance with the description [MORRISON & FOERSTER LLP LETTERHEAD] July 31, 2001 Page Two set forth in the Registration Statement, as amended, the Shares will be validly issued, fully paid and nonassessable. We consent to the inclusion of this opinion as an exhibit to the Registration Statement. In addition, we consent to the use of our name and to the reference to our Firm under the heading "Counsel" in the Statement of Additional Information. Very truly yours, /s/ MORRISON & FOERSTER LLP MORRISON & FOERSTER LLP EX-99.23J1 17 ex99-23j1_87612.txt CONSENT OF ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form N-1A of our reports dated May 16, 2001, relating to the financial statements and financial highlights which appear in the March 31, 2001 Annual Reports to Shareholders of each of the Funds constituting Nations Funds Trust, which are also incorporated by reference into the Registration Statement. We also consent to the incorporation by reference of our reports dated May 16, 2001, relating to the financial statements and supplementary data of certain portfolios of Nations Master Investment Trust also contained in such Annual Report. We also consent to the references to us under the headings "Independent Accountants" and "Financial Highlights" in such Registration Statement. PricewaterhouseCoopers LLP New York, New York July 27, 2001 EX-99.23(M)(1) 18 ex99-23m1_87612.txt SHARE ADMIN PRIMARY B NATIONS FUNDS TRUST SHAREHOLDER ADMINISTRATION PLAN ("PLAN") FOR PRIMARY B SHARES Section 1. Each of the proper officers of Nations Funds Trust (the "Trust") is authorized to execute and deliver, in the name and on behalf of the Trust, written agreements based substantially on the form attached hereto as Appendix A or any other form duly approved by the Trust's Board of Trustees ("Agreements") with broker/dealers, banks and other financial institutions that are dealers of record or holders of record or which have a servicing relationship with the beneficial owners of Primary B Shares ("Servicing Agents") in certain of the LifeGoal portfolios (each a "Fund") (as listed on Exhibit A) offering such shares provided that any material modifications of services listed in the Agreement shall be presented for approval or ratification by the Trustees at the next regularly scheduled Board Meeting. Pursuant to such Agreements, Servicing Agents shall provide shareholder support services as set forth therein to their clients who beneficially own Primary B Shares of the Funds in consideration of a fee, computed monthly in the manner set forth in the applicable Fund's then current prospectus, at an annual rate of up to 0.60% of the average daily net asset value of the Primary B Shares beneficially owned by or attributable to such clients, provided that in no event may the portion of such fee that constitutes a "service fee," as that term is defined in Article III, Section 26(b)(9) of the Rules of Fair Practice of the National Association of Securities Dealers, Inc., exceed 0.25% of the average daily net asset value of such Primary B Shares of a Fund. Affiliates of the Trust's distributor, administrator, co-administrator and adviser are eligible to become Servicing Agents and to receive fees under this Plan. All expenses incurred by a Fund in connection with the Agreements and the implementation of this Plan shall be borne entirely by the holders of the Primary B Shares of the particular Fund involved. If more than one Fund is involved and these expenses are not directly attributable to Primary B Shares of a particular Fund, then the expenses may be allocated between or among the Primary B Shares of the Funds in a fair and equitable manner. Section 2. The Trust's administrator and/or co-administrator shall monitor the arrangements pertaining to the Trust's Agreements with Servicing Agents. The Trust's administrator and co-administrator shall not, however, be obligated by this Plan to recommend, and the Trust shall not be obligated to execute, any Agreement with any qualifying Servicing Agents. Section 3. So long as this Plan is in effect, the Trust's distributor shall provide to the Trust's Board of Trustees, and the Trustees shall review, at least quarterly, a written report of the amounts expended pursuant to this Plan and the purposes for which such expenditures were made. Section 4. Unless sooner terminated, this Plan shall continue in effect for a period of one year from its date of execution and shall continue thereafter for successive annual periods, provided that such continuance is specifically approved by a majority of the Board of Trustees, including a majority of the Trustees who are not "interested persons," as defined in the Investment Company Act of 1940 (the "Act"), of the Trust and have no direct or indirect financial interest in the operation of this Plan or in any Agreement related to this Plan (the "Disinterested Trustees") cast in person at a meeting called for the purpose of voting on this Plan. Section 5. This Plan may be amended at any time with respect to any Fund by the Trust's Board of Trustees, provided that any material amendment of the terms of this Plan (including a material increase of the fee payable hereunder) shall become effective only upon the approvals set forth in Section 4. Section 6. This Plan is terminable at any time with respect to any Fund by vote of a majority of the Disinterested Trustees. Section 7. While this Plan is in effect, the selection and nomination of the Disinterested Trustees shall be committed to the discretion of such Disinterested Trustees. Section 8. To the extent that any portion of the fees payable under the Agreements is deemed to be for services primarily intended to result in the sale of Fund shares, such fees are deemed approved and may be paid pursuant to the Plan and in accordance with Rule 12b-1 under the Act, provided that the Agreements, to the extent they are deemed to relate to services primarily intended to result in the sale of Fund shares, are approved and otherwise treated in all respects as agreements related to the Plan. Section 9. The Trust will preserve copies of this Plan, Agreements, and any written reports regarding this Plan presented to the Board of Trustees for a period of not less than six years. 2 EXHIBIT A NATIONS FUNDS TRUST The term "Fund" used in the Plan shall refer to the following Funds of the Trust: Nations LifeGoal Growth Portfolio Nations LifeGoal Balanced Growth Portfolio Nations LifeGoal Income and Growth Portfolio Approved: August 23, 2000 3 EX-99.23(M)(2) 19 ex99-23m2_87612.txt SHARE SERVICE INV. A NATIONS FUNDS TRUST SHAREHOLDER SERVICING AND DISTRIBUTION PLAN INVESTOR A SHARES This Shareholder Servicing and Distribution Plan (the "Plan") for the Investor A shares of the series of Nations Funds Trust (the "Trust") listed on the schedule attached hereto (the "Funds"), has been adopted by the Board of Trustees of the Trust in conformance with Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"). Section 1. Payments for Services. The Trust may compensate or reimburse its Distributor for any activities or expenses primarily intended to result in the sale of Investor A Shares of the Trust's Funds or servicing agents for providing services under this Plan. Payments by the Trust under the Plan will be calculated daily and paid monthly at a rate or rates set from time to time by the Trust's Board of Trustees, provided that no rate set by the Board for any Fund may exceed, on an annual basis, 0.25% of the average daily net assets of a Fund's Investor A Shares. Section 2. Expenses Covered by Plan. --------- ------------------------- (a) Distribution Expenses. The fees payable under Section 1 shall be used primarily to compensate or reimburse the Distributor for distribution services provided by it, and related expenses incurred, including payments by the Distributor to compensate or reimburse banks, broker/dealers or other financial institutions that have entered into a Sales Support Agreement (defined below) with the Distributor ("Selling Agents"), for sales support services provided, and related expenses incurred, by such Selling Agents. Payments under Section 1 may be made with respect to: (i) preparation, printing and distribution of prospectuses, sales literature and advertising materials by the Distributor or, as applicable, Selling Agents, attributable to distribution or sales support activities, respectively; (ii) commissions, incentive compensation or other compensation to, and expenses of, account executives or other employees of the Distributor or Selling Agents, attributable to distribution or sales support activities, respectively; (iii) overhead and other office expenses of the Distributor or Selling Agents, attributable to distribution or sales support activities, respectively; (iv) opportunity costs relating to the foregoing (which may be calculated as a carrying charge on the Distributor's or Selling Agents' unreimbursed expenses incurred in connection with distribution or sales support activities, respectively); and (v) any other costs and expenses relating to distribution or sales support activities. The overhead and other office expenses referenced in this Section may include, without limitation: (i) the expenses of operating the Distributor's or Selling Agents' offices in connection with the sale of Fund shares, including lease costs, the salaries and employee benefit costs of administrative, operations and support personnel, utility costs, communication costs and the costs of stationery and supplies; (ii) the costs of client sales seminars and travel related to distribution and sales support activities; and (iii) other expenses relating to distribution and sales support activities. (b) Shareholder Servicing Expenses. The shareholder servicing activities for which compensation may be received under this Plan may include, among other things: (i) aggregating and processing purchase and redemption requests and transmitting promptly net purchase and 1 redemption orders to the Distributor or transfer agent; (ii) providing customers with a service that invests the assets of their accounts in Shares pursuant to specific or pre-authorized instructions; (iii) processing dividend and distribution payments; (iv) providing information periodically to customers showing their positions in Shares; (v) arranging for bank wires; (vi) responding to customers' inquiries concerning their investment in Shares; (vii) providing subaccounting with respect to Shares beneficially owned by customers or the information to the Trust necessary for subaccounting; (viii) if required by law, forwarding shareholder communications (such as proxies, shareholder reports, annual and semi-annual financial statements and dividend, distribution and tax notices) to customers; (ix) forwarding to customers proxy statements and proxies containing any proposals regarding the Shareholder Servicing Agreement; (x) general shareholder liaison services; and (xi) providing such other similar services as the Trust may reasonably request to the extent such firms are permitted to do so under applicable statutes, rules or regulations. Section 3. Agreements. --------- ---------- (a) Distribution and Sales Support Agreements. Any officer of the Trust is authorized to execute and deliver, in the name and on behalf of the Trust, a written agreement with the Distributor in a form duly approved from time to time by the Trust's Board of Trustees. Such agreement shall authorize the Distributor to enter into written Sales Support Agreements, in substantially the form attached hereto as Exhibit B ("Sales Support Agreements"), with Selling Agents. (b) Shareholder Servicing Agreements. Any officer of the Trust is authorized to execute and deliver, in the name and on behalf of the Trust, written agreements based substantially on the form attached hereto as Appendix C or any other form duly approved by the Trust's Board of Trustees ("Shareholder Servicing Agreements") with broker/dealers, banks and other financial institutions that are dealers of record or holders of record or which have a servicing relationship ("Servicing Agents") with the beneficial owners of Investor A Shares of the Funds of the Trust. With respect to Investor A Shares, actual distribution expenses incurred by the Distributor (or sales support expenses incurred by Selling Agents) in a given year may exceed the sum of the fees received by the Distributor pursuant to this Plan and payments received by the Distributor pursuant to contingent deferred sales charges. Any such excess may be recovered by the Distributor, and retained by it or paid over to Selling Agents, as applicable, in future years as long as this Plan is in effect. If this Plan is terminated or not continued, the Trust shall not be obligated to pay the Distributor (or Selling Agents) for any expenses not previously reimbursed by the Trust or recovered through contingent deferred sales charges. To the extent any payments made by a Fund pursuant to a Shareholder Servicing Agreement are deemed to be payments for the financing of any activity primarily intended to result in the sale of shares within the context of Rule 12b-1 under the 1940 Act, such payments shall be deemed to have been approved pursuant to the Plan. 2 Notwithstanding anything herein to the contrary, no Fund or class of shares shall make any payments under the Plan that exceed the maximum amounts payable under applicable Conduct Rules of the National Association of Securities Dealers, Inc. Section 4. Reports of Distributor. So long as this Plan is in effect, the Distributor shall provide to the Trust's Officers and Board of Trustees, and the Trustees shall review at least quarterly, a written report of the amounts expended by it pursuant to the Distribution Agreement, or by Selling Agents pursuant to Sales Support Agreements, and the purposes for which such expenditures were made. Section 5. Approval of Plan. This Plan will become effective immediately, as to any Fund's Investor A Shares, upon its approval by (a) a majority of the outstanding Investor A Shares of such Fund, and (b) a majority of the Board of Trustees, including a majority of the Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust and who have no direct or indirect financial interest in the operation of this Plan or in any agreements entered into in connection with this Plan, pursuant to a vote cast in person at a meeting called for the purpose of voting on the approval of the Plan. Section 6. Continuance of Plan. The Plan shall continue in effect for so long as its continuance is specifically approved at least annually by the Trust's Board of Trustees in the manner described in Section 5. Section 7. Amendments. This Plan may be amended at any time by the Board of Trustees provided that (a) any amendment to increase materially the costs which a Fund's Investor A Shares may bear for distribution pursuant to this Plan shall be effective only upon approval by a vote of a majority of the outstanding Investor A Shares of such Fund, and (b) any material amendments of the terms of this Plan shall become effective only upon approval as provided in Section 5 hereof. Section 8. Termination. This Plan is terminable, as to a Fund's Investor A Shares, without penalty at any time by (a) a vote of a majority of the Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust and who have no direct or indirect financial interest in the operation of this Plan or in any agreements entered into in connection with this Plan, or (b) a vote of a majority of the outstanding Investor A Shares of such Fund. Section 9. Limitation of Liability. The names "Nations Funds Trust" and "Trustees of Nations Funds Trust" refer respectively to the trust created and the Trustees, as Trustees but not individually or personally, acting from time to time under a Declaration of Trust which is hereby referred to and a copy of which is at the principal office of the Trust. The obligations of "Nations Funds Trust" entered into in the name or on behalf thereof by any of the Trustees, officers, representatives or agents are made not individually, but in such capacities, and are not binding upon any of the Trustees, Shareholders, officers, representatives or agents of the Trust personally, but bind only the Trust Property (as defined in the Declaration of Trust), and all persons dealing with a Fund's Investor A Shares of the Trust must look solely to the Trust property belonging to such Fund's Investor A Shares for the enforcement of any claims against the Trust. 3 Section 10. Records. The Trust will preserve copies of this Plan, and any Agreements and written reports related to this Plan presented to the Board of Trustees for a period of not less than six years. Section 11. Miscellaneous. The captions in this Plan are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. 4 EXHIBIT A NATIONS FUNDS TRUST 1. Nations High Yield Bond Fund 2. Nations Kansas Municipal Income Fund 3. Nations Marsico 21st Century Fund 4. Nations Marsico International Opportunities Fund 5. Nations MidCap Index Fund 6. Nations Financial Services Fund 7. Nations Classic Value Fund 8. Nations Global Value Fund 9. Nations Asset Allocation Fund 10. Nations Government Securities Fund 11. Nations Marsico Focused Equities Fund 12. Nations Marsico Growth & Income Fund 13. Nations LifeGoal Growth Portfolio 14. Nations LifeGoal Balanced Growth Portfolio 15. Nations LifeGoal Income and Growth Portfolio Approved: December 9, 1999 Last Amended: June 8, 2001 5 EX-99.23(M)(3) 20 ex99-23m3_87612.txt DIST. PLAN INV. C NATIONS FUNDS TRUST DISTRIBUTION PLAN INVESTOR B SHARES This Distribution Plan (the "Plan") for the Investor B shares of the series of Nations Funds Trust (the "Trust") listed on the schedule attached hereto (the "Funds"), has been adopted by the Board of Trustees of the Trust in conformance with Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"). Section 1. Payments for Distribution-Related Services. The Trust may compensate or reimburse its Distributor for any activities or expenses primarily intended to result in the sale of Investor B Shares of the Trust's Funds. Payments by the Trust under this Section of the Plan will be calculated daily and paid monthly at a rate or rates set from time to time by the Trust's Board of Trustees, provided that no rate set by the Board for any Fund may exceed, on an annual basis, 0.75% of the average daily net assets of a Fund's Investor B Shares. Section 2. Expenses Covered by Plan. The fees payable under Section 1 shall be used primarily to compensate or reimburse the Distributor for distribution services provided by it, and related expenses incurred, including payments by the Distributor to compensate or reimburse banks, broker/dealers or other financial institutions that have entered into a Sales Support Agreement (defined below) with the Distributor ("Selling Agents"), for sales support services provided, and related expenses incurred, by such Selling Agents. Payments under Section 1 may be made with respect to: (i) preparation, printing and distribution of prospectuses, sales literature and advertising materials by the Distributor or, as applicable, Selling Agents, attributable to distribution or sales support activities, respectively; (ii) commissions, incentive compensation or other compensation to, and expenses of, account executives or other employees of the Distributor or Selling Agents, attributable to distribution or sales support activities, respectively; (iii) overhead and other office expenses of the Distributor or Selling Agents, attributable to distribution or sales support activities, respectively; (iv) opportunity costs relating to the foregoing (which may be calculated as a carrying charge on the Distributor's or Selling Agents' unreimbursed expenses incurred in connection with distribution or sales support activities, respectively); and (v) any other costs and expenses relating to distribution or sales support activities. The overhead and other office expenses referenced in this Section may include, without limitation: (i) the expenses of operating the Distributor's or Selling Agents' offices in connection with the sale of Fund shares, including lease costs, the salaries and employee benefit costs of administrative, operations and support personnel, utility costs, communication costs and the costs of stationery and supplies; (ii) the costs of client sales seminars and travel related to distribution and sales support activities; and (iii) other expenses relating to distribution and sales support activities. Section 3. Distribution and Sales Support Agreements. Any officer of the Trust is authorized to execute and deliver, in the name and on behalf of the Trust, a written agreement with the Distributor in a form duly approved from time to time by the Trust's Board of Trustees. Such agreement shall authorize the Distributor to enter into written Sales Support Agreements, in 1 substantially the form attached hereto as Exhibit B ("Sales Support Agreements"), with Selling Agents. Section 4. Limitations on Payments. Payment made by a particular Fund under Section 1 must be for distribution or sales support services rendered for or on behalf of such Fund. However, joint distribution or sales support financing with respect to the Funds (which financing may also involve other investment portfolios or companies that are affiliated persons of such a person, or affiliated persons of the Distributor) shall be permitted in accordance with applicable regulations of the Securities and Exchange Commission as in effect from time to time. To the extent any payments made by a Fund pursuant to a Shareholder Servicing Plan and Servicing Agreement are deemed to be payments for the financing of any activity primarily intended to result in the sale of shares within the context of Rule 12b-1 under the 1940 Act, such payments shall be deemed to have been approved pursuant to the Plan. With respect to Investor B Shares, actual distribution expenses incurred by the Distributor (or sales support expenses incurred by Selling Agents) in a given year may exceed the sum of the fees received by the Distributor pursuant to this Plan and payments received by the Distributor pursuant to contingent deferred sales charges. Any such excess may be recovered by the Distributor, and retained by it or paid over to Selling Agents, as applicable, in future years as long as this Plan is in effect. If this Plan is terminated or not continued, the Trust shall not be obligated to pay the Distributor (or Selling Agents) for any expenses not previously reimbursed by the Trust or recovered through contingent deferred sales charges. Notwithstanding anything herein to the contrary, no Fund or class of shares shall make any payments under the Plan that exceed the maximum amounts payable under applicable Conduct Rules of the National Association of Securities Dealers, Inc. Section 5. Reports of Distributor. So long as this Plan is in effect, the Distributor shall provide to the Trust's Officers and Board of Trustees, and the Trustees shall review at least quarterly, a written report of the amounts expended by it pursuant to the Distribution Agreement, or by Selling Agents pursuant to Sales Support Agreements, and the purposes for which such expenditures were made. Section 6. Approval of Plan. This Plan will become effective immediately, as to any Fund's Investor B Shares, upon its approval by (a) a majority of the outstanding Investor B Shares of such Fund, and (b) a majority of the Board of Trustees, including a majority of the Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust and who have no direct or indirect financial interest in the operation of this Plan or in any agreements entered into in connection with this Plan, pursuant to a vote cast in person at a meeting called for the purpose of voting on the approval of the Plan. Section 7. Continuance of Plan. The Plan shall continue in effect for so long as its continuance is specifically approved at least annually by the Trust's Board of Trustees in the manner described in Section 6. 2 Section 8. Amendments. This Plan may be amended at any time by the Board of Trustees provided that (a) any amendment to increase materially the costs which a Fund's Investor B Shares may bear for distribution pursuant to this Plan shall be effective only upon approval by a vote of a majority of the outstanding Investor B Shares of such Fund, and (b) any material amendments of the terms of this Plan shall become effective only upon approval as provided in Section 6 hereof. Section 9. Termination. This Plan is terminable, as to a Fund's Investor B Shares, without penalty at any time by (a) a vote of a majority of the Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust and who have no direct or indirect financial interest in the operation of this Plan or in any agreements entered into in connection with this Plan, or (b) a vote of a majority of the outstanding Investor B Shares of such Fund. Section 10. Limitation of Liability. The names "Nations Funds Trust" and "Trustees of Nations Funds Trust" refer respectively to the trust created and the Trustees, as Trustees but not individually or personally, acting from time to time under a Declaration of Trust which is hereby referred to and a copy of which is at the principal office of the Trust. The obligations of "Nations Funds Trust" entered into in the name or on behalf thereof by any of the Trustees, officers, representatives or agents are made not individually, but in such capacities, and are not binding upon any of the Trustees, Shareholders, officers, representatives or agents of the Trust personally, but bind only the Trust Property (as defined in the Declaration of Trust), and all persons dealing with a Fund's Investor B Shares of the Trust must look solely to the Trust property belonging to such Fund's Investor B Shares for the enforcement of any claims against the Trust. Section 11. Records. The Trust will preserve copies of this Plan, and any Agreements and written reports related to this Plan presented to the Board of Trustees for a period of not less than six years. Section 12. Miscellaneous. The captions in this Plan are included for convenience of reference only andin no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. 3 EXHIBIT A NATIONS FUNDS TRUST 1. Nations High Yield Bond Fund 2. Nations Kansas Municipal Income Fund 3. Nations Marsico 21st Century Fund 4. Nations Marsico International Opportunities Fund 5. Nations Financial Services Fund 6. Nations Classic Value Fund 7. Nations Global Value Fund 8. Nations Asset Allocation Fund 9. Nations Government Securities Fund 10. Nations Marsico Focused Equities Fund 11. Nations Marsico Growth & Income Fund 12. Nations LifeGoal Growth Portfolio 13. Nations LifeGoal Balanced Growth Portfolio 14. Nations LifeGoal Income and Growth Portfolio Approved: December 9, 1999 Last Amended: June 8, 2001 4 EX-99.23(M)(4) 21 ex99-23m4_87612.txt DIST. PLAN INV. C NATIONS FUNDS TRUST DISTRIBUTION PLAN INVESTOR C SHARES This Distribution Plan (the "Plan") for the Investor C shares of the series of Nations Funds Trust (the "Trust") listed on the schedule attached hereto (the "Funds"), has been adopted by the Board of Trustees of the Trust in conformance with Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"). Section 1. Payments for Distribution-Related Services. The Trust may compensate or reimburse its Distributor for any activities or expenses primarily intended to result in the sale of Investor C Shares of the Trust's Funds. Payments by the Trust under this Section of the Plan will be calculated daily and paid monthly at a rate or rates set from time to time by the Trust's Board of Trustees, provided that no rate set by the Board for any Fund may exceed, on an annual basis, 0.75% of the average daily net assets of a Fund's Investor C Shares. Section 2. Expenses Covered by Plan. The fees payable under Section 1 shall be used primarily to compensate or reimburse the Distributor for distribution services provided by it, and related expenses incurred, including payments by the Distributor to compensate or reimburse banks, broker/dealers or other financial institutions that have entered into a Sales Support Agreement (defined below) with the Distributor ("Selling Agents"), for sales support services provided, and related expenses incurred, by such Selling Agents. Payments under Section 1 may be made with respect to: (i) preparation, printing and distribution of prospectuses, sales literature and advertising materials by the Distributor or, as applicable, Selling Agents, attributable to distribution or sales support activities, respectively; (ii) commissions, incentive compensation or other compensation to, and expenses of, account executives or other employees of the Distributor or Selling Agents, attributable to distribution or sales support activities, respectively; (iii) overhead and other office expenses of the Distributor or Selling Agents, attributable to distribution or sales support activities, respectively; (iv) opportunity costs relating to the foregoing (which may be calculated as a carrying charge on the Distributor's or Selling Agents' unreimbursed expenses incurred in connection with distribution or sales support activities, respectively); and (v) any other costs and expenses relating to distribution or sales support activities. The overhead and other office expenses referenced in this Section may include, without limitation: (i) the expenses of operating the Distributor's or Selling Agents' offices in connection with the sale of Fund shares, including lease costs, the salaries and employee benefit costs of administrative, operations and support personnel, utility costs, communication costs and the costs of stationery and supplies; (ii) the costs of client sales seminars and travel related to distribution and sales support activities; and (iii) other expenses relating to distribution and sales support activities. Section 3. Distribution and Sales Support Agreements. Any officer of the Trust is authorized to execute and deliver, in the name and on behalf of the Trust, a written agreement with the Distributor in a form duly approved from time to time by the Trust's Board of Trustees. Such agreement shall authorize the Distributor to enter into written Sales Support Agreements, in 1 substantially the form attached hereto as Exhibit B ("Sales Support Agreements"), with Selling Agents. Section 4. Limitations on Payments. Payment made by a particular Fund under Section 1 must be for distribution or sales support services rendered for or on behalf of such Fund. However, joint distribution or sales support financing with respect to the Funds (which financing may also involve other investment portfolios or companies that are affiliated persons of such a person, or affiliated persons of the Distributor) shall be permitted in accordance with applicable regulations of the Securities and Exchange Commission as in effect from time to time. To the extent any payments made by a Fund pursuant to a Shareholder Servicing Plan and Servicing Agreement are deemed to be payments for the financing of any activity primarily intended to result in the sale of shares within the context of Rule 12b-1 under the 1940 Act, such payments shall be deemed to have been approved pursuant to the Plan. With respect to Investor C Shares, actual distribution expenses incurred by the Distributor (or sales support expenses incurred by Selling Agents) in a given year may exceed the sum of the fees received by the Distributor pursuant to this Plan and payments received by the Distributor pursuant to contingent deferred sales charges. Any such excess may be recovered by the Distributor, and retained by it or paid over to Selling Agents, as applicable, in future years as long as this Plan is in effect. If this Plan is terminated or not continued, the Trust shall not be obligated to pay the Distributor (or Selling Agents) for any expenses not previously reimbursed by the Trust or recovered through contingent deferred sales charges. Notwithstanding anything herein to the contrary, no Fund or class of shares shall make any payments under the Plan that exceed the maximum amounts payable under applicable Conduct Rules of the National Association of Securities Dealers, Inc. Section 5. Reports of Distributor. So long as this Plan is in effect, the Distributor shall provide to the Trust's Officers and Board of Trustees, and the Trustees shall review at least quarterly, a written report of the amounts expended by it pursuant to the Distribution Agreement, or by Selling Agents pursuant to Sales Support Agreements, and the purposes for which such expenditures were made. Section 6. Approval of Plan. This Plan will become effective immediately, as to any Fund's Investor C Shares, upon its approval by (a) a majority of the outstanding Investor C Shares of such Fund, and (b) a majority of the Board of Trustees, including a majority of the Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust and who have no direct or indirect financial interest in the operation of this Plan or in any agreements entered into in connection with this Plan, pursuant to a vote cast in person at a meeting called for the purpose of voting on the approval of the Plan. Section 7. Continuance of Plan. The Plan shall continue in effect for so long as its continuance is specifically approved at least annually by the Trust's Board of Trustees in the manner described in Section 6. 2 Section 8. Amendments. This Plan may be amended at any time by the Board of Trustees provided that (a) any amendment to increase materially the costs which a Fund's Investor C Shares may bear for distribution pursuant to this Plan shall be effective only upon approval by a vote of a majority of the outstanding Investor C Shares of such Fund, and (b) any material amendments of the terms of this Plan shall become effective only upon approval as provided in Section 6 hereof. Section 9. Termination. This Plan is terminable, as to a Fund's Investor C Shares, without penalty at any time by (a) a vote of a majority of the Trustees who are not "interested persons" (as defined in the 1940 Act) of the Trust and who have no direct or indirect financial interest in the operation of this Plan or in any agreements entered into in connection with this Plan, or (b) a vote of a majority of the outstanding Investor C Shares of such Fund. Section 10. Limitation of Liability. The names "Nations Funds Trust" and "Trustees of Nations Funds Trust" refer respectively to the trust created and the Trustees, as Trustees but not individually or personally, acting from time to time under a Declaration of Trust which is hereby referred to and a copy of which is at the principal office of the Trust. The obligations of "Nations Funds Trust" entered into in the name or on behalf thereof by any of the Trustees, officers, representatives or agents are made not individually, but in such capacities, and are not binding upon any of the Trustees, Shareholders, officers, representatives or agents of the Trust personally, but bind only the Trust Property (as defined in the Declaration of Trust), and all persons dealing with a Fund's Investor C Shares of the Trust must look solely to the Trust property belonging to such Fund's Investor C Shares for the enforcement of any claims against the Trust. Section 11. Records. The Trust will preserve copies of this Plan, and any Agreements and written reports related to this Plan presented to the Board of Trustees for a period of not less than six years. Section 12. Miscellaneous. The captions in this Plan are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. 3 EXHIBIT A NATIONS FUNDS TRUST 1. Nations High Yield Bond Fund 2. Nations Kansas Municipal Income Fund 3. Nations Marsico 21st Century Fund 4. Nations Marsico International Opportunities Fund 5. Nations Financial Services Fund 6. Nations Classic Value Fund 7. Nations Global Value Fund 8. Nations Asset Allocation Fund 9. Nations Government Securities Fund 10. Nations Marsico Focused Equities Fund 11. Nations Marsico Growth & Income Fund 12. Nations LifeGoal Growth Portfolio 13. Nations LifeGoal Balanced Growth Portfolio 14. Nations LifeGoal Income and Growth Portfolio Approved: December 9, 1999 Last Amended: June 8, 2001 4 EX-99.23(O)(1) 22 ex99-23o1_87612.txt RULE 18F-3 NATIONS FUNDS TRUST RULE 18f-3 MULTI-CLASS PLAN --------------------------- I. Introduction. Pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940 Act"), the following sets forth the method for allocating fees and expenses among each class of shares in the investment portfolios of Nations Funds Trust (the "Trust"). In addition, this Rule 18f-3 Multi-Class Plan (the "Plan") sets forth the maximum initial sales loads, contingent deferred sales charges, Rule 12b-1 distribution fees, shareholder servicing fees, conversion features, exchange privileges and other shareholder services, if any, applicable to a particular class of shares of the portfolios. The Plan also identifies expenses that may be allocated to a particular class of shares to the extent that they are actually incurred in a different amount by the class or relate to a different kind or degree of services provided to the class. The Trust is an open-end series investment company registered under the 1940 Act, the shares of which are registered on Form N-1A under the Securities Act of 1933 (Registration Nos. 333-89661 and 811-09645). The Trust elects to offer multiple classes of shares in its investment portfolios pursuant to the provisions of Rule 18f-3 and this Plan. The Trust currently consists of the following fifteen separate investment portfolios: Nations MidCap Index Fund, Nations High Yield Bond Fund, Nations Kansas Municipal Income Fund, Nations Marsico 21st Century Fund, Nations Marsico International Opportunities Fund, Nations Financial Services Fund, Nations Classic Value Fund, Nations Global Value Fund, Nations Government Securities Fund, Nations Asset Allocation Fund, Nations Marsico Focused Equities Fund, Nations Marsico Growth & Income Fund, Nations LifeGoal Growth Portfolio, Nations LifeGoal Balanced Growth Portfolio and Nations LifeGoal Income and Growth Portfolio (Nations LifeGoal Growth Portfolio, Nations LifeGoal Balanced Growth Portfolio and Nations LifeGoal Income and Growth Portfolio are sometimes referred to herein as the "LifeGoal Portfolios"). The above-listed investment portfolios of the Trust (the "Funds") are authorized to issue the following classes of shares representing interests in the Funds: (i) Nations MidCap Index Fund-- Primary A Shares and Investor A Shares; (ii) Nations High Yield Bond Fund, Nations Kansas Municipal Income Fund, Nations Marsico 21st Century Fund, Nations Marsico International Opportunities Fund, Nations Financial Services Fund, Nations Classic Value Fund, Nations Global Value Fund, Nations Government Securities Fund, Nations Asset Allocation Fund, Nations Marsico Focused Equities Fund and Nations Marsico Growth & Income Fund -- Primary A Shares, Investor A Shares, Investor B Shares and Investor C Shares; and 1 (iii) LifeGoal Portfolios-Primary A Shares, Primary B Shares, Investor A Shares, Investor B Shares and Investor C Shares. II. Allocation of Expenses. A. Pursuant to Rule 18f-3 under the 1940 Act, the Trust shall allocate to each class of shares in a Fund (i) any fees and expenses incurred by the Trust in connection with the distribution of such class of shares under a distribution plan adopted for such class of shares pursuant to Rule 12b-1, and (ii) any fees and expenses incurred by the Trust under a shareholder servicing plan in connection with the provision of shareholder services to the holders of such class of shares. B. In addition, pursuant to Rule 18f-3, the Trust may allocate the following fees and expenses, if any, to a particular class of shares in a single Fund: (i) transfer agent fees identified by the transfer agent as being attributable to such class of shares; (ii) printing and postage expenses related to preparing and distributing materials such as shareholder reports, prospectuses, reports and proxies to current shareholders of such class of shares or to regulatory agencies with respect to such class of shares; (iii) blue sky registration or qualification fees incurred by such class of shares; (iv) Securities and Exchange Commission registration fees incurred by such class of shares; (v) the expense of administrative personnel and services (including, but not limited to, those of a portfolio accountant, custodian or dividend paying agent charged with calculating net asset values or determining or paying dividends) as required to support the shareholders of such class of shares; (vi) litigation or other legal expenses relating solely to such class of shares; (vii) fees of the Trustees of the Trust incurred as a result of issues relating to such class of shares; (viii) independent accountants' fees relating solely to such class of shares; and (ix) any other fees and expenses, not including advisory or custodial fees or other expenses related to the management of the Fund's assets, relating to (as defined below) such class of shares. 2 C. For all purposes under this Plan, fees and expenses "relating to" a class of shares are those fees and expenses that are actually incurred in a different amount by the class or that relate to a different kind or degree of services provided to the class. The proper officers of the Trust shall have the authority to determine whether any or all of the fees and expenses described in Section B of this Part II should be allocated to a particular class of shares. The Board of Trustees will monitor any such allocations to ensure that they comply with the requirements of the Plan. D. Income and any expenses of a Fund not allocated to a particular class of any such Fund pursuant to this Plan shall be allocated to each class of the Fund on the basis of the relative net assets (settled shares), as defined in Rule 18f-3, of that class in relation to the net assets of the Fund. Realized and unrealized capital gains and losses of a Fund shall be allocated to each class of the Fund on the basis of the relative net assets (settled shares), as defined in Rule 18f-3, of that class in relation to the net assets of the Fund. E. In certain cases, Banc of America Advisors, LLC, Banc of America Capital Management, LLC, Brandes Investment Partners, LP, MacKay Shields LLC, Marsico Capital Management, LLC, Bank of America, N.A., Stephens Inc., PFPC Inc. or another service provider for a Fund may waive or reimburse all or a portion of the expenses of a specific class of shares of the Fund. The Board of Trustees will monitor any such waivers or reimbursements to ensure that they do not provide a means for cross-subsidization between classes. III. Class Arrangements. The following summarizes the maximum front-end sales charges, contingent deferred sales charges, Rule 12b-1 distribution fees, shareholder servicing fees, conversion features, exchange privileges and other shareholder services, if any, applicable to each class of shares of the Trust. Additional details regarding such fees and services are set forth in the relevant Fund's (or Funds') current Prospectus(es) and Statement of Additional Information. A. Primary A Shares -- All Funds. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution Fees: None 4. Maximum Shareholder Servicing Fees: None 5. Conversion Features: None 3 6. Exchange Privileges: (a) Primary A Shares of a Fund may be exchanged for Primary A Shares of any other Nations Fund. In some cases, the only Money Market Fund option is Trust Class Shares of Nations Reserves Money Market Funds. (b) From time to time, the Board of Trustees of the Trust may modify, or ratify modifications to, the exchange privileges of Primary A Shares of a Fund without amending this Plan, provided that such exchange privileges, as modified, are described in the then-current prospectus for such shares of such Fund. 7. Other Shareholder Services: None B. Primary B Shares -- LifeGoal Portfolios Only 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution Fees: None 4. Maximum Shareholder Administration Fees: Pursuant to a Shareholder Administration Plan, the Primary B Shares of the Funds each may pay shareholder administration fees of up to 0.60% of the average daily net assets of such shares, provided that in no event may the portion of such fee that constitutes a "service fee," as that term is defined in Rule 2830 of the Conduct Rules of the National Association of Securities Dealers, Inc., exceed 0.25% of the average daily net asset value of such Primary B Shares of a Fund. 5. Conversion Features: Primary B Shares of a Fund shall have such conversion features, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Fund. 6. Exchange Privileges: (a) Primary B Shares of a Fund may be exchanged for Primary B Shares of any other Nations Fund. (b) From time to time, the Board of Trustees of the Trust may modify, or ratify modifications to, the exchange privileges of Primary B Shares of a Fund without amending this Plan, provided that such exchange privileges, as modified, are described in the then-current prospectus for such shares of such Fund. 4 7. Other Shareholder Services: None C. Investor A Shares -- Nations MidCap Index Fund Only. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge: None 3. Maximum Rule 12b-1 Distribution/Shareholder Servicing Fees: None 4. Conversion Features: None 5. Exchange Privileges: (a) Investor A Shares of Nations MidCap Index Fund may be exchanged for Investor A Shares of any other Nations Index Fund. (b) From time to time, the Board of Trustees of the Trust may modify, or ratify modifications to, the exchange privileges of Investor A Shares of the Fund without amending this Plan, provided that such exchange privileges, as modified, are described in the then-current prospectus for such shares of such Fund. 6. Other Shareholder Services. The Trust offers a Systematic Investment Plan, an Automatic Withdrawal Plan and an Automatic Exchange Feature to holders of Investor A Shares of Nations MidCap Index Fund. D. Investor A Shares-- All Funds other than Nations MidCap Index Fund. 1. Maximum Initial Sales Load: (a) Nations High Yield Bond Fund and Nations Government Securities Fund: maximum of 4.75%. (b) Nations Kansas Municipal Income Fund: maximum of 3.25%. (c) Nations Marsico 21st Century Fund, Nations Marsico International Opportunities Fund, Nations Financial Services Fund, Nations Classic Value Fund, Nations Global Value Fund, Nations Asset Allocation Fund, Nations Marsico Focused Equities Fund, Nations Marsico Growth & Income Fund, Nations LifeGoal Growth Portfolio, Nations LifeGoal Balanced Growth Portfolio and Nations LifeGoal Income and Growth Portfolio: maximum of 5.75%. 5 2. Contingent Deferred Sales Charge (as a percentage of the lower of the original purchase price or redemption proceeds): 1.00% of purchases made on or after August 1, 1999 in amounts over $1 million if redeemed within 18 months of purchase and eliminated thereafter. 3. Maximum Rule 12b-1 Distribution/Shareholder Servicing Fees: Pursuant to a Shareholder Servicing and Distribution Plan adopted under Rule 12b-1, Investor A Shares of each Fund other than Nations MidCap Index Fund may pay a combined distribution and shareholder servicing fee of up to 0.25% of the average daily net assets of such shares. 4. Conversion Features: Investor A Shares of a Fund shall have such conversion features, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Fund. 5. Exchange Privileges: (a) Investor A Shares of each Fund other than Nations MidCap Index Fund may be exchanged for Investor A Shares of any other Nations Fund, except Index Funds. (b) From time to time, the Board of Trustees of the Trust may modify, or ratify modifications to, the exchange privileges of Investor A Shares of a Fund without amending this Plan, provided that such exchange privileges, as modified, are described in the then-current prospectus for such shares of such Fund. 6. Other Shareholder Services. The Trust offers a Systematic Investment Plan, an Automatic Withdrawal Plan and an Automatic Exchange Feature to holders of Investor A Shares of the Funds. E. Investor B Shares -- All Funds. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge (as a percentage of the lower of the original purchase price or redemption proceeds): (a) All Funds other than Nations Kansas Municipal Income Fund: 5.00% if redeemed within one year of purchase, declining to 1.00% in the sixth year after purchase and eliminated thereafter. (b) Nations Kansas Municipal Income Fund: 3.00% if redeemed within one year of purchase, declining to 1.00% in the fourth year after purchase and eliminated thereafter. 6 3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution Plan adopted under Rule 12b-1, Investor B Shares of each Fund may pay distribution fees of up to 0.75% of the average daily net assets of such shares. 4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder Servicing Plan, Investor B Shares of each Fund may pay shareholder servicing fees of up to 0.25% of the average daily net assets of such shares. 5. Conversion Features: Investor B Shares of each Fund shall have such conversion features, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Fund. 6. Exchange Privileges: (a) Investor B Shares of each Fund may be exchanged for Investor B Shares of any other Nations Fund, except Money Market Funds. (b) Investor B Shares of each Fund may be exchanged for Investor B Shares of any Nations Reserves Money Market Fund. (c) From time to time, the Board of Trustees of the Trust may modify, or ratify modifications to, the exchange privileges of Investor B Shares of a Fund without amending this Plan, provided that such exchange privileges, as modified, are described in the then-current prospectus for such shares of such Fund. 7. Other Shareholder Services: The Trust offers a Systematic Investment Plan, an Automatic Withdrawal Plan and an Automatic Exchange Feature to holders of Investor B Shares of each Fund. F. Investor C Shares -- All Funds. 1. Maximum Initial Sales Load: None 2. Contingent Deferred Sales Charge (as a percentage of the lower of the original purchase price or redemption proceeds): 1.00% if redeemed within one year of purchase and eliminated thereafter. 3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a Distribution Plan adopted under Rule 12b-1, Investor C Shares of each Fund may pay distribution fees of up to 0.75% of the average daily net assets of such shares. 7 4. Maximum Shareholder Servicing Fees: Pursuant to a Shareholder Servicing Plan, Investor C Shares of each Fund may pay shareholder servicing fees of up to 0.25% of the average daily net assets of such shares. 5. Conversion Features: Investor C Shares of a Fund shall have such conversion features, if any, as are determined by or ratified by the Board of Trustees of the Trust and described in the then-current prospectus for such shares of such Fund. 6. Exchange Privileges: (a) Investor C Shares of each Fund may be exchanged for Investor C Shares of any other Nations Fund, except Money Market Funds. (b) Investor C Shares of each Fund may be exchanged for Investor C Shares of any Nations Reserves Money Market Fund. (c) Investor C Shares of each Fund that were originally obtained in an exchange of Investor A Shares of a Managed Index Fund for Investor C Shares of such Fund may be exchanged for Investor A Shares of any Index Fund. (d) From time to time, the Board of Trustees of the Trust may modify, or ratify modifications to, the exchange privileges of Investor C Shares of a Fund without amending this Plan, provided that such exchange privileges, as modified, are described in the then-current prospectus for such shares of such Fund. 7. Other Shareholder Services. The Trust offers a Systematic Investment Plan, an Automatic Withdrawal Plan and an Automatic Exchange Feature to holders of Investor C Shares. IV. Board Review. The Board of Trustees of the Trust shall review this Plan as frequently as it deems necessary. Prior to any material amendment(s) to this Plan, the Board of Trustees of the Trust, including a majority of the Trustees who are not interested persons of the Trust, shall find that the Plan, as proposed to be amended (including any proposed amendments to the method of allocating class and/or fund expenses), is in the best interests of each class of shares of the Fund individually and the Fund as a whole. In considering whether to approve any proposed amendment(s) to the Plan, the Trustees of the Trust shall request and evaluate such information as they consider reasonably necessary to evaluate the proposed amendment(s) to the Plan. Adopted: December 9, 1999 Last Amended: June 8, 2001 8 EX-99.23(P)(5) 23 ex99-23p5_87612.txt CHICAGO EQUITY CODE Title: CHICAGO EQUITY PARTNERS CODE OF ETHICS Section: GENERAL Ref. No.: A-01 Adopted/Revised: May 1, 2000 ================================================================================ Under the terms of the Investment Advisers Act of 1940, Chicago Equity Partners LLC (Chicago Equity Partners) has a fiduciary relationship in providing investment management services to its clients. This Code of Ethics shall govern all associates and directors of Chicago Equity Partners. General Policy Associates shall conduct themselves with integrity and act ethically in their dealings with clients, the public and fellow associates. All associates will comply with the AIMR Code of Ethics (Exhibit A). Compliance with Laws and Regulations Associates shall maintain knowledge of and shall comply with all applicable laws and regulations of any governing agency or self-regulatory organization, and shall comport himself or herself in conformity with standards or conduct promulgated by applicable professional or financial organizations. Prohibition Against Use of Material Nonpublic Information Associates shall comply with all government laws and regulations and Chicago Equity Partners' policies and procedures relating to the use and communication of material nonpublic information. Associates shall not trade securities while in possession of, nor communicate, material nonpublic information in breach of a duty, or if the information is misappropriated. - -------------------------------------------------------------------------------- Page 1 of 3 Responsibility of Management and Associates Management of Chicago Equity Partners shall establish, maintain and enforce this Code of Ethics and relevant policies and procedures designed to implement the standards hereunder, to prevent the breach of any applicable laws and regulations. Compliance is an individual responsibility. Failure to comply with all rules and regulations will result in penalties up to and including termination. Investment Management Associates of Chicago Equity Partners engaged in any facet of investment management of client accounts shall exercise diligence and thoroughness in making investment recommendations, avoiding material misrepresentations, and maintaining records to support the reasonableness of any such actions. Such associates shall deal fairly with all clients in disseminating investment recommendations and taking investment actions. Priority of Transactions Associates shall ensure that transactions for clients shall have priority over transactions in securities or other investments in which associates have beneficial interests. Management of Chicago Equity Partners shall take appropriate measures to ensure that all associates abide by the highest ethical standards, in conformity with all applicable government laws and regulations, as well as Chicago Equity Partners' policies and procedures Conflicts of Interest Associates shall make every effort to avoid even the appearance of conflict of interest in the conduct of their duties. Associates of Chicago Equity Partners shall disclose to clients any conflict of interest. Preservation of Confidentiality Associates shall preserve the confidentiality of information communicated by the client concerning matters within the scope of the confidential relationship. - -------------------------------------------------------------------------------- Page 2 of 3 Professional Misconduct Associates shall not commit any felony or other criminal act that upon conviction materially reflects adversely on his/her honesty or trustworthiness, nor shall he or she engage in conduct involving dishonesty, fraud, deceit or misrepresentation. - -------------------------------------------------------------------------------- Page 3 of 3 -----END PRIVACY-ENHANCED MESSAGE-----